**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 June 30, 2008




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




For
      the
      transition period from  to




Commission
      File Number 000-24051







**UNITED
      PANAM FINANCIAL CORP.**


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




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




**(949)
      224-1917**


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







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




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




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




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




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












**UNITED
      PANAM FINANCIAL CORP.**


**FORM
      10-Q**


**June
      30, 2008**




**INDEX**


**Page**Cautionary
                  Statement
              1PART
                  I. FINANCIAL INFORMATIONItem 1.
              Financial
                  Statements
              2Consolidated
                  Statements of Financial Condition as of June 30, 2008 and December
                  31,
                  2007
              2Consolidated
                  Statements of Income for the three and six months ended June 30,
                  2008 and
                  2007
              3Consolidated
                  Statements of Changes in Shareholders’ Equity for the six months ended
                  June 30, 2008 and 2007
              4Consolidated
                  Statements of Cash Flows for the six months ended June 30, 2008
                  and
                  2007
              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
              28Item 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**


**June
                  30,**
                **2008**
              
              **December 31,**
                **2007*****(Dollars
                  in thousands)***
              
              **(Unaudited)**
              
              **(Audited)****Assets**Cash
              
              $
              8,257
              
              $
              9,909Short
                  term investments
              
              
              14,646
              
              
              7,332Cash
                  and cash equivalents
              
              
              22,903
              
              
              17,241Restricted
                  cash
              
              
              76,094
              
              
              73,633Loans
              
              
              876,075
              
              
              882,651Allowance
                  for loan losses
              
              
              (49,290
              )
              
              (48,386
              )Loans,
                  net
              
              
              826,785
              
              
              834,265Premises
                  and equipment, net
              
              
              5,870
              
              
              6,799Interest
                  receivable
              
              
              10,071
              
              
              10,424Other
                  assets
              
              
              31,144
              
              
              34,819Total
                  assets
              
              $
              972,867
              
              $
              977,181**Liabilities
                  and Shareholders’ Equity**Securitization
                  notes payable
              
              $
              549,157
              
              $
              762,245Warehouse
                  line of credit
              
              
              237,144
              
              
              35,625Accrued
                  expenses and other liabilities
              
              
              11,091
              
              
              9,660Junior
                  subordinated debentures
              
              
              10,310
              
              
              10,310Total
                  liabilities
              
              
              807,702
              
              
              817,840Preferred
                  stock (no par value):Authorized,
                  2,000,000 shares; no shares issued and outstanding
              
              
              —
              
              
              —Common
                  stock (no par value):Authorized,
                  30,000,000 shares; 15,737,399 shares issued and outstanding at
                  June 30,
                  2008 and December 31, 2007
              
              
              49,990
              
              
              49,504Retained
                  earnings
              
              
              115,175
              
              
              109,837Total
                  shareholders’ equity
              
              
              165,165
              
              
              159,341Total
                  liabilities and shareholders’ equity
              
              $
              972,867
              
              $
              977,181




*See
      notes to the consolidated financial statements*




2


**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Income**


**(Unaudited)**


**Three Months Ended**
                **June 30,**
              
              **Six Months Ended**
                **June 30,*****(Dollars
                  in thousands, except per share data)***
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007****Interest
                  Income**Loans
              
              $
              57,090
              
              $
              56,019
              
              $
              114,797
              
              $
              108,298Short
                  term investments and restricted cash
              
              
              536
              
              
              1,036
              
              
              1,299
              
              
              1,981Total
                  interest income
              
              
              57,626
              
              
              57,055
              
              
              116,096
              
              
              110,279**Interest
                  Expense**Securitization
                  notes payable
              
              
              9,304
              
              
              8,551
              
              
              20,192
              
              
              17,751Warehouse
                  line of credit
              
              
              2,023
              
              
              2,763
              
              
              3,548
              
              
              3,866Other
                  interest expense
              
              
              146
              
              
              288
              
              
              339
              
              
              498Total
                  interest expense
              
              
              11,473
              
              
              11,602
              
              
              24,079
              
              
              22,115Net
                  interest income
              
              
              46,153
              
              
              45,453
              
              
              92,017
              
              
              88,164Provision
                  for loan losses
              
              
              15,080
              
              
              14,024
              
              
              32,722
              
              
              28,505Net
                  interest income after provision for loan losses
              
              
              31,073
              
              
              31,429
              
              
              59,295
              
              
              59,659**Non-interest
                  Income**
              
              
              568
              
              
              500
              
              
              1,039
              
              
              847**Non-interest
                  Expense**Compensation
                  and benefits
              
              
              14,904
              
              
              15,594
              
              
              31,819
              
              
              30,933Occupancy
              
              
              2,140
              
              
              2,263
              
              
              4,604
              
              
              4,446Other
                  non-interest expense
              
              
              5,217
              
              
              6,345
              
              
              11,418
              
              
              12,356Restructuring
                  charges
              
              
              2,751
              
              
              —
              
              
              3,785
              
              
              —Total
                  non-interest expense
              
              
              25,012
              
              
              24,202
              
              
              51,626
              
              
              47,735Income
                  before income taxes
              
              
              6,629
              
              
              7,727
              
              
              8,708
              
              
              12,771Income
                  taxes
              
              
              2,565
              
              
              3,090
              
              
              3,370
              
              
              5,108Net
                  income
              
              $
              4,064
              
              $
              4,637
              
              $
              5,338
              
              $
              7,663**Earnings
                  per share-basic:**Net
                  income
              
              $
              0.26
              
              $
              0.29
              
              $
              0.34
              
              $
              0.48Weighted
                  average basic shares outstanding
              
              
              15,737
              
              
              15,803
              
              
              15,737
              
              
              16,121**Earnings
                  per share-diluted:**Net
                  income
              
              $
              0.26
              
              $
              0.28
              
              $
              0.34
              
              $
              0.46Weighted
                  average diluted shares outstanding
              
              
              15,763
              
              
              16,494
              
              
              15,763
              
              
              16,766





*See
      notes to consolidated financial statements*


3


**United
      PanAm Financial Corp. and Subsidiaries**


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


**(Unaudited)**


**Number**
                **of
                  Shares**
              
              **Common**
                **Stock**
              
              **Retained**
                **Earnings**
              
              **Total**
                **Shareholders’**
                **Equity****(Dollars
                  in thousands)**Balance,
                  December 31, 2006
              
              
              16,713,838
              
              $
              60,614
              
              $
              99,251
              
              $
              159,865Net
                  income
              
              
              —
              
              
              —
              
              
              7,663
              
              
              7,663Exercise
                  of stock options, net
              
              
              31,567
              
              
              143
              
              
              —
              
              
              143Tax
                  effect of exercised stock options
              
              
              —
              
              
              112
              
              
              —
              
              
              112Repurchase
                  of common stock
              
              
              (1,013,213
              )
              
              (13,188
              )
              
              —
              
              
              (13,188
              )Stock-based
                  compensation expense
              
              
              —
              
              
              1,193
              
              
              —
              
              
              1,193Balance,
                  June 30, 2007
              
              
              15,732,192
              
              
              48,874
              
              
              106,914
              
              
              155,788Balance,
                  December 31, 2007
              
              
              15,737,399
              
              
              49,504
              
              
              109,837
              
              
              159,341Net
                  income
              
              
              —
              
              
              —
              
              
              5,338
              
              
              5,338Stock-based
                  compensation expense
              
              
              —
              
              
              486
              
              
              —
              
              
              486Balance,
                  June 30, 2008
              
              
              15,737,399
              
              $
              49,990
              
              $
              115,175
              
              $
              165,165




*See
      notes to the consolidated financial statements*




4


**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**


**Six
                  Months Ended**
                **June
                  30,*****(Dollars
                  in thousands)***
              
              **2008**
              
              **2007****Cash
                  Flows from Operating Activities:**Net
                  Income
              
              $
              5,338
              
              $
              7,663Reconciliation
                  of net income to net cash provided by operating
                  activities:Provision
                  for loan losses
              
              
              32,722
              
              
              28,505Accretion
                  of discount on loans
              
              
              (13,443
              )
              
              (13,521
              )Depreciation
                  and amortization
              
              
              1,181
              
              
              1,175Stock-based
                  compensation
              
              
              486
              
              
              1,193Tax
                  benefit from stock-based compensation
              
              
              (188
              )
              
              (477
              )Decrease
                  (Increase) in accrued interest receivable
              
              
              353
              
              
              (457
              )Decrease
                  in other assets
              
              
              3,675
              
              
              1,969Increase
                  in accrued expenses and other liabilities
              
              
              1,431
              
              
              487Net
                  cash provided by operating activities
              
              
              31,555
              
              
              26,537**Cash
                  Flows from Investing Activities:**Purchases,
                  net of repayments, of loans
              
              
              (11,799
              )
              
              (108,794
              )Purchase
                  of premises and equipment
              
              
              (252
              )
              
              (2,724
              )Net
                  cash used in investing activities
              
              
              (12,051
              )
              
              (111,518
              )**Cash
                  Flows from Financing Activities:**Proceeds
                  from warehouse line of credit
              
              
              209,271
              
              
              277,898Repayment
                  of warehouse line of credit
              
              
              (7,752
              )
              
              (249,380
              )Proceeds
                  from residual line of credit
              
              
              —
              
              
              10,283Repayment
                  of residual line of credit
              
              
              —
              
              
              (5,100
              )Proceeds
                  from securitization
              
              
              —
              
              
              250,000Payments
                  on securitization notes payable
              
              
              (213,088
              )
              
              (186,742
              )Increase
                  in restricted cash
              
              
              (2,461
              )
              
              (12,827
              )Proceeds
                  from exercise of stock options
              
              
              —
              
              
              255Repurchase
                  of common stock
              
              
              —
              
              
              (13,188
              )Tax
                  benefit from stock-based compensation
              
              
              188
              
              
              477Net
                  cash (used in) provided by financing activities
              
              
              (13,842
              )
              
              71,676Net
                  increase (decrease) in cash and cash equivalents
              
              
              5,662
              
              
              (13,305
              )Cash
                  and cash equivalents at beginning of period
              
              
              17,241
              
              
              28,294Cash
                  and cash equivalents at end of period
              
              $
              22,903
              
              $
              14,989**Supplemental
                Disclosures of Cash Payments Made for:**Interest
              
              $
              24,079
              
              $
              21,847Income
                  taxes
              
              $
              677
              
              $
              3,606




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




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




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





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




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




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




6




In
      December 2007, FASB issued SFAS No. 141R, *Business
      Combinations* .
      SAFA
      No. 141R replaces SFAS No. 141, *Business
      Combinations* .
      SFAS
      No. 141R establishes principles and requirements for determining how an
      enterprise recognizes and measures the fair value of certain assets and
      liabilities acquired in a business combination, including noncontrolling
      interests, contingent consideration and certain acquired contingencies. SFAS
      No.
      141R also requires acquisition-related transaction expenses and restructuring
      costs be expensed as incurred rather than capitalized as a component of the
      business combination. This Statement shall be applied prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008.
      Management is currently evaluating the impact of the adoption of this statement;
      however, it is not expected to have a material impact on our consolidated
      financial position, results of operation or cash flows.




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




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




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




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




Restricted
      cash relates to $36.4 million of deposits held as collateral for securitized
      obligations and warehouse liabilities at June 30, 2008 compared with $32.1
      million at December 31, 2007. Additionally, $39.7 million at June 30, 2008
      relates to cash sent to the trustee that will be applied to the pay down of
      securitized obligations and warehouse liabilities compared with $41.6 million
      at
      December 31, 2007.




7




**5.**  **Loans**




Loans
      are
      summarized as follows:


**June 30, 2008**
              
              **December 31, 2007****(Dollars in thousands)**Loans
                  securitized
              
              $
              608,856
              
              $
              832,947Loans
                  unsecuritized
              
              
              309,599
              
              
              94,974Unearned
                  finance charges
              
              
              (964
              )
              
              (1,571
              )Unearned
                  acquisition discounts
              
              
              (41,416
              )
              
              (43,699
              )Allowance
                  for loan losses
              
              
              (49,290
              )
              
              (48,386
              )Total
                  loans, net
              
              $
              826,785
              
              $
              834,265Allowance
                  for loan losses to gross loans net of unearned acquisition
                  discounts
              
              
              5.63
              %
              
              5.48
              %Unearned
                  acquisition discounts to gross loans
              
              
              4.51
              %
              
              4.72
              %Average
                  percentage rate to borrowers
              
              
              22.71
              %
              
              22.64
              %




Loans
      securitized represent loans transferred to the Company’s special purpose finance
      subsidiaries in securitization transactions accounted for as secured financings.
      Loans unsecuritized include $290.1million and $70.5 million pledged under the
      Company’s warehouse facilities as of June 30, 2008 and December 31, 2007,
      respectively.




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




**Six
                  Months Ended June 30,**
              
              **Twelve
                  Months Ended**
                **December
                  31,****2008**
              
              **2007**
              
              **2007****(Dollars
                  in thousands)**Allowance
                  for loan losses at beginning of period
              
              $
              48,386
              
              $
              36,037
              
              $
              36,037Provision
                  for loan losses
              
              
              32,722
              
              
              28,505
              
              
              69,764Net
                  charge-offs
              
              
              (31,818
              )
              
              (22,829
              )
              
              (57,415
              )Allowance
                  for loan losses at end of period
              
              $
              49,290
              
              $
              41,713
              
              $
              48,386





The
      allowance for loan losses is the estimate of probable losses in our loan
      portfolio for the next twelve months as of the statement of financial condition
      date. The level of the allowance is based principally on historical loss trends
      and the remaining balance of loans. The Company believes that the allowance
      for
      loan losses is currently adequate to absorb probable loan losses in the loans
      balance as of June 30, 2008. However, ultimate losses may vary from current
      estimates. It is possible that others, given the same information, may reach
      different conclusions and such differences could be material. To the extent
      that
      the analyses considered in determining the allowance for loan losses are not
      indicative of future performance or other assumptions used by the Company do
      not
      prove to be accurate, loss experience could differ significantly from the
      estimate, resulting in higher or lower future provision for loan losses.




**6.**  **Borrowings**




*Securitizations*




Our
      securitizations are structured as on-balance-sheet transactions and recorded
      as
      secured financings because they do not meet the accounting criteria for sale
      of
      finance receivables under SFAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* .
      Since
      2005, regular contract securitizations have been an integral part of our
      business plan to increase our liquidity and reduce risks associated with
      interest rate fluctuations. We 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. However,
      due to the fact that the asset-backed securities market, along with credit
      markets in general, have been experiencing unprecedented disruptions, the
      execution of securitization transactions is more challenging and expensive.
      We
      have not accessed the securitization market with a transaction since November
      2007. We are analyzing our strategy going forward as to whether UPFC will
      continue to use securitizations as an integral part of our business plan. For
      more information, see Recent Market Developments in Item 2. “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” to the
      Quarterly Report on this form 10-Q.




8




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




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




The
      following table lists each of our securitizations as of June 30, 2008:


**Issue**
                **Number**
              
              **Issuance Date**
              
              **Maturity Date(1)**
              
              **Original**
                **Balance**
              
              **Remaining****Balance at**
                **June 30, 2008****(Dollars
                  in thousands)**2005A
              
              
              April
                  14, 2005
              
              
              December
                  2010
              
              $
              195,000
              
              $
              17,1032005B
              
              
              November
                  10, 2005
              
              
              August
                  2011
              
              $
              225,000
              
              $
              37,7122006A
              
              
              June
                  15, 2006
              
              
              May
                  2012
              
              $
              242,000
              
              $
              68,0492006B
              
              
              December
                  14, 2006
              
              
              August
                  2012
              
              $
              250,000
              
              $
              101,5742007A
              
              
              June
                  14, 2007
              
              
              July
                  2013
              
              $
              250,000
              
              $
              146,3612007B
              
              
              November
                  8, 2007
              
              
              July
                  2014
              
              $
              250,000
              
              $
              178,358Total
              
              $
              1,412,000
              
              $
              549,157




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




Assets
      pledged to the trusts as of June 30, 2008 and December 31, 2007 are as
      follows:


**June
                  30,**
                **2008**
              
              **December 31,**
                **2007****(Dollars
                  in thousands)**Automobile
                  contracts, net
              
              $
              608,856
              
              $
              832,947Restricted
                  cash
              
              $
              30,585
              
              $
              30,647Total
                  assets pledged
              
              $
              639,441
              
              $
              863,594




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


**Three Months Ended June 30,**
              
              **Six Months Ended June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****(Dollars
                  in thousands)**Receivables
                  securitized
              
              $
              —
              
              $
              268,817
              
              $
              —
              
              $
              268,817Proceeds
                  from securitization
              
              $
              —
              
              $
              250,000
              
              $
              —
              
              $
              250,000Distribution
                  from the trusts
              
              $
              22,140
              
              $
              20,939
              
              $
              42,248
              
              $
              41,508




In
      order
      to assist our borrowers who have been adversely impacted by the rise in gasoline
      prices, we increased our extension usage. As a result, under our current
      servicing agreements, we are required to repurchase loans in excess of extension
      performance targets. As a result, we repurchased $14.0 million and $4.5 million
      during the three months ended June 30, 2008 and 2007, respectively. We
      repurchased $22.2 million and $4.7 million during the six months ended June
      30,
      2008 and 2007, respectively. We funded the purchase price for the repurchase
      by
      obtaining advances under our existing warehouse facility.




9




As
      of
      June 30, 2008, we were in compliance with all terms of the financial covenants
      related to our securitization transactions. On July 25, 2008, Jim Vagim was
      appointed as our chief executive officer and Ray C. Thousand was terminated
      from
      that position. The termination of Mr. Thousand as our chief executive officer
      could adversely affect our six outstanding securitizations. Unless Mr. Vagim
      is
      approved by the various insurance providers that insure our six outstanding
      securitizations, the termination of Mr. Thousand is a potential insurance event
      of default and each of the three insurance providers may elect to enforce the
      various rights and remedies that are governed by the different transaction
      documents for each securitization. We have requested approval of Mr. Vagim
      as
      our chief executive officer from the insurance providers, but there is no
      assurance we will obtain such approvals.




*Warehouse
      Facility*




As
      of
      June 30, 2008, our $300 million warehouse facility was drawn to $237.1 million,
      which we use to fund our automobile finance operations to purchase automobile
      contracts pending securitization. Under the terms of the facility, our indirect
      subsidiary, UFC, may obtain advances on a revolving basis by issuing notes
      to
      the participating lenders and pledging for each advance a portfolio of
      automobile contracts. UFC purchases the automobile contracts from UACC and
      UACC
      services the automobile contracts, which are held by a custodian. We have
      provided an absolute and unconditional and irrevocable guaranty of the full
      and
      punctual payment and performance, of all liabilities, agreements and other
      obligations of UACC and UFC under the warehouse facility. Whether we may obtain
      further advances under the facility depends on, among other things, the
      performance of the automobile contracts that are pledged under the facility
      and
      whether we comply with certain financial covenants contained in the sale and
      servicing agreement. We were in compliance with the terms of such financial
      covenants as of June 30, 2008. 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.




On
      October 18, 2007, we executed a twelve month extension of this warehouse
      facility, which will expire on October 16, 2008. There is no assurance that
      we
      will be able to obtain further advances under this facility during its term
      or
      that this facility will continue to be available beyond the current expiration
      date at reasonable terms or at all. If we are unable to obtain advances under
      this facility for any reason and we are then unable to replace this facility
      or
      arrange for other types of interim financing, we will have to curtail or cease
      our automobile contract purchasing activities, sell receivables on a whole-loan
      basis or otherwise revise the scale of our business, which would have a material
      adverse effect on our financial position and results of operations.




Further,
      on July 25, 2008, Jim Vagim was appointed our chief executive officer and Ray
      C.
      Thousand was terminated from that position. The termination of Mr. Thousand
      as
      our chief executive officer could adversely affect our warehouse facility.
      Unless the warehouse facility lender approves the appointment of Mr. Vagim
      as
      the replacement chief executive officer, it could exercise its rights to
      terminate the warehouse line of credit and declare all amounts owed under the
      warehouse facility as immediately due and payable. We have requested approval
      of
      Mr. Vagim as our chief executive officer from the warehouse lender, but there
      is
      no assurance we will obtain such approval.




*Residual
      Credit Facility*




On
      January 24, 2007, we closed a $26 million variable rate residual credit
      facility. The facility is secured by eligible residual interests in previously
      securitized pools of automobile receivables and certain securities issued by
      UARC, UAFC, and UFC. We had provided an absolute and unconditional and
      irrevocable guaranty of the full and punctual payment and performance, of all
      liabilities, agreements and other obligations of UARC, UAFC, and UFC under
      the
      residual credit facility. This facility expired on January 24, 2008.




**7.**  **Share
      Repurchase Program**




On
      June 27, 2006, our Board of Directors approved a share repurchase program
      and authorized us to repurchase up to 500,000 shares of our outstanding common
      stock from time to time in the open market or in private transactions in
      accordance with the provisions of applicable state and federal law, including,
      without limitation, Rule 10b-18 promulgated under the Securities Exchange Act
      of
      1934, as amended. On August 4, 2006, our Board of Directors approved an
      increase in the aggregate number of shares that we may repurchase pursuant
      to
      the previously announced share repurchase program from 500,000 shares to
      1,500,000 shares. On December 21, 2006, our Board of Directors approved a
      second increase in the aggregate number of shares of our outstanding common
      stock that we may repurchase pursuant to the previously announced share
      repurchase program from 1,500,000 shares to 3,500,000 shares. During the three
      months ended June 30, 2007, we repurchased 281,815 shares of our common stock
      for an average price of $13.95 per share for an aggregate purchase price of
      $3.9
      million. During the six months ended June 30, 2007, we repurchased 1,013,213
      shares of our common stock for an average price of $12.98 per share for an
      aggregate purchase price of $13.2 million. In total we have repurchased
      2,089,738 shares of our common stock for an average price of $15.58 per share
      for an aggregate purchase price of $32.6 million. We did not repurchase any
      shares of our common stock during the three or six months ended June 30,
      2008.




10




**8.**  **Share
      Based Compensation**




In
      1994,
      we adopted a stock option plan and, in November 1997, June 2001, June 2002,
      and July 2007 amended and restated such plan as the United PanAm Financial
      Corp.
      1997 Employee Stock Incentive Plan (the “Plan”). The maximum number of shares
      that may be issued to officers, directors, employees or consultants under the
      Plan is 8,500,000. Options issued pursuant to the Plan have been granted at
      an
      exercise price of no less that book value on the date of grant. Options
      generally vest over a one to five year period and have a maximum term of ten
      years. Options may be exercised by using either a standard cash exercise
      procedure or a cashless exercise procedure. As of June 30, 2008 there were
      4,146,706 options outstanding.




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




Stock-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest during
      the period. Stock-based compensation expense recognized in our consolidated
      statement of income for the three and six months ended June 30, 2008 and 2007
      included compensation expense for share-based payment awards granted prior
      to,
      but not yet vested as of December 31, 2005 based on the grant date fair value
      estimated in accordance with the pro forma provisions of SFAS No. 123 and
      compensation expense for the share-based payment awards granted subsequent
      to
      December 31, 2005 based on the grant date fair value estimated in
      accordance with the provisions of SFAS No. 123(R). As stock-based
      compensation expense recognized in the consolidated statement of income for
      the
      three and six months ended June 30, 2008 and 2007 is based on awards ultimately
      expected to vest on a straight-line prorated basis, it has been reduced for
      estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated
      at the time of grant and revised, if necessary, in subsequent periods if actual
      forfeitures differ from those estimates. In our pro forma information required
      under SFAS No. 123 for the periods prior to January 1, 2006, we
      accounted for forfeitures as they occurred.




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




The
      following table summarizes stock-based compensation expense, net of tax, under
      SFAS No. 123(R) for the three and six months ended June 30, 2008 and 2007.


**Three Months Ended June 30,**
              
              **Six Months Ended June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****(Dollars
                  in thousands)**Stock-based
                  compensation expense
              
              $
              158
              
              $
              623
              
              $
              486
              
              $
              1,193Tax
                  benefit
              
              
              (61
              )
              
              (249
              )
              
              (188
              )
              
              (477
              )Stock-based
                  compensation expense, net of tax
              
              $
              97
              
              $
              374
              
              $
              298
              
              $
              716Stock-based
                  compensation expense, net of tax, per diluted shares
              
              $
              0.01
              
              $
              0.02
              
              $
              0.02
              
              $
              0.04




At
      June
      30, 2008, 595,015 shares of common stock were reserved for future stock based
      compensation grants.




11




On
      February 1, 2008, the Board of Directors approved restricted stock grants of
      94,571 shares to our executive officers. The restricted stock grants vest at
      various dates. The unvested restricted grants are included in the outstanding
      options balance as of June 30, 2008.




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 42 month
      volatility on the date of grant; risk-free interest rate equivalent to the
      appropriate US Treasury constant maturity treasury rate on the date of grant
      and
      expected lives of one to five years depending on final maturity of the options.


**Three Months Ended June 30,**
              
              **Six Months Ended June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Expected
                  dividends
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Expected
                  volatility
              
              
              63.36
              %
              
              43.15
              %
              
              62.10
              %
              
              43.74
              %Risk-free
                  interest rate
              
              
              3.10
              %
              
              4.71
              %
              
              2.86
              %
              
              4.69
              %Expected
                  life
              
              
              5.00 years
              
              
              5.00 years
              
              
              5.00 years
              
              
              5.00 years




At
      June
      30, 2008, there was $3.5 million of unrecognized compensation cost related
      to
      share based compensation, which is expected to be recognized over a weighted
      average period of 1.83 years. A summary of option activity for the six months
      ended June 30, 2008 and 2007 is as follows:


**Six
                  Months Ended June 30,****2008**
              
              **2007****(Dollars
                  in thousands, except per share amounts)****Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**Balance
                  at beginning of period
              
              
              4,110,335
              
              $
              14.02
              
              
              4,023,436
              
              $
              14.66Granted
              
              
              295,571
              
              
              6.90
              
              
              92,500
              
              
              13.93Canceled
                  or expired
              
              
              (259,200
              )
              
              15.87
              
              
              (106,000
              )
              
              21.95Exercised
              
              
              —
              
              
              —
              
              
              (37,700
              )
              
              6.13Balance
                  at end of period
              
              
              4,146,706
              
              
              13.40
              
              
              3,972,236
              
              
              14.54Weighted
                  average fair value per share of options granted during period
              
              $
              4.65
              
              
              
              
              $
              6.25




At
      June
      30, 2008, options exercisable to purchase 3,155,361 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
              
              
              152,870
              
              $
              0.23
              
              
              8.65
              
              
              16,469
              
              $
              2.35$3.1651 to $6.3300
              
              
              670,392
              
              
              —
              
              
              4.22
              
              
              2.07
              
              
              670,392
              
              
              4.22$6.3301 to $9.4950
              
              
              73,100
              
              
              12,000
              
              
              7.38
              
              
              4.11
              
              
              73,100
              
              
              7.16$9.4951 to $12.6600
              
              
              1,381,500
              
              
              212,000
              
              
              10.24
              
              
              3.89
              
              
              1,381,500
              
              
              10.21$12.6601 to $15.8250
              
              
              337,150
              
              
              103,500
              
              
              14.67
              
              
              4.06
              
              
              337,150
              
              
              14.83$15.8251 to $18.9900
              
              
              136,700
              
              
              33,300
              
              
              17.63
              
              
              5.50
              
              
              136,700
              
              
              17.64$18.9901 to $22.1550
              
              
              310,200
              
              
              36,800
              
              
              20.06
              
              
              3.18
              
              
              310,200
              
              
              20.04$22.1551 to $25.3200
              
              
              41,600
              
              
              25,900
              
              
              23.26
              
              
              7.21
              
              
              41,600
              
              
              23.22$25.3201 to $28.4850
              
              
              72,600
              
              
              27,000
              
              
              26.61
              
              
              7.23
              
              
              72,600
              
              
              26.45$28.4851 to $31.6500
              
              
              115,650
              
              
              387,975
              
              
              29.99
              
              
              7.54
              
              
              115,650
              
              
              29.663,155,361
              
              
              991,345
              
              $
              13.40
              
              
              4.40
              
              
              3,155,361
              
              $
              11.86




12




The
      weighted average remaining contractual life of outstanding options was 4.40
      years at June 30, 2008 and 4.68 years at December 31, 2007.




**9.**  **Earnings
      per Share**




Basic
      earnings per share is computed on the basis of the weighted average number
      of
      shares of common stock outstanding during the period. Diluted earnings per
      share
      is computed on the basis of the weighted average number of shares of common
      stock plus the effect of dilutive potential common shares outstanding during
      the
      period using the treasury stock method. Dilutive potential common shares include
      outstanding stock options.





The
      following table reconciles the number of shares used in the computations of
      basic and diluted earnings per share for the three and six months ended June
      30,
      2008 and 2007:


**Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007*****(In
                  thousands)***Weighted
                  average common shares outstanding during the period to compute
                  basic
                  earnings per share
              
              
              15,737
              
              
              15,803
              
              
              15,737
              
              
              16,121Incremental
                  common shares attributable to exercise of outstanding
                  options
              
              
              26
              
              
              691
              
              
              26
              
              
              645Weighted
                  average number of common shares used to compute diluted earnings
                  per share
              
              
              15,763
              
              
              16,494
              
              
              15,763
              
              
              16,766




The
      above
      calculation of diluted earnings per share excluded 4,169,000 and 1,665,000
      average shares for the three months ended June 30, 2008 and 2007, and 4,202,000
      and 1,714,000 average shares for the six months ended June 30, 2008 and 2007
      respectively, 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.




**10.**  **Trust
      Preferred Securities**




On
      July 31, 2003, the Company issued trust preferred securities of $10.0
      million through a subsidiary UPFC Trust I. The Trust issuer is a “100% owned
      finance subsidiary” of the Company and the Company “fully and unconditionally”
guaranteed the securities. The Company will pay interest on these funds at
      a
      rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the
      rate
      was 5.76% as of June 30, 2008. The final maturity of these securities is 30
      years, however, they can be called at par any time after July 31, 2008 at
      the option of the Company.




**11.**  **Consolidation
      of Variable Interest Entities**




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




**12.
      Fair Value Option for Financial Assets and Financial
      Liabilities**





In
      February 2007, FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .
      SFAS
      No. 159 permits entities to choose to measure many financial instruments and
      certain other items at fair value. The objective of the statement is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. The provisions of SFAS No. 159 are effective for fiscal years
      beginning after November 15, 2007. In September 2006, FASB issued SFAS No.
      157, *Fair
      Value Measurements* .
      This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles and expands disclosures about fair
      value measurements. This Statement applies under other accounting pronouncements
      that require or permit fair value measurements but does not require any new
      fair
      value measurements. The provisions of SFAS No. 157 are effective for fiscal
      years beginning after November 15, 2007, however, a proposed FASB Staff Position
      would delay the effective date of certain provisions of SFAS No. 157 that relate
      to non-financial assets and non-financial liabilities. On January 1, 2008,
      management adopted SFAS No. 159 and SFAS No. 157 which had no impact on our
      consolidated financial position, results of operation or cash flows. The
      carrying amounts of our financial instruments are included in the consolidated
      statements of financial condition. The fair value of our financial instruments
      and the methodologies and assumptions used to measure the fair value of our
      financial instruments are described in detail in Note 15 to our Notes to
      Consolidated Financial Statements presented in our 2007 Annual Report on Form
      10-K.




**13.
      Restructuring Charges**





A
      pretax
      restructuring charge of $2.8 million was recorded for costs associated with
      closure of branches in the second quarter of 2008, which included severance,
      fixed asset write-offs and post-closure costs. The restructuring charge included
      a $1.5 million reserve for estimated future lease obligations as of June 30,
      2008. As of June 30, 2008, the liabilities related to the restructuring charges
      totaled $3.8 million.




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.




To
      improve overall corporate profitability, we began to close and consolidate
      overlapping and underperforming branches in the third quarter of 2007, and
      continued through the first and the second quarters of 2008.  During
      the quarter ended June 30, 2008, we closed 22 branches bringing the total number
      of closures in 2008 to 36 branches. As a result of the closures, we have 106
      branches which continue to operate in 36 states. The majority of closures were
      from the consolidation of branches within the same market. The loan portfolios
      of the closed branches represented less than 10% of the overall portfolio
      balance and continue to be serviced by other branches within the same market
      or
      by our Business Operation Unit in Dallas. The closures resulted in a decrease
      in
      the number of employees of approximately 230, or 20%, of our work force since
      December 2007. These closures are expected to result in cost savings, including
      operating expenses, of $12.0 million to $15.0 million annually. The closures
      will improve operating leverage and allow us to remain profitable at lower
      total
      origination levels. These branch closures have been achieved with no
      deterioration in servicing quality to date.




Due
      to
      continued disruptions in the capital markets and uncertainty as to the future
      of
      the securitization market as a source of financing, we have made the decision
      to
      further downsize the Company and reduce our branch footprint. We will begin
      a
      systematic evaluation of our branch network and will continue to consolidate
      and
      close branches. The majority of the branch closures will continue to be from
      consolidations of branches within the same market.




In
      addition, we will significantly slow new loan originations in the third and
      fourth quarter of 2008 to allow the Company’s outstanding receivables to shrink
      to a level where our capital base will be able to finance future originations
      at
      the lower advance structures currently available in the market.




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 due 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 may 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 automobile contracts that we currently
      purchase 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 2007 Annual Report on Form
      10-K.




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




14




*Securitization
      Transactions*




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




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




*Allowance
      for Loan Losses*




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




The
      allowance for credit losses is established through provisions for losses
      recorded in income as necessary to provide for estimated contract losses in
      the
      next 12 months at each reporting date. We account for such contracts by static
      pool, stratified into three-month buckets, so that the credit risk in each
      individual static pool can be evaluated independently in order to estimate
      the
      future losses within each pool. Any such adjustment is recorded in the current
      period as the assessment is made.




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




*Stock-Based
      Compensation*




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




We
      adopted SFAS No. 123(R) using the modified prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006, the first day of our 2006 fiscal year. Our Consolidated Financial
      Statements after December 31, 2005 reflect the impact of SFAS
      No. 123(R). In accordance with the modified prospective transition method,
      our Consolidated Financial Statements prior to January 1, 2006 have not been
      restated to reflect, and do not include, the impact of SFAS No. 123(R).
      Stock-based compensation expense recognized under SFAS No. 123(R) was
      $158,000 and $623,000 for the three months ended June 30, 2008 and 2007,
      respectively. Stock-based compensation expense recognized under SFAS
      No. 123(R) was $486,000 and $1,193,000 for the six months ended June 30,
      2008 and 2007, 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 while such contracts are funded
      with warehouse borrowings because the warehouse borrowings accrue interest
      at a
      variable rate. Prior to closing our first securitization, while we were shifting
      the funding source of our automobile finance business to the public capital
      markets through securitizations and warehouse facilities, we entered into
      forward agreements in order to reduce the interest rate risk exposure on our
      securitization notes payable. The market value of these forward agreements
      was
      designed to respond inversely to changes in interest rate. Because of this
      inverse relationship, we were able to effectively lock in a gross interest
      rate
      spread for our automobile contracts held in portfolio prior to the sale of
      the
      securitization notes payable. Losses related to these agreements were recorded
      on our Consolidated Statements of Operations during 2004 because the derivative
      transactions did not meet the accounting requirements to qualify for hedge
      accounting. Accordingly, we did not amortize them over the life of the
      automotive contracts.





15




**Lending
      Activities**




*Summary
      of Loan Portfolio*




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




**June 30, 2008**
              
              **December 31, 2007****(Dollars
                  in Thousands)**Automobile
                  Contracts
              
              $
              918,455
              
              $
              927,921Unearned
                  finance charges (1)
              
              
              (964
              )
              
              (1,571
              )Unearned
                  acquisition discounts (1)
              
              
              (41,416
              )
              
              (43,699
              )Allowance
                  for loan losses (1)
              
              
              (49,290
              )
              
              (48,386
              )Total
                  loans, net
              
              $
              826,785
              
              $
              834,265







(1)  See
        “—Critical Accounting Policies”




*Allowance
      for Loan Losses*




Our
      policy is to maintain an allowance for loan losses to absorb inherent losses
      which may be realized on our portfolio. These allowances are general valuation
      allowances for estimates for probable losses not specifically identified that
      will occur in the next twelve months. The total allowance for loan losses was
      $49.3 million at June 30, 2008 compared with $48.4 million at
      December 31, 2007, representing 5.63% of loans at June 30, 2008 and 5.48%
      at December 31, 2007.




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


**At or For the Six Months Ended****June 30, 2008**
              
              **June 30, 2007****(Dollars in Thousands)****Allowance
                  for Loan Losses**Balance
                  at beginning of period
              
              $
              48,386
              
              $
              36,037Provision
                  for loan losses (1)
              
              
              32,722
              
              
              28,505Net
                  charge-offs
              
              
              (31,818
              )
              
              (22,829
              )Balance
                  at end of period
              
              $
              49,290
              
              $
              41,713Annualized
                  net charge-offs to average loans
              
              
              6.91
              %
              
              5.32
              %Ending
                  allowance to period end loans
              
              
              5.63
              %
              
              4.78
              %


(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.


**June
                  30, 2008**
              
              **December
                  31, 2007**
              
              **June
                  30, 2007****(Dollars
                  in Thousands)****Loan
                  Delinquencies**
              
              **Balance**
              
              **% of Total**
                **Loans**
              
              **Balance**
              
              **% of Total**
                **Loans**
              
              **Balance**
              
              **% of Total**
                **Loans**30
                  to 59 days
              
              $
              6,720
              
              
              0.73
              %
              $
              7,194
              
              
              0.78
              %
              $
              4,828
              
              
              0.53
              %60
                  to 89 days
              
              
              2,272
              
              
              0.25
              %
              
              2,756
              
              
              0.30
              %
              
              1,801
              
              
              0.20
              %90+
                  days
              
              
              983
              
              
              0.11
              %
              
              1,534
              
              
              0.16
              %
              
              712
              
              
              0.07
              %Total
              
              $
              9,975
              
              
              1.09
              %
              $
              11,484
              
              
              1.24
              %
              $
              7,341
              
              
              0.80
              %




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




16




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




**June 30, 2008**
              
              **December 31, 2007**
              
              **June 30, 2007****(Dollars
                  in Thousands)**Nonaccrual
                  loans
              
              $
              19,509
              
              $
              21,185
              
              $
              13,999Nonaccrual
                  loans to gross loans
              
              
              2.13
              %
              
              2.29
              %
              
              1.52
              %Allowance
                  for loan losses to gross loans, net of unearned acquisition
                  discounts
              
              
              5.63
              %
              
              5.48
              %
              
              4.78
              %




*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 2003 through March 2008. Contract pools subsequent to March
      2008 were not included in this table because the loan pools were not seasoned
      enough to provide a meaningful comparison with prior periods.




**Number
                of**
            
            **Jul-03**
            
            **Oct-03**
            
            **Jan-04**
            
            **Apr-04**
            
            **Jul-04**
            
            **Oct-04**
            
            **Jan-05**
            
            **Apr-05**
            
            **Jul-05**
            
            **Oct-05**
            
            **Jan-06**
            
            **Apr-06**
            
            **Jul-06**
            
            **Oct-06**
            
            **Jan-07**
            
            **Apr-07**
            
            **Jul-07**
            
            **Oct-07**
            
            **Jan-08****Months**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-**
            
            **-****Outstanding**
            
            **Sep-03**
            
            **Dec-03**
            
            **Mar-04**
            
            **Jun-04**
            
            **Sep-04**
            
            **Dec-04**
            
            **Mar-05**
            
            **Jun-05**
            
            **Sep-05**
            
            **Dec-05**
            
            **Mar-06**
            
            **Jun-06**
            
            **Sep-06**
            
            **Dec-06**
            
            **Mar-07**
            
            **Jun-07**
            
            **Sep-07**
            
            **Dec-07**
            
            **Mar-08**1
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %4
            
            
            0.05
            %
            
            0.11
            %
            
            0.02
            %
            
            0.04
            %
            
            0.08
            %
            
            0.05
            %
            
            0.03
            %
            
            0.06
            %
            
            0.12
            %
            
            0.05
            %
            
            0.02
            %
            
            0.06
            %
            
            0.09
            %
            
            0.10
            %
            
            0.05
            %
            
            0.08
            %
            
            0.08
            %
            
            0.09
            %
            
            0.04
            %7
            
            
            0.56
            %
            
            0.48
            %
            
            0.37
            %
            
            0.45
            %
            
            0.65
            %
            
            0.49
            %
            
            0.40
            %
            
            0.64
            %
            
            0.59
            %
            
            0.47
            %
            
            0.40
            %
            
            0.62
            %
            
            0.88
            %
            
            0.64
            %
            
            0.54
            %
            
            0.84
            %
            
            0.82
            %
            
            0.54
            %10
            
            
            1.41
            %
            
            1.20
            %
            
            1.37
            %
            
            1.33
            %
            
            1.29
            %
            
            1.19
            %
            
            1.35
            %
            
            1.63
            %
            
            1.36
            %
            
            1.28
            %
            
            1.61
            %
            
            2.00
            %
            
            1.84
            %
            
            1.73
            %
            
            1.77
            %
            
            2.28
            %
            
            1.90
            %13
            
            
            2.26
            %
            
            2.13
            %
            
            2.44
            %
            
            2.13
            %
            
            2.21
            %
            
            2.41
            %
            
            2.48
            %
            
            2.57
            %
            
            2.37
            %
            
            2.71
            %
            
            2.96
            %
            
            3.13
            %
            
            3.23
            %
            
            3.09
            %
            
            3.29
            %
            
            3.51
            %16
            
            
            3.50
            %
            
            3.29
            %
            
            3.20
            %
            
            2.88
            %
            
            3.12
            %
            
            3.56
            %
            
            3.32
            %
            
            3.47
            %
            
            3.56
            %
            
            4.07
            %
            
            3.90
            %
            
            4.35
            %
            
            4.95
            %
            
            4.87
            %
            
            4.54
            %19
            
            
            4.48
            %
            
            4.06
            %
            
            3.96
            %
            
            3.87
            %
            
            4.20
            %
            
            4.44
            %
            
            4.21
            %
            
            4.70
            %
            
            4.85
            %
            
            5.01
            %
            
            5.03
            %
            
            5.92
            %
            
            6.73
            %
            
            6.23
            %22
            
            
            5.19
            %
            
            4.78
            %
            
            4.87
            %
            
            4.77
            %
            
            4.95
            %
            
            5.17
            %
            
            5.50
            %
            
            5.95
            %
            
            5.76
            %
            
            5.96
            %
            
            6.42
            %
            
            7.41
            %
            
            7.98
            %25
            
            
            5.83
            %
            
            5.53
            %
            
            5.63
            %
            
            5.35
            %
            
            5.56
            %
            
            6.12
            %
            
            6.56
            %
            
            6.69
            %
            
            6.69
            %
            
            7.05
            %
            
            7.66
            %
            
            8.59
            %28
            
            
            6.55
            %
            
            6.07
            %
            
            6.16
            %
            
            5.96
            %
            
            6.31
            %
            
            7.02
            %
            
            7.23
            %
            
            7.41
            %
            
            7.67
            %
            
            8.08
            %
            
            8.56
            %31
            
            
            7.14
            %
            
            6.42
            %
            
            6.76
            %
            
            6.62
            %
            
            7.05
            %
            
            7.66
            %
            
            7.86
            %
            
            8.24
            %
            
            8.62
            %
            
            8.78
            %34
            
            
            7.54
            %
            
            6.77
            %
            
            7.37
            %
            
            7.20
            %
            
            7.47
            %
            
            8.24
            %
            
            8.52
            %
            
            9.04
            %
            
            9.25
            %37
            
            
            7.85
            %
            
            7.14
            %
            
            7.95
            %
            
            7.52
            %
            
            7.81
            %
            
            8.73
            %
            
            9.11
            %
            
            9.54
            %40
            
            
            8.21
            %
            
            7.61
            %
            
            8.24
            %
            
            7.83
            %
            
            8.21
            %
            
            9.12
            %
            
            9.43
            %43
            
            
            8.50
            %
            
            7.78
            %
            
            8.44
            %
            
            8.12
            %
            
            8.47
            %
            
            9.34
            %46
            
            
            8.64
            %
            
            7.93
            %
            
            8.63
            %
            
            8.33
            %
            
            8.63
            %49
            
            
            8.79
            %
            
            8.11
            %
            
            8.81
            %
            
            8.43
            %52
            
            
            8.87
            %
            
            8.16
            %
            
            8.85
            %55
            
            
            8.95
            %
            
            8.24
            %58
            
            
            8.98
            %Original
                Pool ($000)
            
            $
            72,002
            
            $
            68,791
            
            $
            94,369
            
            $
            91,147
            
            $
            89,688
            
            $
            86,697
            
            $
            118,883
            
            $
            120,502
            
            $
            112,487
            
            $
            101,482
            
            $
            142,873
            
            $
            143,988
            
            $
            136,167
            
            $
            113,767
            
            $
            164,019
            
            $
            162,873
            
            $
            144,586
            
            $
            102,526
            
            $
            127,280Remaining
                Pool ($000)
            
            $
            628
            
            $
            1,156
            
            $
            2,743
            
            $
            3,904
            
            $
            5,764
            
            $
            7,464
            
            $
            14,740
            
            $
            18,134
            
            $
            21,005
            
            $
            23,802
            
            $
            42,773
            
            $
            50,929
            
            $
            56,848
            
            $
            55,783
            
            $
            96,927
            
            $
            107,791
            
            $
            109,521
            
            $
            85,719
            
            $
            117,335Remaining
                Pool (%)
            
            
            0.9
            %
            
            1.7
            %
            
            2.9
            %
            
            4.3
            %
            
            6.4
            %
            
            8.6
            %
            
            12.4
            %
            
            15.0
            %
            
            18.7
            %
            
            23.5
            %
            
            29.9
            %
            
            35.4
            %
            
            41.7
            %
            
            49.0
            %
            
            59.1
            %
            
            66.2
            %
            
            75.7
            %
            
            83.6
            %
            
            92.2
            %




17




*Loan
      Maturities*




The
      following table sets forth the dollar amount of automobile contracts maturing
      in
      our automobile contracts portfolio at June 30, 2008 based on final maturity.
      Automobile contract balances are reflected before unearned acquisition discounts
      and allowance for loan losses.


**One**
                **Year or**
                **Less**
              
              **More Than**
                **1 Year to**
                **3 Years**
              
              **More Than**
                **3 Years to**
                **5 Years**
              
              **More Than**
                **5 Years to**
                **10 Years**
              
              **Total**
                **Loans****(Dollars
                  in thousands)**Total
                  loans
              
              $
              25,778
              
              $
              341,381
              
              $
              483,927
              
              $
              66,405
              
              $
              917,491




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; and




•
            releases
                of excess cash from our warehouse credit
                facility.




As
      2008
      has progressed, we have experienced increasing reliance for liquidity on
      advances we are obtaining under our warehouse facility, which will expire on
      October 16, 2008. Management is currently evaluating alternative sources of
      financing in case we are unable to obtain advances for any reason under the
      warehouse facility. If we are unable to obtain advances under the warehouse
      facility or arrange for other types of interim financing, we will have to
      curtail or cease automobile contract purchasing activities, sell receivables
      on
      a whole-loan basis or otherwise revise the scale of our business, which would
      have a material adverse effect on our financial position and results of
      operations. For a more complete description of the risks that we face, see
      Item
      1A “Risk Factors” in our 2007 Annual Report on Form 10-K.




*Recent
      Market Developments*




A
      number
      of factors have adversely impacted our liquidity in 2008 and we anticipate
      these
      factors will continue to adversely impact our liquidity through 2008, including
      higher credit enhancement levels in our securitization transactions driven
      by
      disruptions in the capital markets and, to a lesser extent, the credit
      deterioration we are experiencing in our portfolio and substantially weakened
      demand for securities guaranteed by insurance policies, making the execution
      of
      securitization transactions more challenging and expensive. We may also realize
      decreased cash distributions from our securitization trusts due to weaker credit
      performance and higher borrowing costs.




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




18




Current
      conditions in the asset-backed securities market include reduced liquidity,
      increased risk premiums for issuers, reduced investor demand for asset-backed
      securities, particularly those securities backed by non-prime collateral,
      financial stress and rating agency downgrades impacting the financial guaranty
      insurance providers, and a general tightening of availability of credit. These
      conditions, which may increase our cost of funding and reduce our access to
      the
      asset-backed securities market or other types of receivable financings, may
      continue or worsen in the future. We have anticipated that we will continue
      to
      require execution of securitization transactions or other types of receivable
      financing during 2008. However, due to the current conditions in the
      asset-backed securities market, along with credit markets in general, the
      execution of securitization transactions is more challenging and expensive
      and
      we are analyzing our strategy going forward as to whether we will continue
      to
      use securitizations as an integral part of our business plan. As we discussed
      above, management is currently evaluating alternative sources of financing
      and
      there can be no assurance that funding will be available to us through the
      execution of securitization of transactions or, if available, that the funding
      will be on acceptable terms. If we are unable to execute these securitization
      transactions on a regular basis, and are otherwise unable to issue any other
      debt or equity, or arrange for other types of interim financing, we would not
      have sufficient funds to finance new purchases of automobile
      contracts.  In such event, we would be required to revise the scale of
      our business, including the curtailment or cessation of our automobile contract
      purchasing activities. This would have a material adverse effect on our
      ability to achieve our business and financial objectives. For a more complete
      description of the financing risks that we face, see Item 1A. “Risk Factors” in
      our 2007 Annual Report on Form 10-K.




*Securitizations*




Our
      securitizations are structured as on-balance-sheet transactions and recorded
      as
      secured financings because they do not meet the accounting criteria for sale
      of
      finance receivables under SFAS No. 140. Since 2004, regular contract
      securitizations have been an integral part of our business plan going 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.
      However, due to the fact that the asset-backed securities market, along with
      credit markets in general, have been experiencing unprecedented disruptions,
      the
      execution of securitization transactions is more challenging and expensive
      and
      we have not accessed the securitization market with a transaction since November
      2007 and we are analyzing our strategy going forward as to whether we will
      continue to use securitizations as an integral part of our business
      plan.




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




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




Our
      financial guaranty insurance providers are not required to insure our future
      securitizations, and there can be no assurance that they will continue to do
      so.
      In addition, a downgrading of any of our financial guaranty insurance providers’
credit ratings or the inability to structure alternative credit enhancements,
      such as senior subordinated transactions, for our securitization program could
      result in higher interest costs for our future securitizations and larger
      initial and/or target credit enhancement requirements. The absence of a
      financial guaranty insurance policy may also impair the marketability of our
      securitizations.




19




The
      following table lists each of our securitizations and its remaining balance
      as
      of June 30, 2008.




*(Dollars
      in thousands)*


**Issue**
                **Number**
              
              **Issuance
                  Date**
              
              **Original**
                **Balance**
              
              **Current**
                **Balance**
                **Class A-1**
              
              **Interest**
                **Rate**
              
              **Current**
                **Balance**
                **Class A-2**
              
              **Interest**
                **Rate**
              
              **Current**
                **Balance**
                **Class A-3**
              
              **Interest**
                **Rate**
              
              **Total**
                **Current**
                **Balance**
              
              **Current**
                **Receivables**
                **Pledged**
              
              **Surety**
                **Costs(1)**
              
              **Back-up**
                **Servicing**
                **Fees**2005A
              
              
              April 14, 2005
              
              
              195,000
              
              
              —
              
              
              3.12
              %
              
              —
              
              
              3.85
              %
              
              17,103
              
              
              4.34
              %
              
              17,103
              
              
              18,300
              
              
              0.43
              %
              
              0.035
              %2005B
              
              
              November 10, 2005
              
              
              225,000
              
              
              —
              
              
              4.28
              %
              
              —
              
              
              4.82
              %
              
              37,712
              
              
              4.98
              %
              
              37,712
              
              
              42,376
              
              
              0.41
              %
              
              0.035
              %2006A
              
              
              June 15, 2006
              
              
              242,000
              
              
              —
              
              
              5.27
              %
              
              —
              
              
              5.46
              %
              
              68,049
              
              
              5.49
              %
              
              68,049
              
              
              74,908
              
              
              0.39
              %
              
              0.035
              %2006B
              
              
              December 14, 2006
              
              
              250,000
              
              
              —
              
              
              5.34
              %
              
              2,574
              
              
              5.15
              %
              
              99,000
              
              
              5.01
              %
              
              101,574
              
              
              111,606
              
              
              0.38
              %
              
              0.035
              %2007A
              
              
              June 14, 2007
              
              
              250,000
              
              
              —
              
              
              5.33
              %
              
              47,361
              
              
              5.46
              %
              
              99,000
              
              
              5.53
              %
              
              146,361
              
              
              162,290
              
              
              0.37
              %
              
              0.032
              %2007B
              
              
              November 8, 2007
              
              
              250,000
              
              
              —
              
              
              4.98685
              %
              
              79,358
              
              
              5.75
              %
              
              99,000
              
              
              6.15
              %
              
              178,358
              
              
              199,376
              
              
              0.45
              %
              
              0.035
              %$
              1,412,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              549,157
              
              $
              608,856





(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.




In
      order
      to assist our borrowers who have been adversely impacted by the rise in gasoline
      pries, we increased our extension usage. As a result, under our current
      servicing agreements, we are required to repurchase loans in excess of extension
      performance targets. We funded the purchase price for the repurchase of these
      loans by obtaining advances under our existing warehouse facility. As a result,
      we repurchased $13.9 million and 4.5 million during the three months ended
      June
      30, 2008 and 2007, respectively. We repurchased 22.2 million and 4.7 million
      during the six months ended June 30, 2008 and 2007, respectively.




As
      of
      June 30, 2008 we were in compliance with all terms of the financial covenants
      related to our securitization transactions. On July 25, 2008, Jim Vagim was
      appointed as our chief executive officer and Ray C. Thousand was terminated
      from
      that position. The termination of Mr. Thousand as our chief executive officer
      could adversely affect our six outstanding securitizations. Unless Mr. Vagim is
      approved by the various insurance providers that insure our six outstanding
      securitizations, the termination of Mr. Thousand is a potential insurance event
      of default and each insurance provider may elect to enforce the various rights
      and remedies that are governed by the different transaction documents for each
      securitization. We have requested approval of Mr. Vagim as our chief executive
      officer from the insurance providers, but there is no assurance UPFC will
      obtain such approvals.




*Warehouse
      Facility*




As
      of
      June 30, 2008, our $300 million warehouse facility was drawn to $237.1 million.
      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 , which will expire on October 16, 2008. There
      is no assurance that we will be able to obtain further advances under this
      facility during its term or that this facility will continue to be available
      beyond the current expiration date at reasonable terms or at all. If we are
      unable to obtain advances under this facility for any reason and we are then
      unable to replace this facility or arrange for other types of interim financing,
      we will have to curtail or cease our automobile contract purchasing activities,
      sell receivables on a whole-loan basis or otherwise revise the scale of our
      business, which would have a material adverse effect on our financial position
      and results of operations.




Further,
      on July 25, 2008, Jim Vagim was appointed our chief executive officer and Ray
      C.
      Thousand was terminated from that position. The termination of Mr. Thousand
      as
      our chief executive officer could adversely affect our warehouse facility.
      Unless the warehouse facility lender approves the appointment of Mr. Vagim
      as
      the replacement chief executive officer, it could exercise its rights to
      terminate the warehouse line of credit and declare all amounts owed under the
      warehouse facility as immediately due and payable. We have requested approval
      of
      Mr. Vagim as our chief executive officer from the warehouse lender, but there
      is
      no assurance we will obtain such approval.




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 UABO and UACC services the automobile contracts, which
      are held by a custodian. 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. 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, UABO 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. The performance, timing and amount of cash flows from automobile
      contracts vary based on a number of factors, including:




20




•
            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.




In
      addition, we are required to hold certain funds in restricted cash accounts
      to
      provide additional collateral for borrowings under the warehouse facility.
      In
      the event that we fail to satisfy certain covenants in the sale and servicing
      agreement requiring minimum financial ratios, asset quality, and portfolio
      performance ratios (portfolio net loss and delinquency ratios and pool level
      cumulative net loss ratios), we could be required to increase the amount of
      funds that we hold in restricted cash. Failure to meet any of these covenants
      could also result in an event of default under the warehouse facility. If an
      event of default occurs under the warehouse facility, the lender could elect
      to
      declare all amounts outstanding under the facility to be immediately due and
      payable, enforce the interest against collateral pledged under the agreement
      or
      restrict our ability to obtain additional borrowings under the facility. We
      were
      in compliance with the terms of such financial covenants as of June 30, 2008,
      except as described above relating to the approval of Mr. Vagim as our new
      chief
      executive officer.




*Residual
      Credit Facility*




On
      January 24, 2007, we closed a $26 million variable rate residual credit
      facility. The facility is secured by eligible residual interests in previously
      securitized pools of automobile receivables and certain securities issued by
      UARC, UAFC, and UFC. We had provided an absolute and unconditional and
      irrevocable guaranty of the full and punctual payment and performance, of all
      liabilities, agreements and other obligations of UARC, UAFC, and UFC under
      the
      residual credit facility. This facility expired on January 24, 2008.




*Share
      Repurchase Program*




On
      June 27, 2006, our Board of Directors approved a share repurchase program
      and authorized us to repurchase up to 500,000 shares of our outstanding common
      stock from time to time in the open market or in private transactions in
      accordance with the provisions of applicable state and federal law, including,
      without limitation, Rule 10b-18 promulgated under the Securities Exchange Act
      of
      1934, as amended. On August 4, 2006, our Board of Directors approved an
      increase in the aggregate number of shares that we may repurchase pursuant
      to
      the previously announced share repurchase program from 500,000 shares to
      1,500,000 shares. On December 21, 2006, our Board of Directors approved a
      second increase in the aggregate number of shares of our outstanding common
      stock that we may repurchase pursuant to the previously announced share
      repurchase program from 1,500,000 shares to 3,500,000 shares. We repurchased
      1,013,213 shares of our common stock for an average price of $12.98 per share
      for an aggregate purchase price of $13.2 million during the six months ended
      June 30, 2007. In total we have repurchased 2,089,738 shares of our common
      stock
      for an average price of $15.58 per share for an aggregate purchase price of
      $32.6 million. We did not repurchase any shares of our common stock during
      the
      six months ended June 30, 2008.




*Subordinated
      Debentures*




On
      July 31, 2003, the Company issued trust preferred securities of $10.0
      million through a subsidiary UPFC Trust I. The Trust issuer is a “100% owned
      finance subsidiary” of the Company and the Company “fully and unconditionally”
guaranteed the securities. The Company will pay interest on these funds at
      a
      rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the
      rate
      was 5.76% as of June 30, 2008. The final maturity of these securities is 30
      years, however, they can be called at par any time after July 31, 2008 at
      the option of the Company.




*Aggregate
      Contractual Obligations*




The
      following table provides the amounts due under specified obligations for the
      periods indicated as of June 30, 2008.


**Less than**
                **1 Year**
              
              **1 Year**
                **to 3 Years**
              
              **3 Years**
                **to 5 Years**
              
              **More Than**
                **5 Years**
              
              **Total****(Dollars
                  in thousands)**Warehouse
                  line of credit
              
              $
              237,144
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              237,144Securitization
                  notes payable
              
              
              307,438
              
              
              241,719
              
              
              —
              
              
              —
              
              
              549,157Operating
                  lease obligations
              
              
              6,305
              
              
              10,846
              
              
              4,911
              
              
              42
              
              
              22,104Junior
                  subordinated debentures
              
              
              —
              
              
              —
              
              
              —
              
              
              10,310
              
              
              10,310Total
              
              $
              550,887
              
              $
              252,565
              
              $
              4,911
              
              $
              10,352
              
              $
              818,715




21




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.




**Selected
      Financial Data**


*(Dollars
                  in thousands)*
              
              At or For the
                Three Months Ended
              
              At or For the
                Six Months EndedJune
                  30,
                2008
              
              June
                  30,
                2007
              
              June
                  30,
                2008
              
              June
                  30,
                2007**Operating
                  Data**Contracts
                  purchased
              
              $
              98,508
              
              $
              167,807
              
              $
              228,438
              
              $
              335,447Contracts
                  outstanding
              
              $
              917,491
              
              $
              918,638
              
              $
              917,491
              
              $
              918,638Unearned
                  acquisition discounts
              
              $
              (41,416
              )
              $
              (45,077
              )
              $
              (41,416
              )
              $
              (45,077
              )Average
                  loan balance
              
              $
              925,891
              
              $
              893,174
              
              $
              926,135
              
              $
              865,254Unearned
                  acquisition discounts to gross loans
              
              
              4.51
              %
              
              4.91
              %
              
              4.51
              %
              
              4.91
              %Average
                  percentage rate to borrowers
              
              
              22.71
              %
              
              22.62
              %
              
              22.71
              %
              
              22.62
              %**Loan
                  Quality Data**Allowance
                  for loan losses
              
              $
              (49,290
              )
              $
              (41,713
              )
              $
              (49,290
              )
              $
              (41,713
              )Allowance
                  for loan losses to gross loans net ofunearned
                  acquisition discounts
              
              
              5.63
              %
              
              4.78
              %
              
              5.63
              %
              
              4.78
              %Delinquencies
                  (% of net contracts)31-60
                  days
              
              
              0.73
              %
              
              0.53
              %
              
              0.73
              %
              
              0.53
              %61-90
                  days
              
              
              0.25
              %
              
              0.20
              %
              
              0.25
              %
              
              0.20
              %90+
                  days
              
              
              0.11
              %
              
              0.07
              %
              
              0.11
              %
              
              0.07
              %Total
              
              
              1.09
              %
              
              0.80
              %
              
              1.09
              %
              
              0.80
              %Repossessions
                  over 30 days past due (% of net contracts)
              
              
              0.85
              %
              
              0.54
              %
              
              0.85
              %
              
              0.54
              %Annualized
                  net charge-offs to average loans(1)
              
              
              6.66
              %
              
              5.04
              %
              
              6.91
              %
              
              5.32
              %**Other
                  Data**Number
                  of branches
              
              
              106
              
              
              144
              
              
              106
              
              
              144Number
                  of employees
              
              
              947
              
              
              1,035
              
              
              947
              
              
              1.035Interest
                  income
              
              $
              57,626
              
              $
              57,055
              
              $
              116,096
              
              $
              110,279Interest
                  expense
              
              $
              11,473
              
              $
              11,602
              
              $
              24,079
              
              $
              22,115Interest
                  margin
              
              $
              46,153
              
              $
              45,453
              
              $
              92,017
              
              $
              88,164Net
                  interest margin as a percentage of interest income
              
              
              80.09
              %
              
              79.67
              %
              
              79.26
              %
              
              79.95
              %Net
                  interest margin as a percentage of average loans(1)
              
              
              20.05
              %
              
              20.41
              %
              
              19.98
              %
              
              20.55
              %Non-interest
                  expense to average loans(1)
              
              
              10.86
              %
              
              10.87
              %
              
              11.21
              %
              
              11.13
              %Non-interest
                  expense to average loans(2)
              
              
              9.67
              %
              
              10.87
              %
              
              10.39
              %
              
              11.13
              %Return
                  on average assets(1)
              
              
              1.67
              %
              
              1.97
              %
              
              1.10
              %
              
              1.68
              %Return
                  on average shareholders’ equity(1)
              
              
              10.03
              %
              
              12.04
              %
              
              6.65
              %
              
              9.89
              %Consolidated
                  capital to assets ratio
              
              
              16.98
              %
              
              16.01
              %
              
              16.98
              %
              
              16.01
              %


_____________________________________




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


(2)
      Excluding restructuring charges.




**Results
      of Operations**




***Comparison
      of Operating Results for the three Months Ended June 30, 2008 and 2007***




*General*




For
      the
      three months ended June 30, 2008, our net income was $4.1 million, or $0.26
      per
      diluted share, compared with $4.6 million, or $0.28 per diluted share for the
      same period a year ago.




Interest
      income increased 0.9% to $57.6 million for the three months ended June 30,
      2008
      from $57.1 million for the same period a year ago due to an increase in average
      automobile contracts outstanding of $32.7 million. Automobile contracts
      purchased decreased $69.3 million to $98.5 million for the three months ended
      June 30, 2008 from $167.8 million for the same period a year ago. This decrease
      was the result of the slowdown in the economy and current market conditions,
      in
      addition to our focus on tighter underwriting criteria. During the three months
      ended June 30, 2008, we closed 22 underperforming branches bringing our total
      number of operating branches to 106 in 36 states.




22




*Interest
      Income*




Interest
      income increased by 0.9% to $57.6 million for the three months ended June 30,
      2008 from $57.1 million for the same period a year ago due primarily to an
      increase in average automobile contracts of $32.7 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.





*Interest
      Expense*




Interest
      expense decreased 0.9% to $11.5 million for the three months ended June 30,
      2008
      from $11.6 million for the same period a year ago. The average debt outstanding
      increased by 2.9% to $803.4 million for the three months ended June 30, 2008
      from $780.6 million for the same period a year ago. The average interest rate
      decreased 3.7% to 5.74% for the three months ended June 30, 2008 from 5.96%
      for
      the same period a year ago. The decrease was the result of lower market interest
      rates.





*Provision
      and Allowance for Loan Losses*




Provisions
      for loan losses are charged to income to bring our allowance for loan losses
      to
      a level which management considers adequate to absorb probable credit losses
      inherent in the portfolio of automobile loans. The provision for loan losses
      recorded in the three months ended June 30, 2008 and 2007 reflects inherent
      losses on receivables originated during those periods and changes in the amount
      of inherent losses on receivables originated in prior periods. The provision
      for
      loan losses increased to $15.1 million for the three months ended June 30,
      2008
      compared with $14.0 million for the same period a year ago. The increase in
      the provision for loan losses was due primarily to a $32.7 million increase
      in
      average automobile contracts and an increase in the annualized charge-off rate
      to 6.66% for the three months ended June 30, 2008 compared to 5.04% for the
      same
      period a year ago.




The
      increase in our annualized net charge-offs was the result of increased defaults
      due to the overall deteriorating economic environment.




The
      total
      allowance for loan losses was $49.3 million at June 30, 2008 compared with
      $41.7
      million at June 30, 2007, representing 5.63% of automobile contracts, less
      unearned acquisition discounts, at June 30, 2008 and 4.78% at June 30, 2007.
      The
      increase in the allowance for loan losses was due primarily to an increase
      in
      the loss rate within the portfolio.




A
      provision for loan losses is charged to operations based on our regular
      evaluation of the adequacy of the allowance for loan losses. While management
      believes it has adequately provided for losses and does not expect any material
      loss on its loans in excess of allowances already recorded, no assurance can
      be
      given that economic or other market conditions or other circumstances will
      not
      result in increased losses in the loan portfolio.




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




*Non-interest
      Income*




Non-interest
      income increased $0.1 million to $0.6 million for the three months ended June
      30, 2008 from $0.5 million for the same period a year ago.




*Non-interest
      Expense*




Non-interest
      expense increased $0.8 million to $25.0 million for the three months ended
      June
      30, 2008 from $24.2 million for the same period a year ago. The increase in
      non-interest expense was due to the increase in total average number of
      employees in the second quarter of 2008 versus the second quarter of 2007.
      Non-interest expense, excluding the restructuring charges associated with branch
      closures, as a percentage of average loans dropped to 9.7% from 10.9% for the
      same period a year ago. A pretax restructuring charge of $2.8 million was
      recorded for costs associated with branch closures in the quarter ended June
      30,
      2008 which included severance, fixed asset write-offs and post-closure costs.
      The restructuring charge included a $1.5 million reserve for estimated future
      lease obligations as of June 30, 2008.




*Income
      Taxes*




Income
      taxes decreased $0.5 million to $2.6 million for the three months ended June
      30,
      2008 from $3.1 million for the same period a year ago. This decrease occurred
      primarily as a result of a $1.1 million decrease in taxable income before income
      taxes. Income tax expense is based upon the estimated effective income tax
      rate
      that we expect to realize for the year ending December 31, 2008. Our estimated
      effective income tax rate for the three months ended June 30, 2008 is 38.7%
      compared to 40.0% for the comparable period in 2007.




23




***Comparison
      of Operating Results for the Six Months Ended June 30, 2008 and 2007***




*General*




For
      the
      six months ended June 30, 2008, our net income was $5.3 million, or $0.34 per
      diluted share, compared with $7.7 million, or $0.46 per diluted share for the
      same period a year ago.




Interest
      income increased 5.3% to $116.1 million for the six months ended June 30, 2008
      from $110.3 million for the same period a year ago due primarily to an increase
      in average automobile contracts of $60.9 million. Automobile contracts purchased
      decreased $107.0 million to $228.4 million for the six months ended June 30,
      2008 from $335.4 million for the same period a year ago as a result of the
      closing of branches and tighter underwriting criteria in light of current
      economic conditions. During the six months ended June 30, 2008, we closed 36
      auto finance branches bringing our total to 106 branches in 36 states.




*Interest
      Income*




Interest
      income increased by 5.3% to $116.1 million for the six months ended June 30,
      2008 from $110.3 million for the same period a year ago due primarily to an
      increase in average automobile contracts of $60.9 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.





*Interest
      Expense*




Interest
      expense increased 9.0% to $24.1million for the six months ended June 30, 2008
      from $22.1 million for the same period a year ago. The average debt outstanding
      increased by 7.0% to $805.7 million for the six months ended June 30, 2008
      from
      $753.3 million for the same period a year ago. The average interest rate
      increased to 6.01% for the six months ended June 30, 2008 from 5.92% for the
      same period a year ago. The increase was the result of higher market interest
      rates, coupled with pay down of lower priced securitizations.





*Provision
      and Allowance for Loan Losses*




Provisions
      for loan losses are charged to income to bring our allowance for loan losses
      to
      a level which management considers adequate to absorb probable credit losses
      inherent in the portfolio of automobile loans. The provision for loan losses
      recorded in the six months ended June 30, 2008 and 2007 reflects inherent losses
      on receivables originated during those periods and changes in the amount of
      inherent losses on receivables originated in prior periods. The provision for
      loan losses increased to $32.7 million for the six months ended June 30, 2008
      compared with $28.5 million for the same period a year ago. The increase in
      the provision for loan losses was due primarily to an increase in the annualized
      charge-off rate to 6.91% for the six months ended June 30, 2008 compared to
      5.32% for the same period a year ago.




The
      increase in our year-to-date annualized net charge-offs was the result of
      increased defaults due to the overall deteriorating economic
      environment.




The
      total
      allowance for loan losses was $49.3 million at June 30, 2008 compared with
      $41.7 million at June 30, 2007, representing 5.63% of net receivables at
      June 30, 2008 and 4.78% at June 30, 2007. The increase in allowance
      loan losses was due primarily to an increase in the loss rate within the
      portfolio.




A
      provision for loan losses is charged to operations based on our regular
      evaluation of the adequacy of the allowance for loan losses. While management
      believes it has adequately provided for losses and does not expect any material
      loss on its loans in excess of allowances already recorded, no assurance can
      be
      given that economic or other market conditions or other circumstances will
      not
      result in increased losses in the loan portfolio.




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




*Non-interest
      Income*




Non-interest
      income increased to $1.0 million for the six months ended June 30, 2008
      from $0.8 million for the same period a year ago.




*Non-interest
      Expense*




Non-interest
      expense increased $3.9 million to $51.6 million for the six months ended
      June 30, 2008 from $47.7 million for the same period a year ago. The
      increase in non-interest expense was due to the increase in total average number
      of employees in the six months ended June 30, 2008 compared to the same period
      a
      year ago. Non-interest expense, excluding the restructuring charges associated
      with branch closures, as a percentage of average loans dropped to 10.4% from
      11.1% for the same period a year ago. A pretax restructuring charge of $3.8
      million was recorded for costs associated with branch closures in the six months
      ended June 30, 2008 which included severance, fixed asset write-offs and
      post-closure costs. The restructuring charge included a $1.5 million reserve
      for
      estimated future lease obligations as of June 30, 2008.




24




*Income
      Taxes*




Income
      taxes decreased $1.7 million to $3.4 million for the six months ended
      June 30, 2008 from $5.1 million for the same period a year ago. This
      decrease occurred primarily as a result of a $4.1 million decrease in taxable
      income before income taxes. Income tax expense is based upon the estimated
      effective income tax rate that we expect to realize for the year ending December
      31, 2008. Our estimated effective income tax rate for the six months ended
      June
      30. 2008 is 38.7% compared to 40.0% for the comparable period in
      2007.




**Financial
      Condition**




***Comparison
      of Financial Condition at June 30, 2008 and December 31, 2007***




Total
      assets decreased $4.3 million, to $972.9 million at June 30, 2008, from $977.2
      million at December 31, 2007. The decrease resulted from a $6.6 million
      decrease in automobile contracts to $876.1 million, net of unearned acquisition
      discounts and unearned finance charges, at June 30, 2008 from $882.7 million
      at
      December 31, 2007.




Securitization
      notes payable decreased to $549.2 million at June 30, 2008 from
      $762.2 million at December 31, 2007 due to payments on the automobile
      contracts backing the securitized borrowings.




Warehouse
      line of credit borrowing increased to $237.1 million as of June 30, 2008 from
      $35.6 as of December 31, 2007 due primarily to funding of additional
      automobile contracts during the six months ended June 30, 2008.




The
      reduction in securitization notes payable and the increase in borrowings under
      the warehouse facility reflect the fact that we have not accessed the
      securitization market with a transaction since November 2007. Management is
      currently seeking alternative sources of financing. For more information, see
      Recent Market Developments in Item 2. “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” to the Quarterly Report on this
      form 10-Q.




Shareholders’
      equity increased to $165.2 million at June 30, 2008 from $159.3 million at
      December 31, 2007, primarily as a result of net income of $5.3 million and
      recognition of expense for fair value of options of $0.5 million.





**Cash
      Flows**





***Comparison
      of Cash Flows for the Six Months Ended June 30, 2008 and
      2007***





Cash
      provided by operating activities was $31.6 million and $26.5 million for the
      six
      months ended June 30, 2008 and 2007, respectively. Cash provided by operating
      activities increased for the six months ended June 30, 2008 compared to the
      same
      period in 2007 due primarily to an increase in cash received on interest income,
      partially offset by an increase in cash used on interest expense.





Cash
      used
      in investing activities was $12.1 million and $111.5 million for the six months
      ended June 30, 2008 and 2007, respectively. Cash used in investing activities
      decreased for the six months ended June 30, 2008 compared to the same period
      in
      2007 due to a decrease of $107.0 million in automobile contracts
      purchased.





Cash
      used
      in financing activities was $13.8 million for six months ended June 30, 2008.
      Cash provided by financing activities was $71.7 million for the six months
      ended
      June 30, 2007. Cash used in financing activities for the six months ended June
      30, 2008 reflects $213.1 million in payments on securitization notes payable
      and
      $209.3 million in proceeds from the warehouse line of credit. Cash provided
      by
      financing activities for the six months ended June 30, 2007 reflects $277.9
      million in proceeds from the warehouse line of credit, $249.4 million in
      payments on the warehouse line of credit, $250.0 million in proceeds from
      securitization and $186.7 million in payments on securitization notes
      payable.




**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.




25




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




**Recent
      Accounting Developments**




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


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 June 30, 2008.




**Changes
      in Internal Control Over Financial Reporting**




There
      was
      no change in our internal control over financial reporting during the quarter
      ended June 30, 2008 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 risk factors and information set forth in this
      report, you should carefully consider the factors discussed in Part I, “Item 1A.
      Risk Factors” in our Annual Report on Form 10-K for the year ended
      December 31, 2007, which could materially affect our business, financial
      condition or future results. The risks described in our Annual Report on Form
      10-K are not the only risks facing the Company. Additional risks and
      uncertainties not currently known to us or that we currently deem to be
      immaterial also may materially adversely affect our business, financial
      condition, operating results and/or cash flows.




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




**Issuer
      Purchases of Equity Securities**




During
      the quarter ended June 30, 2008, we did not repurchase any shares of our common
      stock.




**Period**
              
              **Total**
                **Number of**
                **Shares**
                **Purchased**
              
              **Average**
                **Price Paid**
                **Per Share**
              
              **Total Number of Shares**
                **Purchased as Part of**
                **Publicly Announced**
                **Plan or Program**
              
              **Approximate Number**
                **of Shares That**
                **May Yet Be**
                **Purchased Under the**
                **Plan or Program**April
                  1, 2008 to April 30, 2008
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262May
                  1, 2008 to May 31, 2008
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262June
                  1, 2008 to June 30, 2008
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262Total
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262




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




**Item 3.**  **Defaults
      Upon Senior Securities.**




Not
      applicable




**Item 4.**  **Submission
      of Matters to a Vote of Security Holders.**




Not
      applicable




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




Submission
      of Shareholder Proposals




Under
      certain circumstances, shareholders are entitled to present proposals at
      shareholder meetings. If you wish to submit a proposal to be included in our
      2008 proxy statement, we must receive it, in a form which complies with the
      applicable securities laws, on or before May 27, 2008. In addition, in the
      event
      a shareholder proposal is not submitted to us on or before August 10, 2008,
      the
      proxy to be solicited by the Board of Directors for the 2008 Annual Meeting
      will
      confer authority on the holders of the proxy to vote the shares in accordance
      with their best judgment and discretion if the proposal is presented at the
      2008
      Annual Meeting without any discussion of the proposal in the proxy statement
      for
      such meeting. Please address your proposals to: United PanAm Financial Corp.,
      18191 Von Karman Avenue, Suite 300, Irvine, California, 92612 Attn: Corporate
      Secretary.


28




**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:**
            August
                11, 2008
            
            By:
            /S/    JIMVAGIM**Jim
                Vagim****Chief
                Executive Officer and President****(Principal
                Executive Officer)**August
                11, 2008
            
            By:
            /s/    ARASHKHAZEI**Arash
                Khazei****Chief Financial Officer and Executive Vice President****(Principal Financial and Accounting Officer)**




30