**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)


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




For
      the
      quarterly period ended September 30, 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





**UNITED
      PANAM FINANCIAL CORP.**


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




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




**(949)
      224-1917**


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





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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, 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 October 31,
      2007 was 15,732,399 shares.







**UNITED
      PANAM FINANCIAL CORP.**


**FORM
      10-Q**


**September
      30, 2007**




**INDEX**




**Page**Cautionary
                Statement
            1PART
                I. FINANCIAL INFORMATIONItem 1.
            Financial
                StatementsConsolidated
                Statements of Financial Condition as of September 30, 2007 and December
                31, 2006
            2Consolidated
                Statements of Income for the three and nine months ended September
                30,
                2007 and 2006
            3Consolidated
                Statements of Changes in Shareholders’ Equity for the nine months ended
                September 30, 2007 and 2006
            4Consolidated
                Statements of Cash Flows for the nine months ended September 30,
                2007 and
                2006
            5Notes
                to Consolidated Financial Statements
            6Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            14Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            27Item 4.
            Controls
                and Procedures
            27PART II.
                OTHER INFORMATIONItem 1.
            Legal
                Proceedings
            28Item 1A.
            Risk
                Factors
            28Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            28Item 3.
            Defaults
                Upon Senior Securities
            28Item 4.
            Submission
                of Matters to a Vote of Security Holders
            28Item 5.
            Other
                Information
            29Item 6.
            Exhibits
            29







**CAUTIONARY
      STATEMENT**





Certain
      statements contained in this Quarterly Report on Form 10-Q, as well as some
      statements by us in periodic press releases and some oral statements by our
      officials to securities analysts and shareholders during presentations about
      us
      are “forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995, or the Act. Statements which are predictive
      in
      nature, which depend upon or refer to future events or conditions, or which
      include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” “hopes,” “assumes,” “may,” “project,” “will” and similar
      expressions constitute forward-looking statements. In addition, any statements
      concerning future financial performance (including future revenues, earnings
      or
      growth rates), ongoing business strategies or prospects, and possible future
      actions, which may be provided by management are also forward-looking statements
      as defined in the Act. Forward-looking statements are based upon expectations
      and projections about future events and are subject to assumptions, risks and
      uncertainties about, among other things, our company and economic and market
      factors. Actual events and results may differ materially from those expressed
      or
      forecasted in the forward-looking statements due to a number of factors. The
      principal factors that could cause our actual performance and future events
      and
      actions to differ materially from such forward-looking statements include,
      but
      are not limited to, our dependence on securitizations, our need for substantial
      liquidity to run our business, loans we made to credit-impaired borrowers,
      reliance on operational systems and controls and key employees, competitive
      pressure we face, changes in the interest rate environment, 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


**PART
      I. FINANCIAL INFORMATION**









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




**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Financial Condition**





**September
                30,**
              **2007**
            
            **December 31,**
              **2006*****(Dollars
                in thousands)***
            
            **(Unaudited)**
            
            **(Audited)****Assets**Cash
            
            $
            9,928
            
            $
            8,389Short
                term investments
            
            
            6,984
            
            
            19,905Cash
                and cash equivalents
            
            
            16,912
            
            
            28,294Restricted
                cash
            
            
            72,145
            
            
            67,987Loans
            
            
            898,373
            
            
            774,075Allowance
                for loan losses
            
            
            (46,050
            )
            
            (36,037
            )Loans,
                net
            
            
            852,323
            
            
            738,038Premises
                and equipment, net
            
            
            6,779
            
            
            5,034Interest
                receivable
            
            
            10,186
            
            
            9,018Other
                assets
            
            
            32,277
            
            
            31,118Total
                assets
            
            $
            990,622
            
            $
            879,489**Liabilities
                and Shareholders’ Equity**Securitization
                notes payable
            
            $
            617,704
            
            $
            698,337Warehouse
                line of credit
            
            
            193,202
            
            
            —Accrued
                expenses and other liabilities
            
            
            10,853
            
            
            10,977Junior
                subordinated debentures
            
            
            10,310
            
            
            10,310Total
                liabilities
            
            
            832,069
            
            
            719,624Preferred
                stock (no par value):Authorized,
                2,000,000 shares; no shares issued and outstanding at September 30,
                2007
                and December 31, 2006
            
            
            —
            
            
            —Common
                stock (no par value):Authorized,
                30,000,000 shares; 15,732,399 and 16,713,838 shares issued and outstanding
                at September 30, 2007 and December 31, 2006,
                respectively
            
            
            49,081
            
            
            60,614Retained
                earnings
            
            
            109,472
            
            
            99,251Total
                shareholders’ equity
            
            
            158,553
            
            
            159,865Total
                liabilities and shareholders’ equity
            
            $
            990,622
            
            $
            879,489









*See
      notes to the consolidated financial statements*


2


**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Income**


**(Unaudited)**





**Three
                Months Ended**
              **September 30,**
            
            **Nine
                Months Ended**
              **September 30,*****(In
                thousands, except per share data)***
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006****Interest
                Income**Loans
            
            $
            58,668
            
            $
            49,967
            
            $
            166,966
            
            $
            140,999Short
                term investments and restricted cash
            
            
            1,058
            
            
            848
            
            
            3,039
            
            
            2,145Total
                interest income
            
            
            59,726
            
            
            50,815
            
            
            170,005
            
            
            143,144**Interest
                Expense**Securitization
                notes payable
            
            
            10,171
            
            
            7,906
            
            
            27,922
            
            
            19,538Warehouse
                line of credit
            
            
            2,058
            
            
            1,549
            
            
            5,924
            
            
            5,431Other
                interest expense
            
            
            303
            
            
            219
            
            
            801
            
            
            615Total
                interest expense
            
            
            12,532
            
            
            9,674
            
            
            34,647
            
            
            25,584Net
                interest income
            
            
            47,194
            
            
            41,141
            
            
            135,358
            
            
            117,560Provision
                for loan losses
            
            
            20,031
            
            
            13,016
            
            
            48,536
            
            
            29,555Net
                interest income after provision for loan losses
            
            
            27,163
            
            
            28,125
            
            
            86,822
            
            
            88,005**Non-interest
                Income**Redemption
                of preferred stock-investment in AirTime Technologies,
                Inc.
            
            
            —
            
            
            —
            
            
            —
            
            
            520Other
                non-interest income
            
            
            469
            
            
            320
            
            
            1,316
            
            
            868Total
                non-interest income
            
            
            469
            
            
            320
            
            
            1,316
            
            
            1,388**Non-interest
                Expense**Compensation
                and benefits
            
            
            15,054
            
            
            13,147
            
            
            45,987
            
            
            37,841Occupancy
            
            
            2,372
            
            
            1,901
            
            
            6,818
            
            
            5,365Other
                non-interest expense
            
            
            6,303
            
            
            5,804
            
            
            18,659
            
            
            15,943Total
                non-interest expense
            
            
            23,729
            
            
            20,852
            
            
            71,464
            
            
            59,149Income
                from continuing operations before income taxes
            
            
            3,903
            
            
            7,593
            
            
            16,674
            
            
            30,244Income
                taxes
            
            
            1,345
            
            
            3,091
            
            
            6,453
            
            
            12,259Income
                from continuing operations
            
            
            2,558
            
            
            4,502
            
            
            10,221
            
            
            17,985Loss
                from discontinued operations, net of tax
            
            
            —
            
            
            —
            
            
            —
            
            
            (684
            )Net
                income
            
            $
            2,558
            
            $
            4,502
            
            $
            10,221
            
            $
            17,301**Earnings
                (loss) per share-basic:**Continuing
                operations
            
            $
            0.16
            
            $
            0.26
            
            $
            0.64
            
            $
            1.03Discontinued
                operations
            
            
            —
            
            
            —
            
            
            —
            
            
            (0.04
            )Net
                income
            
            $
            0.16
            
            $
            0.26
            
            $
            0.64
            
            $
            0.99Weighted
                average basic shares outstanding
            
            
            15,732
            
            
            17,173
            
            
            15,990
            
            
            17,524**Earnings
                (loss) per share-diluted:**Continuing
                operations
            
            $
            0.16
            
            $
            0.25
            
            $
            0.62
            
            $
            0.95Discontinued
                operations
            
            
            —
            
            
            —
            
            
            —
            
            
            (0.04
            )Net
                income
            
            $
            0.16
            
            $
            0.25
            
            $
            0.62
            
            $
            0.91Weighted
                average diluted shares outstanding
            
            
            16,044
            
            
            18,121
            
            
            16,558
            
            
            18,955





*See
      notes to the consolidated financial statements*


3


**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Changes in Shareholders’ Equity**


**(Unaudited)**


**Number**
                **of
                  Shares**
              
              **Common**
                **Stock**
              
              **Retained**
                **Earnings**
              
              **Unrealized**
                **Loss
                  On**
                **Securities,
                  Net**
              
              **Total**
                **Shareholders’**
                **Equity****(Dollars
                  in thousands)**Balance,
                  December 31, 2005
              
              
              17,120,250
              
              $
              76,054
              
              $
              80,182
              
              $
              (1,321
              )
              $
              154,915Net
                  income
              
              
              —
              
              
              —
              
              
              17,301
              
              
              —
              
              
              17,301Exercise
                  of stock options, net
              
              
              669,528
              
              
              (9,334
              )
              
              —
              
              
              —
              
              
              (9,334
              )Tax
                  effect of exercised stock options
              
              
              —
              
              
              11,150
              
              
              —
              
              
              —
              
              
              11,150Repurchase
                  of common stock
              
              
              (1,000,000
              )
              
              (18,484
              )
              
              —
              
              
              —
              
              
              (18,484
              )Stock-based
                  compensation expense
              
              
              —
              
              
              1,754
              
              
              —
              
              
              —
              
              
              1,754Loss
                  on disposition of securities, net
              
              
              —
              
              
              —
              
              
              —
              
              
              1,321
              
              
              1,321Balance,
                  September, 2006
              
              
              16,789,778
              
              $
              61,140
              
              $
              97,483
              
              $
              —
              
              $
              158,623Balance,
                  December 31, 2006
              
              
              16,713,838
              
              $
              60,614
              
              $
              99,251
              
              $
              —
              
              $
              159,865Net
                  income
              
              
              —
              
              
              —
              
              
              10,221
              
              
              —
              
              
              10,221Exercise
                  of stock options, net
              
              
              31,774
              
              
              143
              
              
              —
              
              
              —
              
              
              143Tax
                  effect of exercised stock options
              
              
              —
              
              
              112
              
              
              —
              
              
              —
              
              
              112Repurchase
                  of common stock
              
              
              (1,013,213
              )
              
              (13,188
              )
              
              —
              
              
              —
              
              
              (13,188
              )Stock-based
                  compensation expense
              
              
              —
              
              
              1,400
              
              
              —
              
              
              —
              
              
              1,400Balance,
                  September 30, 2007
              
              
              15,732,399
              
              $
              49,081
              
              $
              109,472
              
              $
              —
              
              $
              158,553




*See
      notes to the consolidated financial statements*






4


**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**




**Nine
                Months Ended**
              **September
                30,*****(Dollars
                in thousands)***
            
            **2007**
            
            **2006****Cash
                Flows from Operating Activities:**Income
                from continuing operations
            
            $
            10,221
            
            $
            17,985Reconciliation
                of income from continuing operations to net cash provided by operating
                activities:Provision
                for loan losses
            
            
            48,536
            
            
            29,555Accretion
                of discount on loans
            
            
            (20,726
            )
            
            (17,694
            )Depreciation
                and amortization
            
            
            1,779
            
            
            1,402Stock-based
                compensation
            
            
            1,400
            
            
            1,754Tax
                benefit from stock-based compensation
            
            
            (542
            )
            
            (711
            )Increase
                in accrued interest receivable
            
            
            (1,168
            )
            
            (1,105
            )Increase
                in other assets
            
            
            (1,159
            )
            
            (8,085
            )(Decrease)
                increase in accrued expenses and other liabilities
            
            
            (124
            )
            
            1,398Net
                cash provided by operating activities of continuing
                operations
            
            
            38,217
            
            
            24,499Loss
                from discontinued operations
            
            
            —
            
            
            (684
            )Net
                cash provided by operating activities
            
            
            38,217
            
            
            23,815**Cash
                Flows from Investing Activities:**Purchases,
                net of repayments, of loans
            
            
            (142,095
            )
            
            (138,607
            )Change
                in assets of discontinued operations
            
            
            —
            
            
            496,639Purchase
                of premises and equipment
            
            
            (3,524
            )
            
            (2,527
            )Net
                cash (used in) provided by investing activities
            
            
            (145,619
            )
            
            355,505**Cash
                Flows from Financing Activities:**Change
                in liabilities of discontinued operations
            
            
            —
            
            
            (459,519
            )Proceeds
                from warehouse line of credit
            
            
            442,582
            
            
            349,325Repayments
                of warehouse line of credit
            
            
            (249,380
            )
            
            (251,074
            )Proceeds
                from residual line of credit
            
            
            36,231
            
            
            —Repayments
                of residual line of credit
            
            
            (36,231
            )
            
            —Proceeds
                from securitization
            
            
            250,000
            
            
            242,000Payments
                on securitization notes payable
            
            
            (330,633
            )
            
            (233,820
            )Increase
                in restricted cash
            
            
            (4,158
            )
            
            (14,146
            )Proceeds
                from exercise of stock options
            
            
            255
            
            
            1,816Repurchase
                of common stock
            
            
            (13,188
            )
            
            (18,484
            )Tax
                benefit from stock-based compensation
            
            
            542
            
            
            711Net
                cash provided by (used in) financing activities
            
            
            96,020
            
            
            (383,191
            )Net
                decrease in cash and cash equivalents
            
            
            (11,382
            )
            
            (3,871
            )Cash
                and cash equivalents at beginning of period
            
            
            28,294
            
            
            21,295Cash
                and cash equivalents at end of period
            
            $
            16,912
            
            $
            17,424**Supplemental
                Disclosures of Cash Payments Made for:**Interest
            
            $
            34,297
            
            $
            30,100Income
                taxes
            
            $
            8,971
            
            $
            9,184




*See
      notes to the consolidated financial statements*


5


**United
      PanAm Financial Corp. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**(Unaudited)**




**1.**
            **Organization**





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




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




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




At
      September 30, 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
                  September 30,**
              
              **Nine Months Ended
                  September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Revenue
                  from discontinued operations
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              4,782Expense
                  from discontinued operations
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              5,922Loss
                  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 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.


6




**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.




In
      September 2006, FASB issued SFAS No. 157, *Fair
      Value Measurement* .
      SFAS
      No. 157 defines fair value, establishes a framework for measuring fair
      value in GAAP and expands disclosures about fair value measurements. The
      Statement does not require any new fair value measurements but could change
      the
      current practices in measuring current fair value measurements. The Statement
      is
      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 $29.8 million of deposits held as collateral for securitized
      obligations and warehouse liabilities at September 30, 2007 compared with $29.9
      million at December 31, 2006. Additionally, $42.3 million at September 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:





**September
                30, 2007**
            
            **December 31,
                2006****(Dollars
                in thousands)**Loans
                securitized
            
            $
            682,243
            
            $
            768,012Loans
                unsecuritized
            
            
            263,810
            
            
            48,019Unearned
                finance charges
            
            
            (1,952
            )
            
            (2,507
            )Unearned
                acquisition discount
            
            
            (45,728
            )
            
            (39,449
            )Allowance
                for loan losses
            
            
            (46,050
            )
            
            (36,037
            )Total
                loans, net
            
            $
            852,323
            
            $
            738,038Allowance
                for loan losses to gross loans net of unearned acquisition
                discounts
            
            
            5.13
            %
            
            4.66
            %Unearned
                acquisition discounts to gross loans
            
            
            4.84
            %
            
            4.85
            %Average
                percentage rate to customers
            
            
            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 $226.1 million and $26.7 million pledged under
      the
      Company’s warehouse facilities as of September 30, 2007 and December 31,
      2006, respectively.


7




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





**Nine
                Months Ended September 30,****2007**
            
            **2006****(Dollars
                in thousands)**Allowance
                for loan losses at beginning of period
            
            $
            36,037
            
            $
            29,110Provision
                for loan losses
            
            
            48,536
            
            
            29,555Net
                charge-offs
            
            
            (38,523
            )
            
            (25,760
            )Allowance
                for loan losses at end of period
            
            $
            46,050
            
            $
            32,905




The
      allowance for loan losses is the estimate of probable losses in our loan
      portfolio for the next twelve months as of the statement of financial condition
      date. The level of the allowance is based principally on historical loss trends
      and the remaining balance of loans. The Company believes that the allowance
      for
      loan losses is currently adequate to absorb probable loan losses in the loans
      balance as of September 30, 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 $3.0 million and $3.3 million as
      of
      September 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 September 30, 2007, we were in compliance
      with
      all terms of the financial covenants related to our securitization transactions.


8




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




**Issue**
              **Number**
            
            **Issuance Date**
            
            **Maturity Date(1)**
            
            **Original**
              **Balance**
            
            **Remaining****Balance
                at**
              **September
                30, 2007****(Dollars
                in thousands)**2004A
            
            
            September
                22, 2004
            
            
            September
                2010
            
            $
            420,000
            
            $
            —2005A
            
            
            April
                14, 2005
            
            
            December
                2010
            
            $
            195,000
            
            $
            37,7382005B
            
            
            November
                10, 2005
            
            
            August
                2011
            
            $
            225,000
            
            $
            71,7642006A
            
            
            June
                15, 2006
            
            
            May
                2012
            
            $
            242,000
            
            $
            119,8422006B
            
            
            December
                14, 2006
            
            
            August
                2012
            
            $
            250,000
            
            $
            166,7482007A
            
            
            June
                14, 2007
            
            
            July
                2013
            
            $
            250,000
            
            $
            221,612Total
            
            $
            1,582,000
            
            $
            617,704




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




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




**September
                30,**
              **2007**
            
            **December 31,**
              **2006****(Dollars
                in thousands)**Automobile
                contracts, net
            
            $
            682,243
            
            $
            768,012Restricted
                cash
            
            $
            25,254
            
            $
            29,221Total
                assets pledged
            
            $
            707,497
            
            $
            797,233




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





**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****(Dollars
                in thousands)**Receivables
                securitized
            
            $
            —
            
            $
            —
            
            $
            268,817
            
            $
            260,215Proceeds
                from securitization
            
            $
            —
            
            $
            —
            
            $
            250,000
            
            $
            242,000Distribution
                from the trusts
            
            $
            30,501
            
            $
            21,070
            
            $
            72,009
            
            $
            58,898




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. In August 2007, we executed a clean up call on the remaining
      10% of the notes payable that were issued in our 2004A securitization
      transaction. We anticipate that we will continue to execute clean up calls
      for
      our securitizations in the future.




In
      order
      to assist our borrowers who have been adversely impacted by the rise in gasoline
      pries, we increased our extension usage. Under our current servicing agreements,
      we are required to repurchase loans under our securitizations if we are in
      excess of extension performance targets. As a result, we repurchased $10.8
      million loans during the nine months ended September 30, 2007. We funded the
      purchase price for the repurchase by obtaining advances under our existing
      warehouse facility. The repurchased loans have been securitized in the 2007B
      transaction.




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




On
      October 31, 2007, we priced a $250 million offering of automobile
      receivables-backed securities. The securities will be issued via an owner trust,
      United Automobile Receivables Trust 2007-B, in three classes of
      Notes:





**Note
                Class**
            
            **Amount**
            
            **Average
                Life**
            
            **Price**
            
            **Coupon
                Rate**
            
            **Standard
                & Poor's**
            
            **Moody's**A-1
            
            $
            58,000,000
            
            
            0.27
                years
            
            
            100.00000
            
            
            4.98685%
            
            
            A-1+
            
            
            Prime-1A-2
            
            $
            93,000,000
            
            
            1.05
                years
            
            
            99.99110
            
            
            5.75%
            
            
            AAA
            
            
            AaaA-3
            
            $
            99,000,000
            
            
            2.40
                years
            
            
            99.98087
            
            
            6.15%
            
            
            AAA
            
            
            Aaa




9


The
      weighted average coupon on the Notes is 5.987%.




AMBAC
      Assurance Corporation will provide a note guaranty insurance policy for this
      transaction at a rate of 0.45%. Initial credit enhancement will total 9.0%
      of
      the original receivable pool balance building to the total required enhancement
      level of 13.0% of the then outstanding receivable pool balance. The initial
      9.0%
      enhancement will consist of a 2.0% reserve fund and 7.0%
      overcollateralization.





*Warehouse
      Facility*




As
      of
      September 30, 2007, our $300 million warehouse facility was drawn to $193.2
      million, which we use to fund our automobile finance operations to purchase
      automobile contracts pending securitization. On October 18, 2007, we executed
      a
      twelve month extension of our existing $300 million warehouse facility with
      Deutsche Bank. There were no material changes to the existing warehouse
      agreement. Under the terms of the facility, our indirect subsidiary, UFC, may
      obtain advances on a revolving basis by issuing notes to the participating
      lenders and pledging for each advance a portfolio of automobile contracts.
      UFC
      purchases the automobile contracts from UACC and UACC services the automobile
      contracts, which are held by a custodian. We have provided an absolute and
      unconditional and irrevocable guaranty of the full and punctual payment and
      performance, of all liabilities, agreements and other obligations of UACC and
      UFC under the warehouse facility. Whether we may obtain further advances under
      the facility depends on, among other things, the performance of the automobile
      contracts that are pledged under the facility and whether we comply with certain
      financial covenants contained in the sale and servicing agreement. We were
      in
      compliance with the terms of such financial covenants as of September 30, 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 September 30, 2007, restricted cash
      of
      $4.6 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 September 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 September 30, 2007 are included
      in other assets on the consolidated statements of financial condition. As of
      September 30, 2007, the $26 million facility had a zero balance. As of September
      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 September 30, 2007, we did not repurchase any shares of our common
      stock. During the nine months ended September 30, 2007, we repurchased 1,013,213
      shares of our common stock for an average price of $12.98 per share for an
      aggregate purchase price of $13.2 million. From July 24, 2006 to May 18, 2007,
      we have repurchased 2,089,738 shares of our common stock.


10


**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 September 30, 2007 there
      were
      4,203,035 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 nine months ended September 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 the provisions of SFAS No. 123(R). As stock-based
      compensation expense recognized in the consolidated statement of income for
      the
      three and nine months ended September 30, 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 nine months ended September 30, 2007 and
      2006.




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****(Dollars
                in thousands)**Stock-based
                compensation expense
            
            $
            207
            
            $
            661
            
            $
            1,400
            
            $
            1,754Tax
                benefit
            
            
            (65
            )
            
            (269
            )
            
            (542
            )
            
            (711
            )Stock-based
                compensation expense, net of tax
            
            $
            142
            
            $
            392
            
            $
            858
            
            $
            1,043




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 33 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.


11


**Three Months**
                    **Ended
                      September 30,**
                  
                  **Nine Months**
                    **Ended
                      September 30,***(Dollars
                      in thousands)*
                  
                  **2007**
                  
                  **2006**
                  
                  **2007**
                  
                  **2006**Expected
                      dividends
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Expected
                      volatility
                  
                  
                  47.71%
                  
                  
                  40.43%
                  
                  
                  46.77%
                  
                  
                  33.70%Risk-free
                      interest rate
                  
                  
                  4.40%
                  
                  
                  4.87%
                  
                  
                  4.48%
                  
                  
                  4.71%Expected
                      life (in years)
                  
                  
                  5.0
                      years
                  
                  
                  5.0
                      years
                  
                  
                  5.0
                      years
                  
                  
                  4.78
                      years




At
      September 30, 2007, there was $5.6 million of unrecognized compensation cost
      related to share based compensation, which is expected to be recognized over
      a
      weighted average period of 3.12 years. A summary of option activity for the
      nine
      months ended September 30, 2007 and 2006 is as follows:




**Nine
                Months Ended September 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
            
            $
            10.07Granted
            
            
            364,299
            
            
            11.02
            
            
            729,625
            
            
            27.93Canceled
                or expired
            
            
            (146,000
            )
            
            21.97
            
            
            (167,800
            )
            
            20.16Exercised
            
            
            (38,700
            )
            
            6.19
            
            
            (1,102,179
            )
            
            3.45Balance
                at end of period
            
            
            4,203,035
            
            
            14.18
            
            
            4,034,036
            
            
            14.69Weighted
                average fair value per share of options granted during period
            
            $
            7.41
            
            
            
            
            $
            9.61




At
      September 30, 2007, options exercisable to purchase 3,082,636 shares of our
      common stock under the Plan were outstanding as follows:




**Range of Exercise Prices**
            
            **Number of Shares**
              **Vested**
            
            **Number of Shares**
              **Unvested**
            
            **Weighted**
              **Average**
              **Exercise Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            **Number of Shares**
              **Exercisable**
            
            **Exercisable**
              **Shares**
              **Weighted**
              **Average**
              **Exercise Price**$0.0000 to $3.1650
            
            
            16,469
            
            
            58,299
            
            $
            0.52
            
            
            7.95
            
            
            16,469
            
            $
            2.35$3.1651 to $6.3300
            
            
            679,392
            
            
            1,000
            
            
            4.23
            
            
            2.84
            
            
            679,392
            
            
            4.23$6.3301 to $9.4950
            
            
            72,800
            
            
            33,400
            
            
            7.50
            
            
            5.43
            
            
            72,800
            
            
            7.00$9.4951 to $12.6600
            
            
            1,385,100
            
            
            75,400
            
            
            10.28
            
            
            3.95
            
            
            1,385,100
            
            
            10.21$12.6601 to $15.8250
            
            
            311,250
            
            
            214,500
            
            
            14.60
            
            
            5.58
            
            
            311,250
            
            
            14.89$15.8251 to $18.9900
            
            
            124,500
            
            
            108,800
            
            
            17.69
            
            
            6.83
            
            
            124,500
            
            
            17.69$18.9901 to $22.1550
            
            
            294,000
            
            
            64,500
            
            
            20.05
            
            
            4.05
            
            
            294,000
            
            
            20.02$22.1551 to $25.3200
            
            
            31,400
            
            
            48,100
            
            
            23.29
            
            
            8.00
            
            
            31,400
            
            
            23.25$25.3201 to $28.4850
            
            
            77,600
            
            
            69,900
            
            
            26.77
            
            
            8.02
            
            
            77,600
            
            
            26.40$28.4851 to $31.6500
            
            
            90,125
            
            
            446,500
            
            
            29.96
            
            
            8.28
            
            
            90,125
            
            
            29.383,082,636
            
            
            1,120,399
            
            $
            14.18
            
            
            5.02
            
            
            3,082,636
            
            $
            11.58





The
      weighted average remaining contractual life of outstanding options was 5.02
      years at September 30, 2007 and 5.41 at December 31, 2006.




At
      September 30, 2007, 543,686 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 (i) extended the term of the plan through May 16, 2017,
      (ii)
      increased 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.


12




On
      July
      10, 2007, the Board of Directors approved restricted stock grants of 58,299
      shares to our executive officers and members 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 nine months ended September 30, 2007 and 2006:


**Three
                  Months Ended**
                **September 30,**
              
              **Nine
                  Months Ended**
                **September 30,*****(In
                  thousands)***
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Weighted
                  average common shares outstanding during the period to compute
                  basic
                  earnings per share
              
              
              15,732
              
              
              17,173
              
              
              15,990
              
              
              17,524Incremental
                  common shares attributable to exercise of outstanding
                  options
              
              
              312
              
              
              948
              
              
              568
              
              
              1,431Weighted
                  average number of common shares used to compute diluted earnings
                  per share
              
              
              16,044
              
              
              18,121
              
              
              16,558
              
              
              18,955





The
      above
      calculation of diluted earnings per share excluded 2,192,000 and 888,000 average
      shares for the three months ended September, 2007 and 2006, and 1,881,000 and
      422,000 average shares for the nine months ended September 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.




**11.**
            **Trust
                Preferred Securities**




On
      July 31, 2003, we issued trust preferred securities of $10.0 million
      through a subsidiary UPFC Trust I. The trust issuer is a “100% owned finance
      subsidiary” and we “fully and unconditionally” guaranteed the securities. We
      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 September 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.




**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 September 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 nine months ended September 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


**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 six 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. On October 18, 2007, we executed a twelve month
      extension of our existing $300 million warehouse facility with Deutsche Bank.
      There were no material changes to the existing warehouse agreement.




Our
      primary business strategy includes the origination of purchased automobile
      contracts 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 automobile
      contracts during the second quarter of 2007 in 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 states in
      which we operate our national retail branch network. We expect to offset the
      lower yield by increased cost efficiencies generated from operating from a
      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 a high level of
      service to the dealers by providing consistent credit decisions and two to
      three
      day funding. At September 30, 2007, the Business Operations Unit had seven
      employees and two BDMs. We currently anticipate that each BDM will 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.




While
      we
      have traditionally achieved growth in the origination of purchased automobile
      contracts through the opening of new branch offices, we began to pursue
      controlled growth through a combination of expanding our more seasoned branch
      offices and opening fewer new branch offices during the third quarter of 2007.
      This change is designed to improve individual branch profitability, enhance
      loan
      servicing and facilitate more effective branch management, while at the same
      time continuing to grow originations 10% to 20% over time. In connection with
      our new long-term growth strategy, we intend to increase the average portfolio
      of purchased contracts within the best performing seasoned branches from
      approximately $10 million up to $20 million over the next 3 to 5 years. During
      the third quarter of 2007, we consolidated four underperforming branch
      offices.


14




During
      2006, UPFC and the industry in general experienced a higher rate of
      delinquencies and losses which we believe have been primarily due to general
      economic conditions, and particularly to increased gasoline prices and
      employment contraction. As a result, during the third quarter of 2007, we
      modified our underwriting criteria for purchasing automobile contracts requiring
      higher minimum income levels and higher minimum book value of the automobile
      in
      order to pursue higher-quality borrowers and more recent model year automobiles.
      In addition, under our revised underwriting criteria, we intend to purchase
      contracts with terms extending up to 72 months (from up to 60 months previously)
      for creditworthy borrowers who can demonstrate higher income levels and better
      credit records. Also, as part of the underwriting review, we increased pricing
      for purchasing automobile contracts in 22 states by almost 100 basis points
      in
      APR. The states affected by the new pricing account for approximately 60% of
      our
      current originations and we expect that the impact will result in a gradual
      increase of approximately 60 basis points in weighted average yield over the
      next few years.




**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.




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.




In
      August
      2007, we executed a clean up call on the remaining 10% of the notes payable
      that
      were issued in our 2004A securitization transaction. We anticipate that we
      will
      continue to execute clean up calls for our securitizations in the
      future.




*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.


15




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 include, the impact of
      SFAS No. 123(R). Stock-based compensation expense recognized under SFAS
      No. 123(R) was $207,000 and $661,000 for the three months ended September
      30, 2007 and 2006, respectively, $1,400,000 and $1,754,000 for the nine months
      ended September 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.




**September
                30, 2007**
            
            **December 31,
                2006****(Dollars
                in Thousands)**Loans
            
            $
            946,053
            
            $
            816,031Unearned
                finance charges (1)
            
            
            (1,952
            )
            
            (2,507
            )Unearned
                acquisition discount (1)
            
            
            (45,728
            )
            
            (39,449
            )Allowance
                for loan losses (1)
            
            
            (46,050
            )
            
            (36,037
            )Total
                loans, net
            
            $
            852,323
            
            $
            738,038




(1)
            See
                “—Critical Accounting Policies”




16




*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
      $46.1 million at September 30, 2007 compared with $36.0 million at
      December 31, 2006, representing 5.13% of loans at September 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 Nine Months Ended****September
                30, 2007**
            
            **September
                30, 2006****(Dollars
                in Thousands)****Allowance
                for Loan Losses**Balance
                at beginning of year
            
            $
            36,037
            
            $
            29,110Provision
                for loan losses (1)
            
            
            48,536
            
            
            29,555Net
                charge-offs
            
            
            (38,523
            )
            
            (25,760
            )Balance
                at end of year
            
            $
            46,050
            
            $
            32,905Annualized
                net charge-offs to average loans
            
            
            5.80%
            
            
            4.66%Ending
                allowance to period end loans
            
            
            5.13%
            
            
            4.31%




(1)
            See
                “—Critical Accounting Policies”




*Past
      Due and Nonaccrual Loans*




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




**September
                30, 2007**
            
            **December
                31, 2006**
            
            **September
                30, 2006****(Dollars
                in Thousands)****Loan
                Delinquencies**
            
            **Balance**
            
            **% of Total**
              **Loans**
            
            **Balance**
            
            **% of Total**
              **Loans**
            
            **Balance**
            
            **% of Total**
              **Loans**30
                to 59 days
            
            $
            6,729
            
            
            0.71%
            
            $
            4,898
            
            
            0.60%
            
            $
            5,284
            
            
            0.66%60
                to 89 days
            
            
            2,641
            
            
            0.28%
            
            
            1,678
            
            
            0.21%
            
            
            2,036
            
            
            0.25%90+
                days
            
            
            1,674
            
            
            0.18%
            
            
            966
            
            
            0.12%
            
            
            1,077
            
            
            0.13%Total
            
            $
            11,044
            
            
            1.17%
            
            $
            7,542
            
            
            0.93%
            
            $
            8,397
            
            
            1.04%




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.




**September
                30, 2007**
            
            **December
                31, 2006**
            
            **September
                30, 2006****(Dollars
                in Thousands)**Nonaccrual
                loans
            
            $
            19,970
            
            $
            13,314
            
            $
            14,776Nonaccrual
                loans to gross loans
            
            
            2.12
            %
            
            1.64
            %
            
            1.84
            %Allowance
                for loan losses to gross loans, net of unearned acquisition
                discounts
            
            
            5.13
            %
            
            4.66
            %
            
            4.31
            %




*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 June
      2007 were not included in this table because the loan pools were not seasoned
      enough to provide a meaningful comparison with prior periods.


17


**Number
                  of**
                **Months**
                **Outstanding**
              
              **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**
              
              **Apr.
                  2007**
                **-**
                **Jun.
                  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
              
              
              0.08%
              
              
              0.05%
              
              
              0.03%
              
              
              0.06%
              
              
              0.12%
              
              
              0.05%
              
              
              0.02%
              
              
              0.06%
              
              
              0.09%
              
              
              0.10%
              
              
              0.05%
              
              
              0.08%7
              
              
              0.65%
              
              
              0.49%
              
              
              0.40%
              
              
              0.64%
              
              
              0.59%
              
              
              0.47%
              
              
              0.40%
              
              
              0.62%
              
              
              0.88%
              
              
              0.64%
              
              
              0.54%10
              
              
              1.29%
              
              
              1.19%
              
              
              1.35%
              
              
              1.63%
              
              
              1.36%
              
              
              1.28%
              
              
              1.61%
              
              
              2.00%
              
              
              1.84%
              
              
              1.73%13
              
              
              2.21%
              
              
              2.41%
              
              
              2.48%
              
              
              2.57%
              
              
              2.37%
              
              
              2.71%
              
              
              2.96%
              
              
              3.13%
              
              
              3.23%16
              
              
              3.12%
              
              
              3.56%
              
              
              3.32%
              
              
              3.47%
              
              
              3.56%
              
              
              4.07%
              
              
              3.90%
              
              
              4.35%19
              
              
              4.20%
              
              
              4.44%
              
              
              4.21%
              
              
              4.70%
              
              
              4.85%
              
              
              5.01%
              
              
              5.03%22
              
              
              4.95%
              
              
              5.17%
              
              
              5.50%
              
              
              5.95%
              
              
              5.76%
              
              
              5.96%25
              
              
              5.56%
              
              
              6.12%
              
              
              6.56%
              
              
              6.69%
              
              
              6.69%28
              
              
              6.31%
              
              
              7.02%
              
              
              7.23%
              
              
              7.41%31
              
              
              7.05%
              
              
              7.66%
              
              
              7.86%34
              
              
              7.47%
              
              
              8.24%37
              
              
              7.81%Original
                  Pool ($000)
              
              $
              89,688
              
              $
              86,697
              
              $
              118,883
              
              $
              120,502
              
              $
              112,487
              
              $
              101,482
              
              $
              142,873
              
              $
              143,988
              
              $
              136,167
              
              $
              113,767
              
              $
              164,019
              
              $
              162,873Remaining
                  Pool ($000)
              
              $
              12,758
              
              $
              15,452
              
              $
              28,097
              
              $
              33,586
              
              $
              37,526
              
              $
              40,345
              
              $
              69,900
              
              $
              81,021
              
              $
              87,588
              
              $
              83,374
              
              $
              137,075
              
              $
              147,932Remaining
                  Pool (%)
              
              
              14.2%
              
              
              17.8%
              
              
              23.6%
              
              
              27.9%
              
              
              33.4%
              
              
              39.8%
              
              
              48.9%
              
              
              56.3%
              
              
              64.3%
              
              
              73.3%
              
              
              83.6%
              
              
              90.8%




*Loan
      Maturities*




The
      following table sets forth the dollar amount of automobile contracts maturing
      in
      our automobile contracts portfolio at September 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
            
            $
            21,488
            
            $
            312,819
            
            $
            598,756
            
            $
            11,038
            
            $
            944,101


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.




18




*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 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 September 30, 2007.




*(Dollars
      in thousands)*


**Issue** **Number**
            
            **Issuance
                Date**
            
            **Original**
              **Balance**
            
            **Current**
              **Balance**
              **Class**
              **A-1**
            
            **Interest**
              **Rate**
            
            **Current**
              **Balance**
              **Class**
              **A-2**
            
            **Interest**
              **Rate**
            
            **Current**
              **Balance**
              **Class**
              **A-3**
            
            **Interest**
              **Rate**
            
            **Total**
              **Current**
              **Balance**
            
            **Current**
              **Receivables**
              **Pledged**
            
            **Surety**
              **Costs(1)**
            
            **Back-up**
              **Servicing**
              **Fees**2004A
            
            
            September
                22, 2004
            
            $
            420,000
            
            $
            —
            
            
            1.94
            %
            $
            —
            
            
            2.56
            %
            $
            —
            
            
            3.27
            %
            $
            —
            
            $
            —
            
            
            0.46
            %
            
            0.020
            %2005A
            
            
            April
                14, 2005
            
            
            195,000
            
            
            —
            
            
            3.12
            %
            
            —
            
            
            3.85
            %
            
            37,738
            
            
            4.34
            %
            
            37,738
            
            
            41,277
            
            
            0.43
            %
            
            0.035
            %2005B
            
            
            November
                10, 2005
            
            
            225,000
            
            
            —
            
            
            4.28
            %
            
            —
            
            
            4.82
            %
            
            71,764
            
            
            4.98
            %
            
            71,764
            
            
            82,054
            
            
            0.41
            %
            
            0.035
            %2006A
            
            
            June
                15, 2006
            
            
            242,000
            
            
            —
            
            
            5.27
            %
            
            23,842
            
            
            5.46
            %
            
            96,000
            
            
            5.49
            %
            
            119,842
            
            
            132,219
            
            
            0.39
            %
            
            0.035
            %2006B
            
            
            December
                14, 2006
            
            
            250,000
            
            
            —
            
            
            5.34
            %
            
            67,748
            
            
            5.15
            %
            
            99,000
            
            
            5.01
            %
            
            166,748
            
            
            185,655
            
            
            0.38
            %
            
            0.035
            %2007A
            
            
            June
                14, 2007
            
            
            250,000
            
            
            25,612
            
            
            5.33
            %
            
            97,000
            
            
            5.46
            %
            
            99,000
            
            
            5.53
            %
            
            221,612
            
            
            241,038
            
            
            0.37
            %
            
            0.032
            %$
            1,582,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            617,704
            
            $
            682,243


________________________


(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 September 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. In August 2007, we executed a clean up call on the remaining
      10% of the notes payable that were issued in our 2004A securitization
      transaction. We anticipate that we will continue to execute clean up calls
      for
      our securitizations in the future.




In
      order
      to assist our borrowers who have been adversely impacted by the rise in gasoline
      pries, we increased our extension usage. Under our current servicing agreements,
      we are required to repurchase loans under our securitizations if we are in
      excess of extension performance targets. As a result, we repurchased $10.8
      million loans during the nine months ended September 30, 2007. We funded the
      purchase price for the repurchase by obtaining advances under our existing
      warehouse facility. The repurchased loans have been securitized in the 2007B
      transaction.




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




On
      October 31, 2007, we priced a $250 million offering of automobile
      receivables-backed securities. The securities will be issued via an owner trust,
      United Automobile Receivables Trust 2007-B, in three classes of
      Notes:


19







**Note
                Class**
            
            **Amount**
            
            **Average
                Life**
            
            **Price**
            
            **Coupon
                Rate**
            
            **Standard
                & Poor's**
            
            **Moody's**A-1
            
            $
            58,000,000
            
            
            0.27
                years
            
            
            100.00000
            
            
            4.98685%
            
            
            A-1+
            
            
            Prime-1A-2
            
            $
            93,000,000
            
            
            1.05
                years
            
            
            99.99110
            
            
            5.75%
            
            
            AAA
            
            
            AaaA-3
            
            $
            99,000,000
            
            
            2.40
                years
            
            
            99.98087
            
            
            6.15%
            
            
            AAA
            
            
            Aaa




The
      weighted average coupon on the Notes is 5.987%.




AMBAC
      Assurance Corporation will provide a note guaranty insurance policy for this
      transaction at a rate of 0.45%. Initial credit enhancement will total 9.0%
      of
      the original receivable pool balance building to the total required enhancement
      level of 13.0% of the then outstanding receivable pool balance. The initial
      9.0%
      enhancement will consist of a 2.0% reserve fund and 7.0%
      overcollateralization.




*Warehouse
      Facility*




As
      of
      September 30, 2007, our $300 million warehouse facility was drawn to $193.2
      million, which we use to fund our automobile finance operations to purchase
      automobile contracts pending securitization. On October 18, 2007, we executed
      a
      twelve month extension of our warehouse facility. There were no material changes
      to the existing warehouse agreement. The
      current cost on our warehouse facility includes a usage fee of 0.70% spread
      above commercial paper rate plus a program fee equal to 0.25% in the total
      facility annually. Under
      the terms of the facility, our indirect subsidiary, UFC, may obtain advances
      on
      a revolving basis by issuing notes to the participating lenders and pledging
      for
      each advance a portfolio of automobile contracts. UFC purchases the automobile
      contracts from UACC and UACC services the automobile contracts, which are held
      by a custodian. We have provided an absolute and unconditional and irrevocable
      guaranty of the full and punctual payment and performance, of all liabilities,
      agreements and other obligations of UACC and UFC under the warehouse facility.
      Whether we may obtain further advances under the facility depends on, among
      other things, the performance of the automobile contracts that are pledged
      under
      the facility and whether we comply with certain financial covenants contained
      in
      the sale and servicing agreement. We were in compliance with the terms of such
      financial covenants as of September 30, 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 September 30, 2007, the $26 million facility had a zero balance. As of
      September 30, 2007, we were in compliance with all terms of the financial
      covenants under the residual credit facility.




*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 did not
      repurchase any shares of our common stock during the three months ended
      September 30, 2007. During the nine months ended September 30, 2007, we
      repurchased 1,013,213 shares of our common stock for an average price of $12.98
      per share for an aggregate purchase price of $13.2 million. From July 24, 2006
      to May 18, 2007, we have repurchased 2,089,738 shares of our common
      stock.


20




*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
      September 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 September 30, 2007.





**Less
                than**
              **1
                Year**
            
            **1
                Year**
              **to
                3 Years**
            
            **3
                Years**
              **to 5 Years**
            
            **More Than**
              **5
                Years**
            
            **Total****(Dollars
                in thousands)**Warehouse
                line of credit
            
            $
            193,202
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            193,202Securitization
                notes payable
            
            
            261,027
            
            
            356,677
            
            
            —
            
            
            —
            
            
            617,704Operating
                lease obligations
            
            
            1,655
            
            
            12,338
            
            
            8,493
            
            
            1,217
            
            
            23,703Junior
                subordinated debentures
            
            
            —
            
            
            —
            
            
            —
            
            
            10,310
            
            
            10,310Total
            
            $
            455,884
            
            $
            369,015
            
            $
            8,493
            
            $
            11,527
            
            $
            844,919




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.







21




**Selected
      Financial Data**


*(Dollars
                    and shares in thousands)*
                
                At
                    or For the
                  Three
                    Months Ended
                
                At
                    or For the
                  Nine
                    Months EndedSeptember
                    30,
                  2007
                
                September
                    30,
                  2006
                
                September
                    30,
                  2007
                
                September
                    30,
                  2006**Operating
                    Data**Contracts
                    purchased
                
                $
                149,294
                
                $
                139,617
                
                $
                484,741
                
                $
                433,926Contracts
                    outstanding
                
                $
                944,101
                
                $
                803,692
                
                $
                944,101
                
                $
                803,692Unearned
                    acquisition discounts
                
                $
                (45,728)
                
                $
                (39,495)
                
                $
                (45,728)
                
                $
                (39,495)Average
                    loan balance
                
                $
                934,334
                
                $
                786,880
                
                $
                887,548
                
                $
                738,923Unearned
                    acquisition discounts to gross loans
                
                
                4.84%
                
                
                4.91%
                
                
                4.84%
                
                
                4.91%Average
                    percentage rate to borrowers
                
                
                22.62%
                
                
                22.69%
                
                
                22.62%
                
                
                22.69%**Loan
                    Quality Data**Allowance
                    for loan losses
                
                $
                (46,050)
                
                $
                (32,905)
                
                $
                (46,050)
                
                $
                (32,905)Allowance
                    for loan losses to gross loans net ofunearned
                    acquisition discounts
                
                
                5.13%
                
                
                4.31%
                
                
                5.13%
                
                
                4.31%Delinquencies
                    (% of net contracts)31-60
                    days
                
                
                0.71%
                
                
                0.66%
                
                
                0.71%
                
                
                0.66%61-90
                    days
                
                
                0.28%
                
                
                0.25%
                
                
                0.28%
                
                
                0.25%90+
                    days
                
                
                0.18%
                
                
                0.13%
                
                
                0.18%
                
                
                0.13%Total
                
                
                1.17%
                
                
                1.04%
                
                
                1.17%
                
                
                1.04%Repossessions
                    over 30 days past due (% of net contracts)
                
                
                0.76%
                
                
                0.62%
                
                
                0.76%
                
                
                0.62%Annualized
                    net charge-offs to average loans(1)
                
                
                6.66%
                
                
                5.43%
                
                
                5.80%
                
                
                4.66%**Other
                    Data**Number
                    of branches
                
                
                142
                
                
                125
                
                
                142
                
                
                125Interest
                    Income
                
                $
                59,726
                
                $
                50,815
                
                $
                170,005
                
                $
                143,144Interest
                    Expense
                
                $
                12,532
                
                $
                9,674
                
                $
                34,647
                
                $
                25,584Net
                    interest margin
                
                $
                47,194
                
                $
                41,141
                
                $
                135,358
                
                $
                117,560Net
                    interest margin as a percentage of interest income
                
                
                79.02%
                
                
                80.96%
                
                
                79.62%
                
                
                82.13%Net
                    interest margin as a percentage of average loans(1)
                
                
                20.04%
                
                
                20.74%
                
                
                20.39%
                
                
                21.27%Non-interest
                    expense to average loans(1)
                
                
                10.08%
                
                
                10.51%
                
                
                10.77%
                
                
                10.70%Return
                    on average assets from continuing operations(1)
                
                
                1.03%
                
                
                2.11%
                
                
                1.45%
                
                
                3.04%Return
                    on average shareholders’ equity(1)
                
                
                6.46%
                
                
                10.83%
                
                
                8.72%
                
                
                14.72%Consolidated
                    capital to assets ratio
                
                
                16.01%
                
                
                18.42%
                
                
                16.01%
                
                
                18.42%




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






**Results
      of Operations**




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




*General*




For
      the
      three months ended September 30, 2007, our net income was $2.6 million, or
      $0.16
      per diluted share, compared with $4.5 million, or $0.25 per diluted share for
      the same period a year ago.




Interest
      income increased 18% to $59.7 million for the three months ended September
      30,
      2007 from $50.8 million for the same period a year ago. Automobile contracts
      purchased increased 7% to $149.3 million for the three months ended September
      30, 2007 from $139.6 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 our controlled growth strategy. During the three months ended
      September 30, 2007, we opened two branch offices and consolidated four
      underperforming branch offices bringing our total to 142 branch offices in
      37
      states.




*Interest
      Income*




Interest
      income increased by 18% to $59.7 million for the three months ended September
      30, 2007 from $50.8 million for the same period a year ago due primarily to
      the
      increase in average automobile contracts of $147.5 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.


22




*Interest
      Expense*




Interest
      expense increased 29% to $12.5 million for the three months ended September
      30,
      2007 from $9.7 million for the same period a year ago. The average debt
      outstanding increased by 22% to $815.3 million for the three months ended
      September 30, 2007 from $669.8 million for the same period a year ago. The
      average interest rate increased to 6.10% for the three months ended September
      30, 2007 from 5.73% 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 September 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 $20.0 million for the three months ended September
      30,
      2007 compared with $13.0 million for the same period a year ago. The
      increase in the provision for loan losses was due primarily to a $147.5 million
      increase in average automobile contracts and an increase in the annualized
      charge-off rate to 6.66% for the three months ended September 30, 2007 compared
      to 5.43% for the same period a year ago.




The
      increase in our quarterly annualized net charge-offs was the result of increased
      defaults due to changes in general economic conditions particularly due to
      increased gasoline prices and employment contraction. 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 $46.1 million at September 30, 2007 compared
      with
      $32.9 million at September 30, 2006, representing 5.13% of automobile contracts,
      less unearned acquisition discount, at September 30, 2007 and 4.31% at September
      30, 2006. The increase in the allowance for loan losses was due primarily to
      a
      $140.4 million increase in automobile contracts outstanding, which increased
      to
      $944.1 million at September 30, 2007 from $803.7 million at September 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 September 30,
      2007 from $0.3 million for the same period a year ago.




*Non-interest
      Expense*




Non-interest
      expense increased $2.8 million to $23.7 million for the three months ended
      September 30, 2007 from $20.9 million for the same period a year ago. The
      increase was driven primarily by our controlled growth strategy, 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 our
      controlled growth strategy, resulting in an increase to 1,095 employees as
      of
      September 30, 2007, from 906 employees as of September 30, 2006.




*Income
      Taxes*




Income
      taxes from continuing operations decreased $1.8 million to $1.3 million for
      the
      three months ended September 30, 2007 from $3.1 million for the same period
      a
      year ago. This decrease occurred primarily as a result of a $3.7 million
      decrease in taxable income from continuing operations before income taxes. Our
      effective tax rate has been lower in 2007 relative to 2006 due to our expansion
      into lower tax jurisdictions.


23




***Comparison
      of Operating Results for the Nine Months Ended September 30, 2007 and 2006***




*General*




For
      the
      nine months ended September 30, 2007, our net income was $10.2 million, or
      $0.62
      per diluted share, compared with $17.3 million, or $0.91 per diluted share
      for
      the same period a year ago.




Interest
      income increased 19% to $170.0 million for the nine months ended September
      30,
      2007 from $143.1 million for the same period a year ago. Automobile contracts
      purchased increased $50.8 million to $484.7 million for the nine months ended
      September 30, 2007 from $433.9 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 our controlled growth strategy. During the nine months
      ended September 30, 2007, we opened 15 branch offices and consolidated four
      underperforming branch offices bringing our total to 142 branch offices in
      37
      states.




*Interest
      Income*




Interest
      income increased by 19% to $170.0 million for the nine months ended September
      30, 2007 from $143.1 million for the same period a year ago due primarily to
      the
      increase in average automobile contracts of $148.6 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 35% to $34.6 million for the nine months ended September
      30,
      2007 from $25.6 million for the same period a year ago. The average debt
      outstanding increased by 24% to $773.0 million for the nine months ended
      September 30, 2007 from $625.5 million for the same period a year ago. The
      average interest rate increased to 5.99% for the nine months ended September
      30,
      2007 from 5.47% 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 nine months ended September 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 $48.5 million for the nine months ended September
      30,
      2007 compared with $29.6 million for the same period a year ago. The
      increase in the provision for loan losses was due primarily to a $148.6 million
      increase in average automobile contracts and an increase in the annualized
      charge-off rate to 5.80% for the nine months ended September 30, 2007 compared
      to 4.66% 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 changes in general economic conditions particularly
      due to increased gasoline prices and employment contraction. 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 $46.1 million at September 30, 2007 compared
      with $32.9 million at September 30, 2006, representing 5.13% of automobile
      contracts, less unearned acquisition discount, at September 30, 2007 and
      4.31% at September 30, 2006. The increase in allowance loan losses was due
      primarily to a $140.4 million increase in automobile contracts outstanding,
      which increased to $944.1 million at September 30, 2007 from $803.7 million
      at September 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 decreased to $1.3 million for the nine months ended September 30,
      2007 from $1.4 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.


24




*Non-interest
      Expense*




Non-interest
      expense increased $12.4 million to $71.5 million for the nine months ended
      September 30, 2007 from $59.1 million for the same period a year ago. The
      increase was driven primarily by our controlled growth strategy, 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 our
      controlled growth strategy, resulting in a total of 1,095 employees as of
      September 30, 2007, from a total of 906 employees as of September 30,
      2006.




*Income
      Taxes*




Income
      taxes before discontinued operations decreased $5.8 million to $6.5 million
      for
      the nine months ended September 30, 2007 from $12.3 million for the same
      period a year ago. This decrease occurred primarily as a result of a $13.6
      million decrease in income from continuing operation before income taxes. Our
      effective tax rate has been lower in 2007 relative to 2006 due to our expansion
      into lower tax jurisdictions.




**Financial
      Condition**




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




Total
      assets increased $111.1 million, to $990.6 million at September 30, 2007, from
      $879.5 million at December 31, 2006. The increase resulted from a $124.3
      million increase in automobile contracts to $898.4 million, net of unearned
      acquisition discounts and unearned finance charges, at September 30, 2007 from
      $774.1 million at December 31, 2006.




Securitization
      notes payable decreased to $617.7 million at September 30, 2007 from
      $698.3 million at December 31, 2006 due to the execution of a clean up
      call in August 2007 on the remaining 10% of the notes payable that were issued
      in our 2004-A securitization transaction and payments on automobile contracts
      backing the securitized borrowings, partially offset by the completion of a
      $250
      million securitization in June 2007.




Warehouse
      line of credit borrowing increased to $193.2 million as of September 30, 2007
      from zero as of December 31, 2006 due to funding of additional automobile
      contracts during the nine months ended September 30, 2007, partially offset
      by
      the completion of a $250 million securitization in June 2007.




Shareholders’
      equity decreased to $158.6 million at September 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 nine months ended September 30, 2007,
      partially offset by net income of $10.2 million and recognition of expense
      for
      fair value of options of $1.4 million during the nine months ended September
      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 $38.2 million and $23.8 million in the
      first nine months of 2007 and 2006, respectively. Cash provided by operating
      activities increased in the first nine months of 2007 compared to the same
      period in 2006 due primarily to an increase in cash received on interest income,
      partially offset by an increase in cash used on interest expense.




Cash
      used
      in investing activities was $145.6 million in the first nine months of 2007.
      Cash provided by investing activities was $355.5 million in the first nine
      months of 2006. Cash used in investing activities decreased in the first nine
      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.




Cash
      provided by financing activities was $96.0 million in the first nine months
      of
      2007. Cash used in financing activities was $383.2 million in the first nine
      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.


25




**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.









26


**Item 3.**
            **Quantitative
                and Qualitative Disclosures About Market Risk.**




See
“Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations—Management of Interest Rate Risk.”




**Item 4.**
            **Controls
                and Procedures.**




**Disclosure
      Controls and Procedures**




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




**Changes
      in Internal Control Over Financial Reporting**




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
























27


**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 September 30, 2007, we did not repurchase any shares of
        our
        common stock .
  **Period**
              
              **Total**
                **Number
                  of**
                **Shares**
                **Purchased**
              
              **Average**
                **Price Paid**
                **Per
                  Share**
              
              **Total Number of Shares**
                **Purchased
                  as Part of**
                **Publicly
                  Announced**
                **Plan
                  or Program**
              
              **Approximate Number**
                **of
                  Shares That**
                **May
                  Yet Be**
                **Purchased
                  Under the**
                **Plan
                  or Program**July
                  1, 2007 to July 31, 2007
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262August
                  1, 2007 to August 31, 2007
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262September
                  1, 2007 to September 30, 2007
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262Total
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262
 
 On
        June 27, 2006, our Board of Directors approved a share repurchase program
        and authorized us to repurchase up to 500,000 shares of our outstanding common
        stock from time to time in the open market or in private transactions in
        accordance with the provisions of applicable state and federal law, including,
        without limitation, Rule 10b-18 promulgated under the Securities Exchange
        Act of
        1934, as amended. On August 4, 2006, our Board of Directors approved an
        increase in the aggregate number of shares of our outstanding common stock
        that
        we may repurchase pursuant to the previously announced share repurchase program
        from 500,000 shares to 1,500,000 shares. On December 21, 2006, our Board of
        Directors approved a second increase in the aggregate number of shares of
        our
        outstanding common stock that we may repurchase pursuant to the previously
        announced share repurchase program from 1,500,000 shares to 3,500,000 shares.
        This share repurchase program does not have an expiration date.
  **Item 3.**
              **Defaults
                  Upon Senior Securities.**
  Not
        applicable
  **Item 4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
  The
        Company’s 2007 Annual Meeting of Shareholders was held on July 10, 2007. At this
        meeting, the following matters were submitted to a vote of the Company’s
        shareholders:




Proposal 1:
            Elect
                Four Directors;Proposal 2:
            Approve
                Amendment and Restatement of our Amended and Restated 1997 Employee
                Stock
                Incentive Plan; andProposal 3:
            Ratify
                Selection of Independent Public Accountants for
                2007.




Proposal
      1. At this meeting, each of the following directors was elected to serve on
      the
      Company’s Board of Directors until the annual meeting of shareholders to be held
      in 2009, or until election of his(her) successor, or until he(she)
      resigns:





**Votes
                For**
            
            **Votes Withheld**Guillermo
                Bron
            
            
            16,086,432
            
            
            451,209Ray
                C. Thousand
            
            
            16,086,432
            
            
            451,209Luis
                Maizel
            
            
            15,458,401
            
            
            1,079,240Julie
                Sullivan
            
            
            16,086,432
            
            
            451,209




28


Other
      directors continuing to serve on the Company’s Board of Directors until the
      annual meeting of shareholders to be held in 2008, or until election of their
      successors, or until they resign, are Giles H. Bateman, Ron R. Duncanson and
      Mitchell G. Lynn.




Proposal
      2. At this meeting, the Amendment and Restatement of our Amended and Restated
      1997 Employee Stock Incentive Plan was approved by the Company’s shareholders
      (with 10,588,324 votes cast for, 2,445,551 votes cast against, and 3,503,766
      votes abstaining).




Proposal
      3. At this meeting, the ratification of Grobstein, Horwath & Company
      LLP as the Company’s independent auditors for the year ending December 31,
      2007 was approved by the Company’s shareholders (with 16,475,646 votes cast for,
      60,645 votes cast against, and 1,350 votes abstaining).




**Item 5.**
            **Other
                Information.**




Not
      applicable




**Item 6.**
            **Exhibits.**




31.1
            
            Certification
                of Chief Executive Officer under Section 302 of the Sarbanes-Oxley
                Act
                2002.31.2
            
            Certification
                of Chief Financial Officer under Section 302 of the Sarbanes-Oxley
                Act
                2002.32.1
            
            Certification
                of Chief Executive Officer under Section 906 of the Sarbanes-Oxley
                Act
                2002.32.2
            
            Certification
                of Chief Financial Officer under Section 906 of the Sarbanes-Oxley
                Act
                2002.




29


**SIGNATURES**




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




**United
                PanAm Financial Corp.****Date:**
            November
                8, 2007
            
            By:
            /s/    RAYTHOUSAND**Ray
                Thousand****Chief
                Executive Officer and President****(Principal
                Executive Officer)**November
                8, 2007
            
            By:
            /s/    ARASHKHAZEI**Arash
                Khazei****Chief
                Financial Officer and Executive Vice President****(Principal
                Financial and Accounting
                Officer)**










30