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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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

For the quarterly period ended June 30, 2007



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

For the transition period from  to

Commission File Number 000-24051



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UNITED PANAM
FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 94-3211687                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. 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)



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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x                Non-accelerated filer ̈

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

The number of shares outstanding of the Registrants Common Stock as of July 31, 2007 was 15,732,192 shares.



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UNITED PANAM FINANCIAL CORP.

FORM 10-Q

June 30, 2007

INDEX



|                              |  |                                                                                                            |  |     
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                            |  | Page
|                              |  | Cautionary Statement                                                                                       |  | 1   
|                              | 
|PART I. FINANCIAL INFORMATION |  |                                                                                                           
|                              |  |                                                                                                           
|Item 1.                       |  | Financial Statements                                                                                       |  |     
|                              |  |                                                                                                           
|                              |  | Consolidated Statements of Financial Condition as of June 30, 2007 and December 31, 2006                   |  | 2   
|                              |  |                                                                                                           
|                              |  | Consolidated Statements of Income for the three and six months ended June 30, 2007 and 2006                |  | 3   
|                              |  |                                                                                                           
|                              |  | Consolidated Statements of Changes in Shareholders Equity for the six months ended June 30, 2007 and 2006 |  | 4   
|                              |  |                                                                                                           
|                              |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006                      |  | 5   
|                              |  |                                                                                                           
|                              |  | Notes to Consolidated Financial Statements                                                                 |  | 6   
|                              |  |                                                                                                           
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 14  
|                              |  |                                                                                                           
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 26  
|                              |  |                                                                                                           
|Item 4.                       |  | Controls and Procedures                                                                                    |  | 26  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                           
|                              |  |                                                                                                           
|Item 1.                       |  | Legal Proceedings                                                                                          |  | 27  
|                              |  |                                                                                                           
|Item 1A.                      |  | Risk Factors                                                                                               |  | 27  
|                              |  |                                                                                                           
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                |  | 27  
|                              |  |                                                                                                           
|Item 3.                       |  | Defaults Upon Senior Securities                                                                            |  | 27  
|                              |  |                                                                                                           
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                        |  | 27  
|                              |  |                                                                                                           
|Item 5.                       |  | Other Information                                                                                          |  | 27  
|                              |  |                                                                                                           
|Item 6.                       |  | Exhibits                                                                                                   |  | 27  



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CAUTIONARY STATEMENT

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



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition



|                                                                                                                                            |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                            |  | June 30, 2007 |         |   | December 31,2006 |  
|(Dollars in thousands)                                                                                                                      |  | (Unaudited)   |         |   | (Audited)        |  
|Assets                                                                                                                                      |  |               |         |   |                  |   |         |  
|Cash                                                                                                                                        |  | $             | 9,370   |   |                  | $ | 8,389   |  
|Short term investments                                                                                                                      |  |               | 5,619   |   |                  |   | 19,905  |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                   |  |               | 14,989  |   |                  |   | 28,294  |  
|Restricted cash                                                                                                                             |  |               | 80,814  |   |                  |   | 67,987  |  
|Loans                                                                                                                                       |  |               | 873,561 |   |                  |   | 774,075 |  
|Allowance for loan losses                                                                                                                   |  |               | (41,713 | ) |                  |   | (36,037 | )
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Loans, net                                                                                                                                  |  |               | 831,848 |   |                  |   | 738,038 |  
|Premises and equipment, net                                                                                                                 |  |               | 6,583   |   |                  |   | 5,034   |  
|Interest receivable                                                                                                                         |  |               | 9,475   |   |                  |   | 9,018   |  
|Other assets                                                                                                                                |  |               | 29,149  |   |                  |   | 31,118  |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                |  | $             | 972,858 |   |                  | $ | 879,489 |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Liabilities and Shareholders Equity                                                                                                        |  |               |         |   |                  |   |         |  
|Securitization notes payable                                                                                                                |  | $             | 761,595 |   |                  | $ | 698,337 |  
|Warehouse line of credit                                                                                                                    |  |               | 28,518  |   |                  |   |        |  
|Accrued expenses and other liabilities                                                                                                      |  |               | 11,464  |   |                  |   | 10,977  |  
|Junior subordinated debentures                                                                                                              |  |               | 10,310  |   |                  |   | 10,310  |  
|Residual line of credit                                                                                                                     |  |               | 5,183   |   |                  |   |        |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                           |  |               | 817,070 |   |                  |   | 719,624 |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Preferred stock (no par value):                                                                                                             |  |               |         |   |                  |   |         |  
|Authorized, 2,000,000 shares; no shares issued and outstanding at June 30, 2007 and December 31, 2006                                       |  |               |        |   |                  |   |        |  
|Common stock (no par value):                                                                                                                |  |               |         |   |                  |   |         |  
|Authorized, 30,000,000 shares; 15,732,192 and 16,713,838 shares issued and outstanding at June 30, 2007 and December 31, 2006,
respectively |  |               | 48,874  |   |                  |   | 60,614  |  
|Retained earnings                                                                                                                           |  |               | 106,914 |   |                  |   | 99,251  |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                  |  |               | 155,788 |   |                  |   | 159,865 |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                  |  | $             | 972,858 |   |                  | $ | 879,489 |  
|                                                                                                                                            |  |               |         |   |                  |   |         |  

See notes to the consolidated financial statements



2



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited)



|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|---------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------- |  | - | ------ | -
|                                                                       |  | Three Months EndedJune 30, |        | Six Months EndedJune 30, |  
|(In thousands, except per share data)                                  |  | 2007                       |        | 2006                     |   | 2007   |  | 2006 |        
|Interest Income                                                        |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Loans                                                                  |  | $                          | 56,019 |                          | $ | 47,514 |  | $    | 108,298 |  | $ | 91,032 |  
|Short term investments and restricted cash                             |  |                            | 1,036  |                          |   | 711    |  |      | 1,981   |  |   | 1,297  |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Total interest income                                                  |  |                            | 57,055 |                          |   | 48,225 |  |      | 110,279 |  |   | 92,329 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Interest Expense                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Securitization notes payable                                           |  |                            | 8,551  |                          |   | 5,695  |  |      | 17,751  |  |   | 11,632 |  
|Warehouse line of credit                                               |  |                            | 2,763  |                          |   | 2,488  |  |      | 3,866   |  |   | 3,882  |  
|Other interest expense                                                 |  |                            | 288    |                          |   | 205    |  |      | 498     |  |   | 396    |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Total interest expense                                                 |  |                            | 11,602 |                          |   | 8,388  |  |      | 22,115  |  |   | 15,910 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Net interest income                                                    |  |                            | 45,453 |                          |   | 39,837 |  |      | 88,164  |  |   | 76,419 |  
|Provision for loan losses                                              |  |                            | 14,024 |                          |   | 9,741  |  |      | 28,505  |  |   | 16,539 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Net interest income after provision for loan losses                    |  |                            | 31,429 |                          |   | 30,096 |  |      | 59,659  |  |   | 59,880 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Non-interest Income                                                    |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Redemption of preferred stock-investment in AirTime Technologies, Inc. |  |                            |       |                          |   |       |  |      |        |  |   | 520    |  
|Other non-interest income                                              |  |                            | 500    |                          |   | 284    |  |      | 847     |  |   | 548    |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Total non-interest income                                              |  |                            | 500    |                          |   | 284    |  |      | 847     |  |   | 1,068  |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Non-interest Expense                                                   |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Compensation and benefits                                              |  |                            | 15,594 |                          |   | 12,470 |  |      | 30,933  |  |   | 24,694 |  
|Occupancy                                                              |  |                            | 2,263  |                          |   | 1,787  |  |      | 4,446   |  |   | 3,464  |  
|Other non-interest expense                                             |  |                            | 6,345  |                          |   | 4,761  |  |      | 12,356  |  |   | 10,139 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Total non-interest expense                                             |  |                            | 24,202 |                          |   | 19,018 |  |      | 47,735  |  |   | 38,297 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Income from continuing operations before income taxes                  |  |                            | 7,727  |                          |   | 11,362 |  |      | 12,771  |  |   | 22,651 |  
|Income taxes                                                           |  |                            | 3,090  |                          |   | 4,652  |  |      | 5,108   |  |   | 9,168  |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Income from continuing operations                                      |  |                            | 4,637  |                          |   | 6,710  |  |      | 7,663   |  |   | 13,483 |  
|Loss from discontinued operations, net of tax                          |  |                            |       |                          |   |       |  |      |        |  |   | (684   | )
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Net income                                                             |  | $                          | 4,637  |                          | $ | 6,710  |  | $    | 7,663   |  | $ | 12,799 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Earnings (loss) per share-basic:                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Continuing operations                                                  |  | $                          | 0.29   |                          | $ | 0.38   |  | $    | 0.48    |  | $ | 0.77   |  
|Discontinued operations                                                |  |                            |       |                          |   |       |  |      |        |  |   | (0.04  | )
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Net income                                                             |  | $                          | 0.29   |                          | $ | 0.38   |  | $    | 0.48    |  | $ | 0.73   |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Weighted average basic shares outstanding                              |  |                            | 15,803 |                          |   | 17,797 |  |      | 16,121  |  |   | 17,479 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Earnings (loss) per share-diluted:                                     |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Continuing operations                                                  |  | $                          | 0.28   |                          | $ | 0.35   |  | $    | 0.46    |  | $ | 0.71   |  
|Discontinued operations                                                |  |                            |       |                          |   |       |  |      |        |  |   | (0.04  | )
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Net income                                                             |  | $                          | 0.28   |                          | $ | 0.35   |  | $    | 0.46    |  | $ | 0.67   |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  
|Weighted average diluted shares outstanding                            |  |                            | 16,494 |                          |   | 19,283 |  |      | 16,766  |  |   | 19,119 |  
|                                                                       |  |                            |        |                          |   |        |  |      |         |  |   |        |  

See notes to the consolidated financial statements



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Shareholders Equity

(Unaudited)



|                                       |  |                        |   |  |             |         |   |                  |   |                                  |  |   |                          |   |  |   |         |  
|-------------------------------------- |  | ---------------------- | - |  | ----------- | ------- | - | ---------------- | - | -------------------------------- |  | - | ------------------------ | - |  | - | ------- | -
|                                       |  | Number ofShares        |   |  | CommonStock |         |   | RetainedEarnings |   | UnrealizedLoss OnSecurities, Net |  |   | TotalShareholdersEquity |  
|                                       |  | (Dollars in thousands) |  
|Balance, December 31, 2005             |  | 17,120,250             |   |  | $           | 76,054  |   |                  | $ | 80,182                           |  | $ | (1,321                   | ) |  | $ | 154,915 |  
|Net income                             |  |                       |   |  |             |        |   |                  |   | 12,799                           |  |   |                         |   |  |   | 12,799  |  
|Exercise of stock options, net         |  | 658,680                |   |  |             | (9,389  | ) |                  |   |                                 |  |   |                         |   |  |   | (9,389  | )
|Tax effect of exercised stock options  |  |                       |   |  |             | 11,128  |   |                  |   |                                 |  |   |                         |   |  |   | 11,128  |  
|Stock-based compensation expense       |  |                       |   |  |             | 1,093   |   |                  |   |                                 |  |   |                         |   |  |   | 1,093   |  
|Loss on disposition of securities, net |  |                       |   |  |             |        |   |                  |   |                                 |  |   | 1,321                    |   |  |   | 1,321   |  
|                                       |  |                        |   |  |             |         |   |                  |   |                                  |  |   |                          |   |  |   |         |  
|Balance, June 30, 2006                 |  | 17,778,930             |   |  | $           | 78,886  |   |                  | $ | 92,981                           |  | $ |                         |   |  | $ | 171,867 |  
|                                       |  |                        |   |  |             |         |   |                  |   |                                  |  |   |                          |   |  |   |         |  
|Balance, December 31, 2006             |  | 16,713,838             |   |  | $           | 60,614  |   |                  | $ | 99,251                           |  | $ |                         |   |  | $ | 159,865 |  
|Net income                             |  |                       |   |  |             |        |   |                  |   | 7,663                            |  |   |                         |   |  |   | 7,663   |  
|Exercise of stock options, net         |  | 31,567                 |   |  |             | 143     |   |                  |   |                                 |  |   |                         |   |  |   | 143     |  
|Tax effect of exercised stock options  |  |                       |   |  |             | 112     |   |                  |   |                                 |  |   |                         |   |  |   | 112     |  
|Repurchase of common stock             |  | (1,013,213             | ) |  |             | (13,188 | ) |                  |   |                                 |  |   |                         |   |  |   | (13,188 | )
|Stock-based compensation expense       |  |                       |   |  |             | 1,193   |   |                  |   |                                 |  |   |                         |   |  |   | 1,193   |  
|                                       |  |                        |   |  |             |         |   |                  |   |                                  |  |   |                          |   |  |   |         |  
|Balance, June 30, 2007                 |  | 15,732,192             |   |  | $           | 48,874  |   |                  | $ | 106,914                          |  | $ |                         |   |  | $ | 155,788 |  
|                                       |  |                        |   |  |             |         |   |                  |   |                                  |  |   |                          |   |  |   |         |  

See notes to the consolidated financial statements



4



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                  |  |                          |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                  |  | Six Months EndedJune 30, |         
|(Dollars in thousands)                                                                            |  | 2007                     |          |   | 2006 |  
|Cash Flows from Operating Activities:                                                             |  |                          |          |   |      |   |          |  
|Income from continuing operations                                                                 |  | $                        | 7,663    |   |      | $ | 13,483   |  
|Reconciliation of income from continuing operations to net cash provided by operating activities: |  |                          |          |   |      |   |          |  
|Provision for loan losses                                                                         |  |                          | 28,505   |   |      |   | 16,539   |  
|Accretion of discount on loans                                                                    |  |                          | (13,521  | ) |      |   | (11,436  | )
|Depreciation and amortization                                                                     |  |                          | 1,175    |   |      |   | 886      |  
|Stock-based compensation                                                                          |  |                          | 1,193    |   |      |   | 1,093    |  
|Tax benefit from stock-based compensation                                                         |  |                          | (477     | ) |      |   | (442     | )
|Increase in accrued interest receivable                                                           |  |                          | (457     | ) |      |   | (641     | )
|Decrease (increase) in other assets                                                               |  |                          | 1,969    |   |      |   | (11,326  | )
|Decrease in accrued expenses and other liabilities                                                |  |                          | 487      |   |      |   | 118      |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities of continuing operations                                |  |                          | 26,537   |   |      |   | 8,274    |  
|Loss from discontinued operations                                                                 |  |                          |         |   |      |   | (684     | )
|                                                                                                  |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                                                         |  |                          | 26,537   |   |      |   | 7,590    |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                                             |  |                          |          |   |      |   |          |  
|Purchases, net of repayments, of loans                                                            |  |                          | (108,794 | ) |      |   | (99,897  | )
|Change in assets of discontinued operations                                                       |  |                          |         |   |      |   | 496,639  |  
|Purchase of premises and equipment                                                                |  |                          | (2,724   | ) |      |   | (1,695   | )
|                                                                                                  |  |                          |          |   |      |   |          |  
|Net cash (used in) provided by investing activities                                               |  |                          | (111,518 | ) |      |   | 395,047  |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                                             |  |                          |          |   |      |   |          |  
|Change in liabilities of discontinued operations                                                  |  |                          |         |   |      |   | (459,519 | )
|Proceeds from warehouse line of credit                                                            |  |                          | 277,898  |   |      |   | 215,613  |  
|Repayments of warehouse line of credit                                                            |  |                          | (249,380 | ) |      |   | (251,074 | )
|Proceeds from residual line of credit                                                             |  |                          | 10,283   |   |      |   |         |  
|Repayments of residual line of credit                                                             |  |                          | (5,100   | ) |      |   |         |  
|Proceeds from securitization                                                                      |  |                          | 250,000  |   |      |   | 242,000  |  
|Payments on securitization notes payable                                                          |  |                          | (186,742 | ) |      |   | (146,569 | )
|Increase in restricted cash                                                                       |  |                          | (12,827  | ) |      |   | (12,066  | )
|Proceeds from exercise of stock options                                                           |  |                          | 255      |   |      |   | 2,832    |  
|Repurchase of common stock                                                                        |  |                          | (13,188  | ) |      |   |         |  
|Tax benefit from stock-based compensation                                                         |  |                          | 477      |   |      |   | 442      |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                               |  |                          | 71,676   |   |      |   | (408,341 | )
|                                                                                                  |  |                          |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                                         |  |                          | (13,305  | ) |      |   | (5,704   | )
|Cash and cash equivalents at beginning of period                                                  |  |                          | 28,294   |   |      |   | 21,295   |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                        |  | $                        | 14,989   |   |      | $ | 15,591   |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Supplemental Disclosures of Cash Payments Made for:                                               |  |                          |          |   |      |   |          |  
|Interest                                                                                          |  | $                        | 21,847   |   |      | $ | 12,001   |  
|                                                                                                  |  |                          |          |   |      |   |          |  
|Income taxes                                                                                      |  | $                        | 3,606    |   |      | $ | 8,782    |  
|                                                                                                  |  |                          |          |   |      |   |          |  

See notes to the consolidated financial statements



5



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)



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

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

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

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

At June 30, 2007, UACC was a direct wholly-owned subsidiary of the Company, and United Auto Business Operations, LLC
(UABO), 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. | Discontinued Operations
|-- | -----------------------

On March 30, 2006,
the Company discontinued its operations related to its investment segment and sold its investment securities portfolio to focus solely on its automobile finance business and to provide additional transparency to the public regarding the actual
returns of its automobile finance operations. The Company had maintained its investment securities portfolio to generate a reasonable rate of return on the Companys equity capital. Prior to the completion of this sale, the Companys
investment securities portfolio consisted of $276.0 million in investment securities, and was financed with $262.1 million of repurchase agreements. The Company satisfied these repurchase agreements with the proceeds of this sale.

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



|                                     |  |                             |   |                           |   |      |  |      |   |  |   |       |  
|------------------------------------ |  | --------------------------- | - | ------------------------- | - | ---- |  | ---- | - |  | - | ----- | -
|(Dollars in thousands)               |  | Three Months Ended June 30, |   | Six Months Ended June 30, |  
|                                     |  | 2007                        |   | 2006                      |   | 2007 |  | 2006 |  
|Revenue from discontinued operations |  | $                           |  |                           | $ |     |  | $    |  |  | $ | 4,782 |  
|Expense from discontinued operations |  | $                           |  |                           | $ |     |  | $    |  |  | $ | 5,922 |  
|Loss from discontinued operations    |  | $                           |  |                           | $ |     |  | $    |  |  | $ | (684  | )



|3. | Basis of Presentation
|-- | ---------------------

The consolidated financial
statements include the accounts of the Company and all subsidiaries including certain special purpose financing trusts utilized in securitization transactions, which are considered variable interest entities. 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



6



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##### Table of Contents

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, 2006. In preparing these consolidated financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those
estimates. Significant estimates and assumptions included in the Companys consolidated financial statements relate to the allowance for loan losses, estimates of loss contingencies, accruals and stock-based compensation forfeiture rates.
Certain amounts in the 2006 consolidated financial statements have been reclassified to conform with the consolidated financial statement presentation in 2007.



|4. | Recent Accounting Developments
|-- | ------------------------------

In February 2007,
the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (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. 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.



|5. | Restricted Cash
|-- | ---------------

Restricted cash relates to $35.7
million of deposits held as collateral for securitized obligations and warehouse liabilities at June 30, 2007 compared with $29.9 million at December 31, 2006. Additionally, $45.1 million at June 30, 2007 relates to cash that is in
process of being applied to the pay down of securitized obligations and warehouse liabilities compared with $38.1 million at December 31, 2006.



|6. | Loans
|-- | -----

Loans are summarized as follows:



|                                                                               |  |                        |         |   |                   |   |         |  
|------------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                               |  | June 30, 2007          |         |   | December 31, 2006 |  
|                                                                               |  | (Dollars in thousands) |        
|Loans securitized                                                              |  | $                      | 830,460 |   |                   | $ | 768,012 |  
|Loans unsecuritized                                                            |  |                        | 90,377  |   |                   |   | 48,019  |  
|Unearned finance charges                                                       |  |                        | (2,199  | ) |                   |   | (2,507  | )
|Unearned acquisition discount                                                  |  |                        | (45,077 | ) |                   |   | (39,449 | )
|Allowance for loan losses                                                      |  |                        | (41,713 | ) |                   |   | (36,037 | )
|                                                                               |  |                        |         |   |                   |   |         |  
|Total loans, net                                                               |  | $                      | 831,848 |   |                   | $ | 738,038 |  
|                                                                               |  |                        |         |   |                   |   |         |  
|Allowance for loan losses to gross loans net of unearned acquisition discounts |  |                        | 4.78    | % |                   |   | 4.66    | %
|Unearned acquisition discounts to gross loans                                  |  |                        | 4.91    | % |                   |   | 4.85    | %
|Contractual weighted average interest rate                                     |  |                        | 22.62   | % |                   |   | 22.66   | %

Loans securitized represent loans transferred to the Companys special purpose finance
subsidiaries in securitization transactions accounted for as secured financings. Loans unsecuritized include $52.7 million and $26.7 million pledged under the Companys warehouse facilities as of June 30, 2007 and December 31, 2006,
respectively.



7



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##### Table of Contents

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



|                                                 |  |                           |         |   |      |   |         |  
|------------------------------------------------ |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                 |  | Six Months Ended June 30, |        
|                                                 |  | 2007                      |         |   | 2006 |  
|                                                 |  | (Dollars in thousands)    |        
|Allowance for loan losses at beginning of period |  | $                         | 36,037  |   |      | $ | 29,110  |  
|Provision for loan losses                        |  |                           | 28,505  |   |      |   | 16,539  |  
|Net charge-offs                                  |  |                           | (22,829 | ) |      |   | (14,997 | )
|                                                 |  |                           |         |   |      |   |         |  
|Allowance for loan losses at end of period       |  | $                         | 41,713  |   |      | $ | 30,652  |  
|                                                 |  |                           |         |   |      |   |         |  

The allowance for loan losses is the estimate of probable losses in our loan portfolio for the
next twelve months as of the statement of financial condition date. The level of the allowance is based principally on historical loss trends and the remaining balance of loans. The Company believes that the allowance for loan losses is currently
adequate to absorb probable loan losses in the loans balance as of June 30, 2007 and 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.



|7. | Borrowings
|-- | ----------

Securitizations

Our securitizations are structured as on-balance-sheet transactions and recorded as secured financings because they do not meet the accounting criteria
for sale of finance receivables under FAS 140. Regular contract securitizations are an integral part of our business plan going forward in order to increase our liquidity and reduce risks associated with interest rate fluctuations. We have developed
a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. 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. Debt issuance costs are amortized over the expected term of the
securitization using the interest method. Unamortized costs of $3.5 million and $3.3 million as of June 30, 2007 and December 31, 2006, respectively, are included in other assets on the consolidated statements of financial condition.

In our securitizations to date, we transferred automobile contracts we purchased from new and used automobile dealers to a newly formed
owner trust for each transaction, which trust then issued the securitization notes payable. The net proceeds of our first securitization were used to replace the Banks deposit liabilities and the net proceeds of our subsequent securitization
transactions were used to fund our operations. At the time of securitization of our automobile contracts, we are required to pledge assets equal to a specific percentage of the securitization pool to support the securitization transaction.
Typically, the assets pledged consist of cash deposited to a restricted account known as a spread account and additional receivables delivered to the trusts, which create over-collateralization. The securitization transaction documents require the
percentage of assets pledged to support the transaction to increase over time until a specific level is attained. Excess cash flow generated by the trusts 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.
Although we do not anticipate violating any event of default triggers for our securitizations, there can be no assurance that our servicing rights with respect to the automobile receivables in the trusts will not be terminated if (i) such
targeted portfolio performance ratios are breached, (ii) we breach our obligations under the servicing agreements, (iii) the financial guaranty insurance providers are required to make payments under a policy, or (iv) certain
bankruptcy or insolvency events were to occur. The termination of any or all of our servicing rights would have a material adverse effect on our financial position, liquidity, results of operations and cash flows. As of June 30, 2007, we were
in compliance with all terms of the financial covenants related to our securitization transactions.



8



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##### Table of Contents

On June 14, 2007, The Company completed its 2007A securitization for $250 million. The
securitization had three sequential pay tranches as follows: $54,000,000 Class A-1 5.33%, $97,000,000 Class A-2 5.46%, and $99,000,000 Class A-3 5.53%.

The following table lists each of our securitizations as of June 30, 2007:



|                       |  |                    |  |                  |  |                  |           |                                    |   |        
|---------------------- |  | ------------------ |  | ---------------- |  | ---------------- | --------- | ---------------------------------- | - | -------
|Issue Number           |  | Issuance Date      |  | Maturity Date(1) |  | Original Balance |           | Remaining Balance at June 30, 2007
|(Dollars in thousands)
|2004A                  |  | September 22, 2004 |  | September 2010   |  | $                | 420,000   |                                    | $ | 41,956 
|2005A                  |  | April 14, 2005     |  | December 2010    |  | $                | 195,000   |                                    | $ | 48,186 
|2005B                  |  | November 10, 2005  |  | August 2011      |  | $                | 225,000   |                                    | $ | 87,397 
|2006A                  |  | June 15, 2006      |  | May 2012         |  | $                | 242,000   |                                    | $ | 142,394
|2006B                  |  | December 14, 2006  |  | August 2012      |  | $                | 250,000   |                                    | $ | 191,662
|2007A                  |  | June 14, 2007      |  | July 2013        |  | $                | 250,000   |                                    | $ | 250,000
|                       |  |                    |  |                  |  |                  |           |                                    |   |        
|                       |  |                    |  | Total            |  | $                | 1,582,000 |                                    | $ | 761,595
|                       |  |                    |  |                  |  |                  |           |                                    |   |        

---

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

Assets pledged to the trusts as of June 30, 2007 and December 31, 2006 are as follows:



|                          |  |                        |         |                   |   |        
|------------------------- |  | ---------------------- | ------- | ----------------- | - | -------
|                          |  | June 30, 2007          |         | December 31, 2006
|                          |  | (Dollars in thousands)
|Automobile contracts, net |  | $                      | 830,460 |                   | $ | 768,012
|Restricted cash           |  | $                      | 34,615  |                   | $ | 29,221 
|                          |  |                        |         |                   |   |        
|Total assets pledged      |  | $                      | 865,075 |                   | $ | 797,233
|                          |  |                        |         |                   |   |        

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



|                             |  |                            |         |                           |   |         |  |      |         |  |   |        
|---------------------------- |  | -------------------------- | ------- | ------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                             |  | Three Months EndedJune 30, |         | Six Months Ended June 30,
|                             |  | 2007                       |         | 2006                      |   | 2007    |  | 2006
|                             |  | (Dollars in thousands)    
|Receivables securitized      |  | $                          | 268,817 |                           | $ | 260,215 |  | $    | 268,817 |  | $ | 260,215
|Proceeds from securitization |  | $                          | 250,000 |                           | $ | 242,000 |  | $    | 250,000 |  | $ | 242,000
|Distribution from the trusts |  | $                          | 20,939  |                           | $ | 20,481  |  | $    | 41,508  |  | $ | 37,828 
|                             |  |                            |         |                           |   |         |  |      |         |  |   |        

In addition, as servicer we have the option to purchase the owner trust estate when the pool
balance falls below 10% of the original balance of loans securitized. On July 16, 2007 we have given notice that we will be exercising this option on August 15, 2007 for our 2004A securitization. We will obtain advances against these repurchased
loans under our existing warehouse facility. The purchase of the loans will release $9.4 Million of deposits held as collateral from restricted cash for the benefit of the company. In order to assist that portion of our borrowers that has been
adversely impacted by the rise in gasoline prices, we have increased our extension usage. Accordingly, as of June 30, 2007, we were in excess of extension performance targets under our current servicing agreements whereby, we repurchased $3.8
million of loans on July 13, 2007. We funded the purchase price for this repurchase by obtaining an advance under our existing warehouse facility. We anticipate that these loans will be securitized in the 2007B transaction.

As of June 30, 2007 we were in compliance with all terms of the financial covenants related to our securitization transactions.

Warehouse Facility

As of
June 30, 2007, our $300 million warehouse facility was drawn to $28.5 million, which we use to fund our automobile finance operations to purchase automobile contracts pending securitization. Under the terms of the facility, our indirect
subsidiary, UFC, may obtain advances on a revolving basis by issuing notes to the participating lenders and pledging for each advance a portfolio of automobile contracts. UFC purchases the automobile contracts from UACC and UACC services the
automobile contracts, which are held by a custodian. We have provided an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UACC and UFC under
the warehouse facility. Whether we may obtain further advances under the facility depends on, among other things, the performance of the automobile contracts that are pledged under the facility and whether we comply with certain financial covenants
contained in the sale and servicing agreement. We were in compliance with the terms of such financial covenants as of June 30, 2007. The principal and interest collected on the automobile contracts pledged is used to pay the interest due each
month on the notes to the participating lenders and any excess cash is released to UFC. As of June 30, 2007,



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##### Table of Contents

restricted cash of $1.1 million was held as collateral for the warehouse facility. Debt issuance costs are amortized over thirty-six months on a
straight-line basis. Unamortized costs of $0.4 million and $0.4 million as of June 30, 2007 and December 31, 2006, respectively, are included in other assets on the consolidated statements of financial condition. 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.
| | - |  | -----------------------------------------------------------------

Residual Credit Facility

On January 24, 2007, we closed a $26 million residual variable rate
credit facility. The facility, which allows us to initiate borrowings over the next three years, is secured by eligible residual interests in previously securitized pools of automobile receivables and certain securities issued by UARC, UAFC, and
UFC. We have provided an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UARC, UAFC and UFC under the residual credit facility. Debt
issuance costs are amortized over thirty six months on a straight-line basis. Unamortized costs of $0.3 million as of June 30, 2007 are included in other assets on the consolidated statements of financial condition. As of June 30, 2007,
the $26 million facility had a balance of $5.2 million, which was reduced to zero on July 16, 2007. As of June 30, 2007, we were in compliance with all terms of the financial covenants under the residual credit facility.



|8. | Share Repurchase Program
|-- | ------------------------

On June 27, 2006,
our Board of Directors approved a share repurchase program and authorized us to repurchase up to 500,000 shares of our outstanding common stock from time to time in the open market or in private transactions in accordance with the provisions of
applicable state and federal law, including, without limitation, Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. On August 4, 2006, our Board of Directors approved an increase in the aggregate number of shares
that we may repurchase pursuant to the previously announced share repurchase program from 500,000 shares to 1,500,000 shares. On December 21, 2006, our Board of Directors approved a second increase in the aggregate number of shares of our
outstanding common stock that we may repurchase pursuant to the previously announced share repurchase program from 1,500,000 shares to 3,500,000 shares. During the three months ended June 30, 2007, we repurchased 281,815 shares of our common
stock for an average price of $13.95 per share for an aggregate purchase price of $3.9 million. During the six months ended June 30, 2007, we repurchased 1,013,213 shares of our common stock for an average price of $12.98 per share for an
aggregate purchase price of $13.2 million. From July 24, 2006 to May 18, 2007, we have repurchased 2,089,738 shares of our common stock.



|9. | 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 fair market value on the date of grant. Options generally vest
over a one to five year period and have a maximum term of ten years. Options may be exercised by using either a standard cash exercise procedure or a cashless exercise procedure. As of June 30, 2007 there were 3,972,236 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. Prior to the adoption of SFAS No. 123(R), we
accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB Opinion No. 25 as allowed under SFAS No. 123. Under the intrinsic value method, no stock-based compensation expense had
been recognized in our consolidated statement of income, because the exercise price of our stock options granted equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately
expected to vest during the period. Stock-based compensation expense recognized in our consolidated statement of income for the three and six months ended June 30, 2007 and 2006 included compensation expense for share-based payment awards
granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123 and compensation expense for the share-based payment awards granted
subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with



10



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##### Table of Contents

the provisions of SFAS No. 123(R). As stock-based compensation expense recognized in the consolidated statement of income for the three and six months
ended June 30, 2007 and 2006 is based on awards ultimately expected to vest on a straight-line prorated basis, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, we accounted for forfeitures as they
occurred.

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

The following table summarizes stock-based compensation expense, net of tax, under SFAS No. 123(R) for the three and six months ended June 30,
2007 and 2006.



|                                             |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |       |  
|-------------------------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                             |  | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |  
|                                             |  | 2007                       |      |   | 2006                     |   |      | 2007 |  |   | 2006  |  
|                                             |  | (Dollars in thousands)     |     
|Stock-based compensation expense             |  | $                          | 623  |   |                          | $ | 515  |      |  | $ | 1,193 |   |  | $ | 1,093 |  
|Tax benefit                                  |  |                            | (249 | ) |                          |   | (211 | )    |  |   | (477  | ) |  |   | (442  | )
|                                             |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |       |  
|Stock-based compensation expense, net of tax |  | $                          | 374  |   |                          | $ | 304  |      |  | $ | 716   |   |  | $ | 651   |  
|                                             |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |       |  

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 30 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.



|                         |      |                            |           |      |                           |   |           |   |  |      |           |   |  |   |           |  
|------------------------ | ---- | -------------------------- | --------- | ---- | ------------------------- | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|(Dollars in thousands)   |      | Three Months EndedJune 30, |           |      | Six Months Ended June 30, |  
|                         | 2007 |                            |           | 2006 |                           |   | 2007      |   |  | 2006 |          
|Expected dividends       |      | $                          |          |      |                           | $ |          |   |  | $    |          |   |  | $ |          |  
|Expected volatility      |      |                            | 43.15     | %    |                           |   | 34.67     | % |  |      | 43.74     | % |  |   | 31.29     | %
|Risk-free interest rate  |      |                            | 4.71      | %    |                           |   | 5.03      | % |  |      | 4.69      | % |  |   | 4.66      | %
|Expected life (in years) |      |                            | 5.0 years |      |                           |   | 3.8 years |   |  |      | 5.0 years |   |  |   | 4.7 years |  

At June 30, 2007, there was $6.4 million of unrecognized compensation cost related to share
based compensation, which is expected to be recognized over a weighted average period of 3.24 years. A summary of option activity for the six months ended June 30, 2007 and 2006 is as follows:



|                                                                       |  |                                                  |           |      |                                 |   |        |  |   |                                 |   |  |   |      
|---------------------------------------------------------------------- |  | ------------------------------------------------ | --------- | ---- | ------------------------------- | - | ------ |  | - | ------------------------------- | - |  | - | -----
|                                                                       |  | Six Months Ended June 30,                       
|                                                                       |  | 2007                                             |           | 2006
|                                                                       |  | (Dollars in thousands, except per share amounts)
|                                                                       |  | Shares                                           |           |      | Weighted Average Exercise Price |   | Shares |  |   | Weighted Average Exercise Price
|Balance at beginning of period                                         |  |                                                  | 4,023,436 |      |                                 | $ | 14.66  |  |   | 4,574,390                       |   |  | $ | 10.07
|Granted                                                                |  |                                                  | 92,500    |      |                                 |   | 13.93  |  |   | 495,000                         |   |  |   | 29.46
|Canceled or expired                                                    |  |                                                  | (106,000  | )    |                                 |   | 21.95  |  |   | (84,400                         | ) |  |   | 20.21
|Exercised                                                              |  |                                                  | (37,700   | )    |                                 |   | 6.13   |  |   | (1,087,523                      | ) |  |   | 3.37 
|                                                                       |  |                                                  |           |      |                                 |   |        |  |   |                                 |   |  |   |      
|Balance at end of period                                               |  |                                                  | 3,972,236 |      |                                 |   | 14.54  |  |   | 3,897,467                       |   |  |   | 14.18
|                                                                       |  |                                                  |           |      |                                 |   |        |  |   |                                 |   |  |   |      
|Weighted average fair value per share of options granted during period |  | $                                                | 6.25      |      |                                 |   |        |  | $ | 9.39                            |   |  |   |      
|                                                                       |  |                                                  |           |      |                                 |   |        |  |   |                                 |   |  |   |      



11



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##### Table of Contents

At June 30, 2007, options exercisable to purchase 3,087,536 shares of our common stock under the
Plan were outstanding as follows:



|                         |  |                         |  |                          |  |                                 |       |                                                    |      |                              |           |                                                    |   |      
|------------------------ |  | ----------------------- |  | ------------------------ |  | ------------------------------- | ----- | -------------------------------------------------- | ---- | ---------------------------- | --------- | -------------------------------------------------- | - | -----
|Range of Exercise Prices |  | Number of Shares Vested |  | Number of SharesUnvested |  | Weighted Average Exercise Price |       | Weighted AverageRemaining Contractual Life (Years) |      | Number of Shares Exercisable |           | Exercisable Shares Weighted Average Exercise Price
|$0.0000 to $3.1650       |  | 16,469                  |  |                         |  | $                               | 2.35  |                                                    | 2.69 |                              | 16,469    |                                                    | $ | 2.35 
|$3.1651 to $6.3300       |  | 679,392                 |  | 1,000                    |  |                                 | 4.23  |                                                    | 3.09 |                              | 679,392   |                                                    |   | 4.23 
|$6.3301 to $9.4950       |  | 73,800                  |  | 6,900                    |  |                                 | 7.10  |                                                    | 4.14 |                              | 73,800    |                                                    |   | 7.02 
|$9.4951 to $12.6600      |  | 1,385,100               |  | 57,400                   |  |                                 | 10.29 |                                                    | 4.12 |                              | 1,385,100 |                                                    |   | 10.21
|$12.6601 to $15.8250     |  | 311,250                 |  | 58,500                   |  |                                 | 14.94 |                                                    | 4.04 |                              | 311,250   |                                                    |   | 14.89
|$15.8251 to $18.9900     |  | 126,000                 |  | 108,800                  |  |                                 | 17.69 |                                                    | 7.05 |                              | 126,000   |                                                    |   | 17.70
|$18.9901 to $22.1550     |  | 295,000                 |  | 66,500                   |  |                                 | 20.05 |                                                    | 4.33 |                              | 295,000   |                                                    |   | 20.02
|$22.1551 to $25.3200     |  | 31,400                  |  | 48,100                   |  |                                 | 23.29 |                                                    | 8.25 |                              | 31,400    |                                                    |   | 23.25
|$25.3201 to $28.4850     |  | 75,500                  |  | 84,000                   |  |                                 | 26.76 |                                                    | 8.20 |                              | 75,500    |                                                    |   | 26.43
|$28.4851 to $31.6500     |  | 93,625                  |  | 453,500                  |  |                                 | 29.93 |                                                    | 8.50 |                              | 93,625    |                                                    |   | 29.38
|                         |  |                         |  |                          |  |                                 |       |                                                    |      |                              |           |                                                    |   |      
|                         |  | 3,087,536               |  | 884,700                  |  | $                               | 14.54 |                                                    | 4.97 |                              | 3,087,536 |                                                    | $ | 11.60
|                         |  |                         |  |                          |  |                                 |       |                                                    |      |                              |           |                                                    |   |      

The weighted average remaining contractual life of outstanding options was 4.97 years at
June 30, 2007 and 5.41 at December 31, 2006.

At June 30, 2007, 25,485 shares of common stock were reserved for future
grants or issuances under the Plan. On July 10, 2007, the shareholders approved an amendment and restatement of our Amended and Restated 1997 Employee Stock Incentive Plan that would (i) extend the term of the plan through May 16,
2017, (ii) increase the number of common stock reserved for issuance under the plan from 7,750,000 to 8,500,000 and (iii) permitted certain transfers of awards granted under the Stock Incentive Plan for estate planning purposes or pursuant
to a domestic relations order.

On July 10, 2007, the Board of Directors approved restricted stock grants of 58,299 shares to the
executive officers of the company and the directors of the Board. The restricted stock grants vest at various dates.



|10. | Earnings per Share
|--- | ------------------

Basic earnings per share is
computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive
potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options. The following table reconciles the number of shares used in the computations of basic and
diluted earnings per share for the three and six months ended June 30, 2007 and 2006:



|                                                                                                 |  |                            |  |                          |  |        |  |       
|------------------------------------------------------------------------------------------------ |  | -------------------------- |  | ------------------------ |  | ------ |  | ------
|                                                                                                 |  | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|(In thousands)                                                                                   |  | 2007                       |  | 2006                     |  | 2007   |  | 2006  
|Weighted average common shares outstanding during the period to compute basic earnings per share |  | 15,803                     |  | 17,797                   |  | 16,121 |  | 17,479
|Incremental common shares attributable to exercise of outstanding options                        |  | 691                        |  | 1,486                    |  | 645    |  | 1,640 
|                                                                                                 |  |                            |  |                          |  |        |  |       
|Weighted average number of common shares used to compute diluted earnings per share              |  | 16,494                     |  | 19,283                   |  | 16,766 |  | 19,119
|                                                                                                 |  |                            |  |                          |  |        |  |       

The above calculation of diluted earnings per share excluded 1,665,000 and 350,000 average shares
for the three months ended June, 2007 and 2006, and 1,714,000 and 230,000 average shares for the six months ended June 30, 2007 and 2006, attributable to outstanding stock options because the exercise prices of the stock options were greater
than or equal to the average price of the common shares, and therefore their inclusion would have been anti-dilutive.



12



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|11. | Trust Preferred Securities
|--- | --------------------------

On July 31, 2003,
the Company issued trust preferred securities of $10.0 million through a subsidiary UPFC Trust I. The Trust issuer is a 100% owned finance subsidiary of the Company and the Company fully and unconditionally guaranteed the
securities. The Company will pay interest on these funds at a rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the rate was 8.41% as of June 30, 2007. 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.



|12. | 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.



|13. | Accounting for Uncertainty in Income Taxes
|--- | ------------------------------------------

Effective January 1, 2007, we adopted FASB Interpretation No. 48,Accounting for Uncertainties in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. As of June 30, 2007 and January 1, 2007, we had an insignificant amount of unrecognized tax benefits. Our policy is to recognize interest and penalties on unrecognized tax benefits
in income taxes in the Consolidated Statements of Income. The amount of interest and penalties for the six months ended June 30, 2007 was immaterial. The tax years subject to examination by the taxing authorities are the
years ending December 31, 2006, 2005, 2004 and 2003.



13



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

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

Overview

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

We use a warehouse line of credit and periodic securitizations
to fund our business. We currently have a warehouse line of credit in the amount of $300 million and we have closed five securitizations. We plan to price a new securitization approximately every six months. We believe that our securitization
funding strategy allows us to mitigate interest rate risk and lock in a fixed interest rate spread, since the interest received on automobile contracts and interest paid for securitization notes payable are both fixed rate arrangements. We feel this
method of funding provides us with a reliable source of funding at reasonable market rates.

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

As a
secondary platform for growth, we began to originate and service loans during the second quarter of 2007 into the states of West Virginia and Connecticut from the newly created Business Operations Unit based in Dallas, Texas. We intend, to
eventually expand operations into the states of Arkansas, Nebraska and Maine through the Business Operations Unit. We currently have no branch presence in these five states. This Business Operations Unit, with its, lower cost structure will allow us
to penetrate new markets in states where, due to interest rate caps, our traditional retail branch structure is not cost effective. We expect that the average yield for the portfolio originated in these states will be approximately 24.5% as compared
to 27.89% in our current states. We expect to offset the lower yield by increased cost efficiencies generated from operating from central location.

The Business Operations Unit uses Business Development Managers, or BDMs in the local markets to introduce the dealers to the Company and our services. The Business Operations Unit is responsible for underwriting, purchasing contracts and
collections. We believe that we can continue to provide high level of service to the dealers by providing consistent credit decisions and two to three day funding. At June 30, 2007, Business Operations Unit had five employees and two BDMs. Our
current plan is for each BDM to originate loans at twice the volume of our traditional retail branch. By following tighter underwriting guidelines from a single location, which will result in a stronger portfolio, we should offset any potential
drawback from managing collection activity from a central location rather than being local to the borrower as in our traditional retail branch. We estimate the market for our Business Operations Unit in the five states to be equivalent to 20 to 25
of our traditional retail branches.

Our long term strategy is to continue to grow originations 10% to 20% over time by growing our
traditional retail branch network and our Business Operations Unit.

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 2006 Annual Report on Form 10-K.



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

Securitization Transactions

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

As servicer of these contracts, we remit funds collected from the borrowers on behalf of the trustee to the trustee and direct the trustee 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 established systematically 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 allowances are
monitored by management based on a variety of factors including an assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of nonperforming loans, current and prospective economic conditions and other
factors. Management also undertakes a review of various quantitative and qualitative analyses. Quantitative analyses include the review of charge-off trends and evaluation of credit loss experienced by credit tier. Other quantitative analyses
include the concentration of any credit tier, the level of nonperformance and the percentage of delinquency. Qualitative analysis includes trends in charge-offs over various time periods and at various statistical midpoints and high points, the
severity of depreciated values of repossession and trends in the economy generally or in specific geographic locations.

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, on a periodic basis, 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 have applied the provisions of SAB No. 107 in our adoption of 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. In accordance with the modified prospective transition
method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not



15



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##### Table of Contents

include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) was $623,000 and $515,000 for the three
months ended June 30, 2007 and 2006, respectively, $1,193,000 and $1,093,000 for the six months ended June 30, 2007 and 2006, respectively.

Derivatives and Hedging Activities

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

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

Lending Activities

Summary of Loan Portfolio

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



|                                  |  |                        |         |   |                   |   |         |  
|--------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                  |  | June 30, 2007          |         |   | December 31, 2006 |  
|                                  |  | (Dollars in Thousands) |        
|Loans                             |  | $                      | 920,837 |   |                   | $ | 816,031 |  
|Unearned finance charges (1)      |  |                        | (2,199  | ) |                   |   | (2,507  | )
|Unearned acquisition discount (1) |  |                        | (45,077 | ) |                   |   | (39,449 | )
|Allowance for loan losses (1)     |  |                        | (41,713 | ) |                   |   | (36,037 | )
|                                  |  |                        |         |   |                   |   |         |  
|Total loans, net                  |  | $                      | 831,848 |   |                   | $ | 738,038 |  
|                                  |  |                        |         |   |                   |   |         |  

---

|(1) | See Critical Accounting Policies
|--- | -----------------------------------

Allowance for Loan Losses

Our policy is to maintain an allowance for loan losses to absorb inherent losses which may be
realized on our portfolio. These allowances are general valuation allowances for estimates for probable losses not specifically identified that will occur in the next twelve months. The total allowance for loan losses was $41.7 million at
June 30, 2007 compared with $36.0 million at December 31, 2006, representing 4.78% of loans at June 30, 2007 and 4.66% at December 31, 2006.

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



|                                            |  |                                |         |   |               |   |         |  
|------------------------------------------- |  | ------------------------------ | ------- | - | ------------- | - | ------- | -
|                                            |  | At or For the Six Months Ended |        
|                                            |  | June 30, 2007                  |         |   | June 30, 2006 |  
|                                            |  | (Dollars in Thousands)         |        
|Allowance for Loan Losses                   |  |                                |         |   |               |   |         |  
|Balance at beginning of year                |  | $                              | 36,037  |   |               | $ | 29,110  |  
|Provision for loan losses (1)               |  |                                | 28,505  |   |               |   | 16.539  |  
|Net charge-offs                             |  |                                | (22,829 | ) |               |   | (14,997 | )
|                                            |  |                                |         |   |               |   |         |  
|Balance at end of year                      |  | $                              | 41,713  |   |               | $ | 30,652  |  
|                                            |  |                                |         |   |               |   |         |  
|Annualized net charge-offs to average loans |  |                                | 5.32    | % |               |   | 4.23    | %
|Ending allowance to period end loans        |  |                                | 4.78    | % |               |   | 4.20    | %

---

|(1) | See Critical Accounting Policies
|--- | -----------------------------------



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##### Table of Contents

Past Due and Nonaccrual Loans

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



|                   |  |                        |       |                 |                   |   |         |               |                 |  |      |         |  |                 |       |  |      |  
|------------------ |  | ---------------------- | ----- | --------------- | ----------------- | - | ------- | ------------- | --------------- |  | ---- | ------- |  | --------------- | ----- |  | ---- | -
|                   |  | June 30, 2007          |       |                 | December 31, 2006 |   |         | June 30, 2006 |                
|                   |  | (Dollars in Thousands) |      
|Loan Delinquencies |  | Balance                |       | % of TotalLoans |                   |   | Balance |               | % of TotalLoans |  |      | Balance |  | % of TotalLoans |      
|30 to 59 days      |  | $                      | 4,828 |                 | 0.53              | % |         | $             | 4,898           |  | 0.60 | %       |  | $               | 4,129 |  | 0.54 | %
|60 to 89 days      |  |                        | 1,801 |                 | 0.20              | % |         |               | 1,678           |  | 0.21 | %       |  |                 | 1,496 |  | 0.19 | %
|90+ days           |  |                        | 712   |                 | 0.07              | % |         |               | 966             |  | 0.12 | %       |  |                 | 696   |  | 0.09 | %
|                   |  |                        |       |                 |                   |   |         |               |                 |  |      |         |  |                 |       |  |      |  
|Total              |  | $                      | 7,341 |                 | 0.80              | % |         | $             | 7,542           |  | 0.93 | %       |  | $               | 6,321 |  | 0.82 | %
|                   |  |                        |       |                 |                   |   |         |               |                 |  |      |         |  |                 |       |  |      |  

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

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



|                                                                                |  |                        |        |   |                   |   |        |               |  |   |        |  
|------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ------ | ------------- |  | - | ------ | -
|                                                                                |  | June 30, 2007          |        |   | December 31, 2006 |   |        | June 30, 2006 | 
|                                                                                |  | (Dollars in Thousands) |       
|Nonaccrual loans                                                                |  | $                      | 13,999 |   |                   | $ | 13,314 |               |  | $ | 10,657 |  
|Nonaccrual loans to gross loans                                                 |  |                        | 1.52   | % |                   |   | 1.64   | %             |  |   | 1.39   | %
|Allowance for loan losses to gross loans, net of unearned acquisition discounts |  |                        | 4.78   | % |                   |   | 4.66   | %             |  |   | 4.20   | %

Cumulative Losses for Contract Pools

The following table reflects our cumulative losses (i.e., net charge-offs as a percent of original net contract balances) for contract pools (defined as
the total dollar amount of net contracts purchased in a three-month period) purchased from July 2004 through June 2007. Contract pools subsequent to March 2007 were not included in this table because the loan pools were not seasoned enough to
provide a meaningful comparison with prior periods.



|                            |  |                     |        |   |                      |   |        |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|--------------------------- |  | ------------------- | ------ | - | -------------------- | - | ------ | ------------------- |  | - | ------------------- | - |  | ------------------- | ------- | - | --------------------- | - | ------- | ------------------- |  | - | ------------------- | - |  | ------------------- | ------- | - | --------------------- | - | ------- | ------------------- |  | - | ------------------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|Number of MonthsOutstanding |  | Apr. 2004Jun. 2004 |        |   | Jul. 2004Sept. 2004 |   |        | Oct. 2004Dec. 2004 |  |   | Jan. 2005Mar. 2005 |   |  | Apr. 2005Jun. 2005 |         |   | Jul. 2005 Sept. 2005 |   |         | Oct. 2005Dec. 2005 |  |   | Jan. 2006Mar. 2006 |   |  | Apr. 2006Jun. 2006 |         |   | Jul. 2006 Sept. 2006 |   |         | Oct. 2006Dec. 2006 |  |   | Jan. 2007Mar. 2007 |  
|1                           |  |                     | 0.00   | % |                      |   | 0.00   | %                   |  |   | 0.00                | % |  |                     | 0.00    | % |                       |   | 0.00    | %                   |  |   | 0.00                | % |  |                     | 0.00    | % |                       |   | 0.00    | %                   |  |   | 0.00                | % |  |   | 0.00    | % |  |   | 0.00    | % |  |   | 0.00    | %
|4                           |  |                     | 0.04   | % |                      |   | 0.08   | %                   |  |   | 0.05                | % |  |                     | 0.03    | % |                       |   | 0.06    | %                   |  |   | 0.12                | % |  |                     | 0.05    | % |                       |   | 0.02    | %                   |  |   | 0.06                | % |  |   | 0.09    | % |  |   | 0.10    | % |  |   | 0.05    | %
|7                           |  |                     | 0.45   | % |                      |   | 0.65   | %                   |  |   | 0.49                | % |  |                     | 0.40    | % |                       |   | 0.64    | %                   |  |   | 0.59                | % |  |                     | 0.47    | % |                       |   | 0.40    | %                   |  |   | 0.62                | % |  |   | 0.88    | % |  |   | 0.64    | % |  |   |         |  
|10                          |  |                     | 1.33   | % |                      |   | 1.29   | %                   |  |   | 1.19                | % |  |                     | 1.35    | % |                       |   | 1.63    | %                   |  |   | 1.36                | % |  |                     | 1.28    | % |                       |   | 1.61    | %                   |  |   | 2.00                | % |  |   | 1.84    | % |  |   |         |   |  |   |         |  
|13                          |  |                     | 2.13   | % |                      |   | 2.21   | %                   |  |   | 2.41                | % |  |                     | 2.48    | % |                       |   | 2.57    | %                   |  |   | 2.37                | % |  |                     | 2.71    | % |                       |   | 2.96    | %                   |  |   | 3.13                | % |  |   |         |   |  |   |         |   |  |   |         |  
|16                          |  |                     | 2.88   | % |                      |   | 3.12   | %                   |  |   | 3.56                | % |  |                     | 3.32    | % |                       |   | 3.47    | %                   |  |   | 3.56                | % |  |                     | 4.07    | % |                       |   | 3.90    | %                   |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|19                          |  |                     | 3.87   | % |                      |   | 4.20   | %                   |  |   | 4.44                | % |  |                     | 4.21    | % |                       |   | 4.70    | %                   |  |   | 4.85                | % |  |                     | 5.01    | % |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|22                          |  |                     | 4.77   | % |                      |   | 4.95   | %                   |  |   | 5.17                | % |  |                     | 5.50    | % |                       |   | 5.95    | %                   |  |   | 5.76                | % |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|25                          |  |                     | 5.35   | % |                      |   | 5.56   | %                   |  |   | 6.12                | % |  |                     | 6.56    | % |                       |   | 6.69    | %                   |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|28                          |  |                     | 5.96   | % |                      |   | 6.31   | %                   |  |   | 7.02                | % |  |                     | 7.23    | % |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|31                          |  |                     | 6.62   | % |                      |   | 7.05   | %                   |  |   | 7.66                | % |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|34                          |  |                     | 7.20   | % |                      |   | 7.47   | %                   |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|37                          |  |                     | 7.52   | % |                      |   |        |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Original Pool ($000)        |  | $                   | 91,147 |   |                      | $ | 89,688 |                     |  | $ | 86,697              |   |  | $                   | 118,883 |   |                       | $ | 120,502 |                     |  | $ | 112,487             |   |  | $                   | 101,482 |   |                       | $ | 142,873 |                     |  | $ | 143,988             |   |  | $ | 136,167 |   |  | $ | 113,767 |   |  | $ | 164,019 |  
|                            |  |                     |        |   |                      |   |        |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Remaining Pool ($000)       |  | $                   | 12,466 |   |                      | $ | 16,043 |                     |  | $ | 19,183              |   |  | $                   | 34,251  |   |                       | $ | 40,560  |                     |  | $ | 44,878              |   |  | $                   | 47,581  |   |                       | $ | 81,348  |                     |  | $ | 93,316              |   |  | $ | 100,281 |   |  | $ | 93,419  |   |  | $ | 149,915 |  
|                            |  |                     |        |   |                      |   |        |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |                     |         |   |                       |   |         |                     |  |   |                     |   |  |   |         |   |  |   |         |   |  |   |         |  
|Remaining Pool (%)          |  |                     | 13.7   | % |                      |   | 17.9   | %                   |  |   | 22.1                | % |  |                     | 28.8    | % |                       |   | 33.7    | %                   |  |   | 39.9                | % |  |                     | 46.9    | % |                       |   | 56.9    | %                   |  |   | 64.8                | % |  |   | 73.6    | % |  |   | 82.1    | % |  |   | 91.4    | %



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##### Table of Contents

Loan Maturities

The following table sets forth the dollar amount of automobile contracts maturing in our automobile contracts portfolio at June 30, 2007 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 |  | $                      | 20,245 |                             | $ | 297,104                      |  | $                             | 597,470 |             | $ | 3,819 |  | $ | 918,638
|            |  |                        |        |                             |   |                              |  |                               |         |             |   |       |  |   |        

All loans are fixed rate loans.

Liquidity and Capital Resources

General

We require substantial cash and capital resources to operate our business. Our primary funding sources are a warehouse credit line, securitizations and
retained earnings.

Our primary uses of cash include:



| |  |  | acquisition of automobile contracts;
| | - |  | ------------------------------------



| |  |  | interest expense;
| | - |  | -----------------



| |  |  | operating expenses; and
| | - |  | -----------------------



| |  |  | securitization costs.
| | - |  | ---------------------

The capital
resources available to us include:



| |  |  | interest income and principal collections on automobile contracts;
| | - |  | ------------------------------------------------------------------



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



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



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



| |  |  | borrowings under our warehouse credit facility;
| | - |  | -----------------------------------------------



| |  |  | releases of excess cash from our warehouse credit facility; and
| | - |  | ---------------------------------------------------------------



| |  |  | borrowings under our residual credit facility.
| | - |  | ----------------------------------------------

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

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. Regular contract securitizations are an integral part of our business plan going forward in order to increase our liquidity and reduce risks associated with interest rate fluctuations. We have
developed a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. 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 new and used automobile dealers to a newly formed owner trust for
each transaction, which trust then issued the securitization notes payable. The net proceeds of our first securitization were used to replace the Banks deposit liabilities and the net proceeds of our subsequent securitization transactions were
used to fund our operations. At the time of securitization of our automobile contracts, we are required to pledge assets equal to a specific percentage of the securitization pool to support the securitization transaction. Typically, the assets
pledged consist of cash deposited to a restricted account known as a spread account and additional receivables delivered to the trusts, which create over-collateralization. The securitization transaction documents require the percentage of assets
pledged to support the transaction to increase over time until a specific level is attained. Excess cash flow generated by the trusts 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



18



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##### Table of Contents

contract outstanding) in a trusts pool of automobile contracts exceed certain targets, the over-collateralization and spread account levels would be
increased. Agreements with our financial guaranty insurance insurers also contain additional specified targeted portfolio performance ratios. If, at any measurement date, the targeted portfolio performance ratios with respect to any trust whose
securities are insured were to exceed these additional levels, provisions of the agreements permit our financial guaranty insurance providers to terminate our servicing rights to the automobile contracts sold to that trust.

The following table lists each of our securitizations and its remaining balance as of June 30, 2007.

(Dollars in thousands)



|            |  |                    |  |                  |           |                          |   |              |  |      |                          |  |              |        |  |                          |   |              |   |        |                     |      |                           |  |                 |         |  |                      |         |  |      |   |  |       |  
|----------- |  | ------------------ |  | ---------------- | --------- | ------------------------ | - | ------------ |  | ---- | ------------------------ |  | ------------ | ------ |  | ------------------------ | - | ------------ | - | ------ | ------------------- | ---- | ------------------------- |  | --------------- | ------- |  | -------------------- | ------- |  | ---- | - |  | ----- | -
|IssueNumber |  | Issuance Date      |  | Original Balance |           | CurrentBalance Class A-1 |   | InterestRate |  |      | CurrentBalance Class A-2 |  | InterestRate |        |  | CurrentBalance Class A-3 |   | InterestRate |   |        | TotalCurrentBalance |      | CurrentReceivablesPledged |  | Surety Costs(1) |         |  | Back-upServicingFees |        
|2004A       |  | September 22, 2004 |  | $                | 420,000   |                          | $ |             |  | 1.94 | %                        |  | $            |       |  | 2.56                     | % |              | $ | 41,956 |                     | 3.27 | %                         |  | $               | 41,956  |  | $                    | 45,823  |  | 0.46 | % |  | 0.020 | %
|2005A       |  | April 14, 2005     |  |                  | 195,000   |                          |   |             |  | 3.12 | %                        |  |              |       |  | 3.85                     | % |              |   | 48,186 |                     | 4.34 | %                         |  |                 | 48,186  |  |                      | 52,263  |  | 0.43 | % |  | 0.035 | %
|2005B       |  | November 10, 2005  |  |                  | 225,000   |                          |   |             |  | 4.28 | %                        |  |              |       |  | 4.82                     | % |              |   | 87,397 |                     | 4.98 | %                         |  |                 | 87,397  |  |                      | 99,417  |  | 0.41 | % |  | 0.035 | %
|2006A       |  | June 15, 2006      |  |                  | 242,000   |                          |   |             |  | 5.27 | %                        |  |              | 46,394 |  | 5.46                     | % |              |   | 96,000 |                     | 5.49 | %                         |  |                 | 142,394 |  |                      | 156,031 |  | 0.39 | % |  | 0.035 | %
|2006B       |  | December 14, 2006  |  |                  | 250,000   |                          |   |             |  | 5.34 | %                        |  |              | 92,662 |  | 5.15                     | % |              |   | 99,000 |                     | 5.01 | %                         |  |                 | 191,662 |  |                      | 213,890 |  | 0.38 | % |  | 0.035 | %
|2007A       |  | June 14, 2007      |  |                  | 250,000   |                          |   | 54,000       |  | 5.33 | %                        |  |              | 97,000 |  | 5.46                     | % |              |   | 99,000 |                     | 5.53 | %                         |  |                 | 250,000 |  |                      | 263,036 |  | 0.37 | % |  | 0.032 | %
|            |  |                    |  |                  |           |                          |   |              |  |      |                          |  |              |        |  |                          |   |              |   |        |                     |      |                           |  |                 |         |  |                      |         |  |      |   |  |       |  
|            |  |                    |  | $                | 1,582,000 |                          |   |              |  |      |                          |  |              |        |  |                          |   |              |   |        |                     |      |                           |  | $               | 761,595 |  | $                    | 830,460 |  |      |   |  |       |  
|            |  |                    |  |                  |           |                          |   |              |  |      |                          |  |              |        |  |                          |   |              |   |        |                     |      |                           |  |                 |         |  |                      |         |  |      |   |  |       |  

---

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

There is an average of $1.0 million in underwriting and issuance costs associated with each securitization transaction, which is amortized over the term of the securitizations. As of June 30, 2007, we were in compliance with the terms
of all covenants related to each securitization.

In addition, as servicer we have the option to purchase the owner trust estate when the
pool balance falls below 10% of the original balance of loans securitized. On July 16, 2007 we have given notice that we will be exercising this option on August 15, 2007 for our 2004A securitization. We will obtain advances against these
repurchased loans under our existing warehouse facility. The purchase of the loans will release $9.4 Million of deposits held as collateral from restricted cash for the benefit of the company. In order to assist that portion of our borrowers that
has been adversely impacted by the rise in gasoline prices, we have increased our extension usage. Accordingly, as of June 30, 2007, we were in excess of extension performance targets under our current servicing agreements whereby, we repurchased
$3.8 million of loans on July 13, 2007. We funded the purchase price for this repurchase by obtaining an advance under our existing warehouse facility. We anticipate that these loans will be securitized in the 2007B transaction.

As of June 30, 2007 we were in compliance with all terms of the financial covenants related to our securitization transactions.

Warehouse Facility

As of
June 30, 2007, our $300 million warehouse facility was drawn to $28.5 million, which we use to fund our automobile finance operations to purchase automobile contracts pending securitization. Under the terms of the facility, our indirect
subsidiary, UFC, may obtain advances on a revolving basis by issuing notes to the participating lenders and pledging for each advance a portfolio of automobile contracts. UFC purchases the automobile contracts from UACC and UACC services the
automobile contracts, which are held by a custodian. We have provided an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UACC and UFC under
the warehouse facility. Whether we may obtain further advances under the facility depends on, among other things, the performance of the automobile contracts that are pledged under the facility and whether we comply with certain financial covenants
contained in the sale and servicing agreement. We were in compliance with the terms of such financial covenants as of June 30, 2007. The principal and interest collected on the automobile contracts pledged is used to pay the interest due each
month on the notes to the participating lenders and any excess cash is released to UFC. The performance, timing and amount of cash flows from automobile contracts varies based on a number of factors, including:



| |  |  | the yields received on automobile contracts;
| | - |  | --------------------------------------------



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



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

Residual Credit Facility

On January 24, 2007, we closed a $26 million variable rate residual
credit facility. The facility, which allows us to initiate borrowings over the next three years, is secured by eligible residual interests in previously securitized pools of automobile receivables and certain securities issued by UARC, UAFC, and
UFC. We have provided an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UARC, UAFC, and UFC under the residual credit facility. As of
June 30, 2007, the $26 million facility had a balance of $5.2 million, which was reduced to zero on July 16, 2007. As of June 30, 2007, we were in compliance with all terms of the financial covenants under the residual credit
facility.



19



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##### Table of Contents

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 281,815 shares of our common stock for an average price of $13.95 per share for an aggregate purchase price of $3.9 million during the three months ended June 30, 2007. As of June 30, 2007, we repurchased
2,089,738 shares of our common stock.

Subordinated Debentures

In 2003, we issued junior subordinated debentures in the amount of $10.3 million to a subsidiary trust, UPFC Trust I, to enhance our liquidity. UPFC Trust
I in turn issued $10.0 million of company-obligated mandatorily redeemable preferred securities. We will pay interest on these funds at a rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the rate was 8.41% as of June 30,
2007. The final maturity of these securities is 30 years, however, they can be called at par any time after July 31, 2008 at our discretion.

Aggregate Contractual Obligations

The following table provides the amounts due under specified obligations for the periods
indicated as of June 30, 2007.



|                               |  |                        |         |                   |   |                   |  |                  |       |       |   |        |  |   |        
|------------------------------ |  | ---------------------- | ------- | ----------------- | - | ----------------- |  | ---------------- | ----- | ----- | - | ------ |  | - | -------
|                               |  | Less than 1 Year       |         | 1 Year to 3 Years |   | 3 Yearsto 5 Years |  | More Than5 Years |       | Total
|                               |  | (Dollars in thousands)
|Warehouse line of credit       |  | $                      | 28,518  |                   | $ |                  |  | $                |      |       | $ |       |  | $ | 28,518 
|Securitization notes payable   |  |                        | 408,343 |                   |   | 353,252           |  |                  |      |       |   |       |  |   | 761,595
|Operating lease obligations    |  |                        | 3,107   |                   |   | 11,409            |  |                  | 7,689 |       |   | 907    |  |   | 23,112 
|Junior subordinated debentures |  |                        |        |                   |   |                  |  |                  |      |       |   | 10,310 |  |   | 10,310 
|                               |  |                        |         |                   |   |                   |  |                  |       |       |   |        |  |   |        
|Total                          |  | $                      | 439,968 |                   | $ | 364,661           |  | $                | 7,689 |       | $ | 11,217 |  | $ | 823,535
|                               |  |                        |         |                   |   |                   |  |                  |       |       |   |        |  |   |        

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.

Discontinued Operations

On
March 30, 2006, we discontinued our operations related to our investment segment and sold our investment securities portfolio to focus solely on our automobile finance business and to provide additional transparency to the public regarding the
actual returns of our automobile finance operations.



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##### Table of Contents

Selected Financial Data



|                                                                               |  |                                 |         |   |                               |   |         |               |  |   |               |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ------------- |  | - | ------------- | - |  | - | ------- | -
|(Dollars and shares in thousands)                                              |  | At or For the Three MonthsEnded |         |   | At or For the Six MonthsEnded |  
|                                                                               |  | June 30, 2007                   |         |   | June 30, 2006                 |   |         | June 30, 2007 |  |   | June 30, 2006 |  
|Operating Data                                                                 |  |                                 |         |   |                               |   |         |               |  |   |               |   |  |   |         |  
|Contracts purchased                                                            |  | $                               | 167,807 |   |                               | $ | 148,515 |               |  | $ | 335,447       |   |  | $ | 294,309 |  
|Contracts outstanding                                                          |  | $                               | 918,638 |   |                               | $ | 767,961 |               |  | $ | 918,638       |   |  | $ | 767,961 |  
|Unearned acquisition discounts                                                 |  | $                               | (45,077 | ) |                               | $ | (37,969 | )             |  | $ | (45,077       | ) |  | $ | (37,969 | )
|Average loan balance                                                           |  | $                               | 893,174 |   |                               | $ | 742,711 |               |  | $ | 865,254       |   |  | $ | 715,667 |  
|Unearned acquisition discounts to gross loans                                  |  |                                 | 4.91    | % |                               |   | 4.94    | %             |  |   | 4.91          | % |  |   | 4.94    | %
|Average percentage rate to borrowers                                           |  |                                 | 22.62   | % |                               |   | 22.70   | %             |  |   | 22.62         | % |  |   | 22.70   | %
|                                                                               |  |                                 |         |  
|Loan Quality Data                                                              |  |                                 |         |   |                               |   |         |               |  |   |               |   |  |   |         |  
|Allowance for loan losses                                                      |  | $                               | (41,713 | ) |                               | $ | (30,652 | )             |  | $ | (41,713       | ) |  | $ | (30,652 | )
|Allowance for loan losses to gross loans net of unearned acquisition discounts |  |                                 | 4.78    | % |                               |   | 4.20    | %             |  |   | 4.78          | % |  |   | 4.20    | %
|Delinquencies (% of net contracts)                                             |  |                                 |         |   |                               |   |         |               |  |   |               |   |  |   |         |  
|31-60 days                                                                     |  |                                 | 0.53    | % |                               |   | 0.54    | %             |  |   | 0.53          | % |  |   | 0.54    | %
|61-90 days                                                                     |  |                                 | 0.20    | % |                               |   | 0.19    | %             |  |   | 0.20          | % |  |   | 0.19    | %
|90+ days                                                                       |  |                                 | 0.07    | % |                               |   | 0.09    | %             |  |   | 0.07          | % |  |   | 0.09    | %
|                                                                               |  |                                 |         |   |                               |   |         |               |  |   |               |   |  |   |         |  
|Total                                                                          |  |                                 | 0.80    | % |                               |   | 0.82    | %             |  |   | 0.80          | % |  |   | 0.82    | %
|Repossessions over 30 days past due (% of net contracts)                       |  |                                 | 0.54    | % |                               |   | 0.44    | %             |  |   | 0.54          | % |  |   | 0.44    | %
|Annualized net charge-offs to average loans(1)                                 |  |                                 | 5.04    | % |                               |   | 3.94    | %             |  |   | 5.32          | % |  |   | 4.23    | %
|                                                                               |  |                                 |         |  
|Other Data                                                                     |  |                                 |         |   |                               |   |         |               |  |   |               |   |  |   |         |  
|Number of branches                                                             |  |                                 | 144     |   |                               |   | 119     |               |  |   | 144           |   |  |   | 119     |  
|Interest Income                                                                |  | $                               | 57,055  |   |                               | $ | 48,225  |               |  | $ | 110,279       |   |  | $ | 92,329  |  
|Interest Expense                                                               |  | $                               | 11,602  |   |                               | $ | 8,388   |               |  | $ | 22,115        |   |  | $ | 15,910  |  
|Net interest margin                                                            |  | $                               | 45,453  |   |                               | $ | 39,837  |               |  | $ | 88,164        |   |  | $ | 76,419  |  
|Net interest margin as a percentage of interest income                         |  |                                 | 79.67   | % |                               |   | 82.61   | %             |  |   | 79.95         | % |  |   | 82.77   | %
|Net interest margin as a percentage of average loans (1)                       |  |                                 | 20.41   | % |                               |   | 21.51   | %             |  |   | 20.55         | % |  |   | 21.53   | %
|Non-interest expense to average loans (1)                                      |  |                                 | 10.87   | % |                               |   | 10.27   | %             |  |   | 11.13         | % |  |   | 10.79   | %
|Return on average assets from continuing operations (1)                        |  |                                 | 1.97    | % |                               |   | 3.39    | %             |  |   | 1.68          | % |  |   | 3.56    | %
|Return on average shareholders equity                                         |  |                                 | 12.04   | % |                               |   | 15.99   | %             |  |   | 9.89          | % |  |   | 16.62   | %
|Consolidated capital to assets ratio                                           |  |                                 | 16.01   | % |                               |   | 20.79   | %             |  |   | 16.01         | % |  |   | 20.79   | %



|(1) | Quarterly and six month information is annualized for comparability with full year information.
|--- | -----------------------------------------------------------------------------------------------

Results of Operations

Comparison of Operating Results for the Three Months Ended June 30, 2007 and 2006

General

For
the three months ended June 30, 2007, our net income was $4.6 million, or $0.28 per diluted share, compared with $6.7 million, or $0.35 per diluted share for the same period a year ago.

Interest income increased 18% to $57.1 million for the three months ended June 30, 2007 from $48.2 million for the same period a year ago.
Automobile contracts purchased increased 13% to $167.8 million for the three months ended June 30, 2007 from $148.5 million for the same period a year ago as a result of the purchase of additional automobile contracts in existing and new
markets consistent with the planned growth of these operations. During the three months ended June 30, 2007, we opened 7 auto finance branches bringing our total to 144 branches in 35 states.

Interest Income

Interest income
increased by 18% to $57.1 million for the three months ended June 30, 2007 from $48.2 million for the same period a year ago due primarily to the increase in average automobile contracts of $150.5 million. Interest income on loans represents
finance charges taken into earnings during the quarter as well as the accretion of the acquisition discount fee on loans acquired. Investment income increased as a result of higher invested cash balances combined with increased market interest
rates.



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Interest Expense

Interest expense increased 38% to $11.6 million for the three months ended June 30, 2007 from $8.4 million for the same period a year ago. The average debt outstanding increased by 26% to $780.6 million for the
three months ended June 30, 2007 from $618.4 million for the same period a year ago. The average interest rate increased to 5.96% for the three months ended June 30, 2007 from 5.44% for the same period a year ago. The increase was the
result of higher market interest rates, coupled with pay down of lower priced securitizations.

Provision and Allowance for Loan Losses

Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate
to absorb probable credit losses inherent in the portfolio of automobile loans. The provision for loan losses recorded in the three months ended June 30, 2007 and 2006 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 $14.0 million for the three months ended June 30, 2007 compared with $9.7 million for the same period a year
ago. The increase in the provision for loan losses was due primarily to a $150.5 million increase in average automobile contracts and an increase in the annualized charge-off rate to 5.04% for the three months ended June 30, 2007 compared to
3.94% for the same period a year ago.

The increase in our quarterly annualized net charge-offs was the result of increased defaults due to
the slowing consumer finance sector. Two additional factors that have impacted our charge-off rate are dislocations caused by the change in the bankruptcy law which took effect in late 2005 and continued elevated gasoline prices. Prior to the change
in the bankruptcy law, it was easier for our borrowers to file for bankruptcy protection to discharge their unsecured debt. By discharging their unsecured debt, our borrowers were able to continue to service their secured debt such as automobile
loans but with the change in the legislation the debt relief was no longer available and as a result the borrowers were forced to default on the secured debt as well as the unsecured debt. We also believe the rush to file before the bankruptcy law
becoming effective, extended the impact of the previously enacted law for several months into 2006. The second factor has been the increase in gasoline prices. The increase in gasoline prices which started in late 2006 and continues into 2007 has
impacted the disposable income of our lower income borrowers causing increases in defaults.

The total allowance for loan losses was $41.7
million at June 30, 2007 compared with $30.7 million at June 30, 2006, representing 4.78% of automobile contracts, less unearned acquisition discount, at June 30, 2007 and 4.20% at June 30, 2006. The increase in the allowance for
loan losses was due primarily to a $150.6 million increase in automobile contracts outstanding, which increased to $918.6 million at June 30, 2007 from $768.0 million at June 30, 2006 and 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 $0.5 million for the three months ended June 30, 2007 from $0.3 million for the same period a year ago.

Non-interest Expense

Non-interest expense increased $5.2 million to $24.2 million for the three
months ended June 30, 2007 from $19.0 million for the same period a year ago. The increase was driven primarily by our overall continued branch expansion , and investment in corporate accounting, human resources, training and information
technology, an increase in the corporate facility from 20,000 square feet to 31,000 square feet and higher collection costs. During the last 12 months, we continued with the planned expansion of our automobile finance operations, resulting in an
increase to 1,035 employees as of June 30, 2007, from 865 employees as of June 30, 2006.



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Income Taxes

Income taxes from continuing operations decreased $1.6 million to $3.1 million for the three months ended June 30, 2007 from $4.7 million for the same period a year ago. This decrease occurred primarily as a
result of a $3.6 million decrease in taxable income from continuing operations before income taxes.

Comparison of Operating Results for the Six
Months Ended June 30, 2007 and 2006

General

For the six months ended June 30, 2007, our net income was $7.7 million, or $0.46 per diluted share, compared with $12.8 million, or $0.67 per
diluted share for the same period a year ago.

Interest income increased 20% to $110.3 million for the six months ended June 30, 2007
from $92.3 million for the same period a year ago. Automobile contracts purchased increased $41.1 million to $335.4 million for the six months ended June 30, 2007 from $294.3 million for the same period a year ago as a result of the purchase of
additional automobile contracts in existing and new markets consistent with the planned growth of these operations. During the six months ended June 30, 2007, we opened 13 auto finance branches bringing our total to 144 branches in 35 states.

Interest Income

Interest income increased by 20% to $110.3 million for the six months ended June 30, 2007 from $92.3 million for the same period a year ago due primarily to the increase in average automobile contracts of $149.6 million. Interest
income on loans represents finance charges taken into earnings during the quarter as well as the accretion of the acquisition discount fee on loans acquired. Investment income increased as a result of higher invested cash balances combined with
increased market interest rates.

Interest Expense

Interest expense increased 39% to $22.1 million for the six months ended June 30, 2007 from $15.9 million for the same period a year ago. The average debt outstanding increased by 25% to $753.3 million for the
six months ended June 30, 2007 from $603.1 million for the same period a year ago. The average interest rate increased to 5.92% for the six months ended June 30, 2007 from 5.32% for the same period a year ago. The increase was the result
of higher market interest rates, coupled with pay down of lower priced securitizations.

Provision and Allowance for Loan Losses

Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to
absorb probable credit losses inherent in the portfolio of automobile loans. The provision for loan losses recorded in the six months ended June 30, 2007 and 2006 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 $28.5 million for the six months ended June 30, 2007 compared with $16.5 million for the same period a year
ago. The increase in the provision for loan losses was due primarily to a $149.6 million increase in average automobile contracts and an increase in the annualized charge-off rate to 5.32% for the six months ended June 30, 2007 compared to
4.23% 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 slowing consumer finance sector. Two additional factors that have impacted our charge-off rate are dislocations caused by the change in the bankruptcy law which took effect in late 2005 and continued elevated gasoline prices. Prior to the
change in the bankruptcy law, it was easier for our borrowers to file for bankruptcy protection to discharge their unsecured debt. By discharging their unsecured debt, our borrowers were able to continue to service their secured debt such as
automobile loans but with the change in the legislation the debt relief was no longer available and as a result the borrowers were forced to default on the secured debt as well as the unsecured debt. We also believe the rush to file before the
bankruptcy law becoming effective, extended the impact of the previously enacted law for several months into 2006. The second factor has been the increase in gasoline prices. The increase in gasoline prices which started in late 2006 and continues
into 2007 has impacted the disposable income of our lower income borrowers causing increases in defaults.

The total allowance for loan
losses was $41.7 million at June 30, 2007 compared with $30.7 million at June 30, 2006, representing 4.78% of net receivables at June 30, 2007 and 4.20% at June 30, 2006. The increase in allowance loan losses was due primarily to
a $150.6 million increase in automobile contracts outstanding, which increased to $918.6 million at June 30, 2007 from $768.0 million at June 30, 2006 and 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.



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Non-interest Income

Non-interest income decreased to $0.8 million for the six months ended June 30, 2007 from $1.1 million for the same period a year ago. The decrease was primarily the result of the redemption of the preferred
stock of AirTime Technologies, Inc. held by WorldCash Technologies, Inc., a wholly-owned subsidiary of the Company that was dissolved in August 2006. In March 2006, an agreement was reached to merge AirTime Technologies, Inc. with InComm Holdings
Inc. As part of the agreement, the preferred stock owned by the Company through WorldCash Technologies, Inc. was redeemed for $520,000.

Non-interest Expense

Non-interest expense increased $9.4 million to $47.7 million for the six months ended June 30,
2007 from $38.3 million for the same period a year ago. The increase was driven primarily by our overall continued branch expansion and investment in corporate accounting, human resources, training and information technology, an increase in the
corporate facility from 20,000 square feet to 31,000 square feet and higher collection costs. During the last 12 months, we continued with the planned expansion of our automobile finance operations, resulting in a total of 1,035 employees as of
June 30, 2007, from a total of 865 employees as of June 30, 2006.

Income Taxes

Income taxes before discontinued operations decreased $4.1 million to $5.1 million for the six months ended June 30, 2007 from $9.2 million for the
same period a year ago. This decrease occurred primarily as a result of a $9.9 million decrease in income from continuing operation before income taxes.

Financial Condition

Comparison of Financial Condition at June 30, 2007 and December 31, 2006

Total assets increased $93.4 million, to $972.9 million at June 30, 2007, from $879.5 million at December 31, 2006. The increase resulted from a
$99.5 million increase in automobile contracts to $873.6 million, net of unearned acquisition discounts and unearned finance charges, at June 30, 2007 from $774.1 million at December 31, 2006.

Securitization notes payable increased to $761.6 million at June 30, 2007 from $698.3 million at December 31, 2006 due to the completion
of a $250 million securitization in June 2007, partially offset by payments on automobile contracts backing the securitized borrowings.

Warehouse line of credit borrowing increased to $28.5 million as of June 30, 2007 from zero as of December 31, 2006 due to funding of additional automobile contracts during the six months ended June 30, 2007 and the
completion of a $250 million securitization in June 2007.

Shareholders equity decreased to $155.8 million at June 30, 2007 from
$159.9 million at December 31, 2006, primarily as a result of $13.2 million of the Companys common stock repurchased during the six months ended June 30, 2007, partially offset by net income of $7.7 million and recognition of expense
for fair value of options of $1.2 million during the six months ended June 30, 2007.

Liquidity and Capital Resources

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

Cash provided by operating
activities was $26.5 million and $7.6 million in the first six months of 2007 and 2006, respectively. Cash provided by operating activities increased in the first six months of 2007 compared to the same period in 2006 due primarily to an increase in
cash distribution from existing securitizations and an increase in net interest income.

Cash used in investing activities was $111.5
million in the first six months of 2007. Cash provided by investing activities was $395.0 million in the first six months of 2006. Cash used in investing activities decreased in the first six months of 2007 compared to the same period in 2006 due to
the discontinuation of the Companys operations related to its investment segment in March 2006.



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Cash provided by financing activities was $71.7 million in the first six months of 2007. Cash used in
financing activities was $408.3 million in the first six months of 2006. Cash provided by financing activities decreased due to the discontinuation of the Companys operations related to its investment segment in March 2006.

Management of Interest Rate Risk

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

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

The automobile
contracts purchased and held by us are written at fixed interest rates and, accordingly, have interest rate risk while such contracts are funded with warehouse borrowings because the warehouse borrowings accrue interest at a variable rate.

We are not currently utilizing interest rate hedging instruments because we plan to enter into a new securitization every six months and
therefore will only fund the acquisition of approximately six months of automobile contracts at variable interest rates with our warehouse facility prior to locking a gross interest rate spread through the sale of securitization notes payable at
fixed interest rates. There have been no material changes in market risks since December 31, 2006.

Recent Accounting Developments

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



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.
|------- | -----------------------------------------------------------

See Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsManagement of Interest Rate Risk.



|Item 4. | Controls and Procedures.
|------- | ------------------------

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of June 30, 2007.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended June 30, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



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

Not applicable



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

In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business,
financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition, operating results and/or cash flows.



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

Issuer Purchases of Equity Securities

During the quarter ended June 30, 2007, we repurchased 281,815 shares of our
common stock at an average price of $13.95 per share for an aggregate purchase price of $3.9 million, as follows:



|                                |  |                                  |  |                              |       |                                                                                |         |                                                                                  |          
|------------------------------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------------------ | ------- | -------------------------------------------------------------------------------- | ---------
|Period                          |  | Total Number of Shares Purchased |  | Average Price Paid Per
Share |       | Total Number of Shares Purchased as Part of Publicly
Announced Plan or Program |         | Approximate Number of Shares That May Yet
Be Purchased Under the Plan or Program
|April 1, 2007 to April 30, 2007 |  | 154,845                          |  | $                            | 13.28 |                                                                                | 154,845 |                                                                                  | 1,537,232
|May 1, 2007 to May 31, 2007     |  | 126,970                          |  | $                            | 14.76 |                                                                                | 126,970 |                                                                                  | 1,410,262
|June 1, 2007 to June 30, 2007   |  |                                 |  | $                            |      |                                                                                |        |                                                                                  |         
|                                |  |                                  |  |                              |       |                                                                                |         |                                                                                  |          
|Total                           |  | 281,815                          |  | $                            | 13.95 |                                                                                | 281,815 |                                                                                  | 1,410,262
|                                |  |                                  |  |                              |       |                                                                                |         |                                                                                  |          

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



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

Not applicable



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

Not applicable



|Item 5. | Other Information.
|------- | ------------------

Not applicable



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



|     |  |                                                                                           
|---- |  | ------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act 2002.
|     | 
|31.2 |  | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act 2002.
|     | 
|32.1 |  | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act 2002.



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SIGNATURES

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



|      |  |                |  |                              |  |     |  |                                                     
|----- |  | -------------- |  | ---------------------------- |  | --- |  | ----------------------------------------------------
|      |  |                |  | United PanAm Financial Corp.
|      |  |                |  |                             
|Date: |  | August 8, 2007 |  |                              |  | By: |  | /s/    RAY THOUSAND                                 
|      |  |                |  |                              |  |     |  | Ray Thousand                                        
|      |  |                |  |                              |  |     |  | Chief Executive Officer and President               
|      |  |                |  |                              |  |     |  | (Principal Executive Officer)                       
|      |  |                |  |                             
|      |  | August 8, 2007 |  |                              |  | By: |  | /s/    ARASH KHAZEI                                 
|      |  |                |  |                              |  |     |  | Arash Khazei                                        
|      |  |                |  |                              |  |     |  | Chief Financial Officer and Executive Vice President
|      |  |                |  |                              |  |     |  | (Principal Financial and Accounting Officer)        



28