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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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

For the quarterly period ended March 31, 2006



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

For the transition period from  to

Commission
File Number 000-24051



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UNITED PANAM FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)



|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|California                                                    |  | 94-3211687                            
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification Number)



|                                                |  |           
|----------------------------------------------- |  | ----------
|3990 Westerly Place, Suite 200Newport Beach, CA |  | 92660     
|(Address of principal executive offices)        |  | (Zip Code)

(949) 224-1917

(Registrants telephone number, including area code)



---

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

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

Large accelerated filer ̈Accelerated filer  x                    Non-accelerated filer ̈

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

The number of shares outstanding of the Registrants Common Stock as of April 27, 2006 was 17,243,978 shares.



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##### Table of Contents

UNITED PANAM FINANCIAL CORP.

FORM 10-Q

March 31, 2006

INDEX



|                              |  |                                                                                                    |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                    |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                   
|                              |  |                                                                                                   
|Item 1.                       |  | Financial Statements                                                                               |  |     
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Financial Condition as of March 31, 2006 and December 31, 2005          |  | 1   
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005           |  | 2   
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Comprehensive Income for the three months ended March 31, 2006 and 2005 |  | 3   
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005           |  | 4   
|                              |  |                                                                                                   
|                              |  | Notes to Consolidated Financial Statements                                                         |  | 5   
|                              |  |                                                                                                   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 14  
|                              |  |                                                                                                   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 29  
|                              |  |                                                                                                   
|Item 4.                       |  | Controls and Procedures                                                                            |  | 29  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                   
|                              |  |                                                                                                   
|Item 1.                       |  | Legal Proceedings                                                                                  |  | 30  
|                              |  |                                                                                                   
|Item 1A.                      |  | Risk Factors                                                                                       |  | 30  
|                              |  |                                                                                                   
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 30  
|                              |  |                                                                                                   
|Item 3.                       |  | Defaults Upon Senior Securities                                                                    |  | 30  
|                              |  |                                                                                                   
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                |  | 30  
|                              |  |                                                                                                   
|Item 5.                       |  | Other Information                                                                                  |  | 30  
|                              |  |                                                                                                   
|Item 6.                       |  | Exhibits                                                                                           |  | 30  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition



|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | --------- | -
|(Dollars in thousands)                                                                                                                                              |  | March 31,2006 |         |   | December 31,2005 |  
|                                                                                                                                                                    |  | (Unaudited)   |         |   | (Audited)        |  
|Assets                                                                                                                                                              |  |               |         |   |                  |   |           |  
|Cash                                                                                                                                                                |  | $             | 5,877   |   |                  | $ | 8,199     |  
|Short term investments                                                                                                                                              |  |               | 12,635  |   |                  |   | 13,096    |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                           |  |               | 18,512  |   |                  |   | 21,295    |  
|Restricted cash                                                                                                                                                     |  |               | 63,181  |   |                  |   | 53,058    |  
|Loans                                                                                                                                                               |  |               | 681,465 |   |                  |   | 633,656   |  
|Allowance for loan losses                                                                                                                                           |  |               | (28,204 | ) |                  |   | (29,110   | )
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Loans, net                                                                                                                                                          |  |               | 653,261 |   |                  |   | 604,546   |  
|Premises and equipment, net                                                                                                                                         |  |               | 4,147   |   |                  |   | 3,881     |  
|Interest receivable                                                                                                                                                 |  |               | 7,334   |   |                  |   | 7,213     |  
|Deferred tax assets                                                                                                                                                 |  |               | 12,956  |   |                  |   | 12,956    |  
|Other assets                                                                                                                                                        |  |               | 8,596   |   |                  |   | 10,905    |  
|Assets of discontinued operations                                                                                                                                   |  |               |        |   |                  |   | 495,318   |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Total assets                                                                                                                                                        |  | $             | 767,987 |   |                  | $ | 1,209,172 |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Liabilities and Shareholders Equity                                                                                                                                |  |               |         |   |                  |   |           |  
|Warehouse line of credit                                                                                                                                            |  | $             | 140,455 |   |                  | $ | 54,009    |  
|Securitization notes payable                                                                                                                                        |  |               | 444,777 |   |                  |   | 521,613   |  
|Accrued expenses and other liabilities                                                                                                                              |  |               | 7,740   |   |                  |   | 8,806     |  
|Junior subordinated debentures                                                                                                                                      |  |               | 10,310  |   |                  |   | 10,310    |  
|Liabilities of discontinued operations                                                                                                                              |  |               |        |   |                  |   | 459,519   |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Total liabilities                                                                                                                                                   |  |               | 603,282 |   |                  |   | 1,054,257 |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Preferred stock (no par value):                                                                                                                                     |  |               |         |   |                  |   |           |  
|Authorized, 2,000,000 shares; no shares issued and outstanding at March 31, 2006 and December 31, 2005                                                              |  |               |        |   |                  |   |          |  
|Common stock (no par value):                                                                                                                                        |  |               |         |   |                  |   |           |  
|Authorized, 30,000,000 shares issued and outstanding; 17,243,978 and 17,120,250 shares issued and outstanding at March 31, 2006 and
December 31, 2005, respectively |  |               | 78,434  |   |                  |   | 76,054    |  
|Retained earnings                                                                                                                                                   |  |               | 86,271  |   |                  |   | 80,182    |  
|Unrealized loss on securities available for sale, net                                                                                                               |  |               |        |   |                  |   | (1,321    | )
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Total shareholders equity                                                                                                                                          |  |               | 164,705 |   |                  |   | 154,915   |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                                          |  | $             | 767,987 |   |                  | $ | 1,209,172 |  
|                                                                                                                                                                    |  |               |         |   |                  |   |           |  

See notes to consolidated financial statements



1



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|                                                       |  |                             |        |   |      |   |       
|------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------
|                                                       |  | Three Months EndedMarch 31,
|(In thousands, except per share data)                  |  | 2006                        |        |   | 2005
|Interest Income                                        |  |                             |        |   |      |   |       
|Loans                                                  |  | $                           | 43,456 |   |      | $ | 33,728
|Short term investments                                 |  |                             | 21     |   |      |   | 46    
|                                                       |  |                             |        |   |      |   |       
|Total interest income                                  |  |                             | 43,477 |   |      |   | 33,774
|                                                       |  |                             |        |   |      |   |       
|Interest Expense                                       |  |                             |        |   |      |   |       
|Securitization notes payable                           |  |                             | 5,937  |   |      |   | 2,898 
|Warehouse line of credit                               |  |                             | 1,394  |   |      |   | 1,374 
|Junior subordinated debentures                         |  |                             | 191    |   |      |   | 143   
|                                                       |  |                             |        |   |      |   |       
|Total interest expense                                 |  |                             | 7,522  |   |      |   | 4,415 
|                                                       |  |                             |        |   |      |   |       
|Net interest income                                    |  |                             | 35,955 |   |      |   | 29,359
|Provision for loan losses                              |  |                             | 6,798  |   |      |   | 5,713 
|                                                       |  |                             |        |   |      |   |       
|Net interest income after provision for loan losses    |  |                             | 29,157 |   |      |   | 23,646
|                                                       |  |                             |        |   |      |   |       
|Non-interest Income                                    |  |                             |        |   |      |   |       
|Loan related charges and fees                          |  |                             | 759    |   |      |   | 1,008 
|Other income                                           |  |                             | 652    |   |      |   | 44    
|                                                       |  |                             |        |   |      |   |       
|Total non-interest income                              |  |                             | 1,411  |   |      |   | 1,052 
|                                                       |  |                             |        |   |      |   |       
|Non-interest Expense                                   |  |                             |        |   |      |   |       
|Compensation and benefits                              |  |                             | 12,224 |   |      |   | 9,533 
|Occupancy                                              |  |                             | 1,677  |   |      |   | 1,361 
|Other                                                  |  |                             | 5,378  |   |      |   | 5,116 
|                                                       |  |                             |        |   |      |   |       
|Total non-interest expense                             |  |                             | 19,279 |   |      |   | 16,010
|                                                       |  |                             |        |   |      |   |       
|Income from continuing operations before income taxes  |  |                             | 11,289 |   |      |   | 8,688 
|Income taxes                                           |  |                             | 4,516  |   |      |   | 3,549 
|                                                       |  |                             |        |   |      |   |       
|Income from continuing operations                      |  |                             | 6,773  |   |      |   | 5,139 
|(Loss) income from discontinued operations, net of tax |  |                             | (684   | ) |      |   | 1,151 
|                                                       |  |                             |        |   |      |   |       
|Net income                                             |  | $                           | 6,089  |   |      | $ | 6,290 
|                                                       |  |                             |        |   |      |   |       
|Earnings (loss) per share-basic:                       |  |                             |        |   |      |   |       
|Continuing operations                                  |  | $                           | 0.39   |   |      | $ | 0.31  
|Discontinued operations                                |  |                             | (0.04  | ) |      |   | 0.07  
|                                                       |  |                             |        |   |      |   |       
|Net income                                             |  | $                           | 0.35   |   |      | $ | 0.38  
|                                                       |  |                             |        |   |      |   |       
|Weighted average basic shares outstanding              |  |                             | 17,179 |   |      |   | 16,538
|                                                       |  |                             |        |   |      |   |       
|Earnings (loss) per share-diluted:                     |  |                             |        |   |      |   |       
|Continuing operations                                  |  | $                           | 0.36   |   |      | $ | 0.28  
|Discontinued operations                                |  |                             | (0.04  | ) |      |   | 0.06  
|                                                       |  |                             |        |   |      |   |       
|Net income                                             |  | $                           | 0.32   |   |      | $ | 0.34  
|                                                       |  |                             |        |   |      |   |       
|Weighted average diluted shares outstanding            |  |                             | 18,963 |   |      |   | 18,385
|                                                       |  |                             |        |   |      |   |       

See notes to consolidated financial statements. Net income for the three months ended March 31, 2006
included stock-based compensation expense recognized under SFAS No. 123(R) of $347,000, net of tax. There was no stock-based compensation expense recognized during the three months ended March 31, 2005 because the Company did not adopt the
recognition provisions of SFAS No. 123. Net income included pro forma stock-based compensation expense as previously disclosed in the notes to the Consolidated Financial Statements for the three months ended March 31, 2005 of $261,000, net
of tax. See Note 5 to the Consolidated Financial Statements for additional information.



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



|                                            |  |                             |       |      |   |       |  
|------------------------------------------- |  | --------------------------- | ----- | ---- | - | ----- | -
|                                            |  | Three Months EndedMarch 31, |      
|(In thousands)                              |  | 2006                        |       | 2005 |  
|Net income                                  |  | $                           | 6,089 |      | $ | 6,290 |  
|Other comprehensive income, net of tax      |  |                             |       |      |   |       |  
|Unrealized loss on securities               |  |                             |      |      |   | (150  | )
|Tax effect of unrealized loss on securities |  |                             |      |      |   | 61    |  
|                                            |  |                             |       |      |   |       |  
|Comprehensive income                        |  | $                           | 6,089 |      | $ | 6,201 |  
|                                            |  |                             |       |      |   |       |  

See notes to consolidated financial statements



3



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                  |  |                             |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                  |  | Three Months EndedMarch 31, |         
|(Dollars in thousands)                                                                            |  | 2006                        |          |   | 2005 |  
|Cash Flows from Operating Activities:                                                             |  |                             |          |   |      |   |          |  
|Income from continuing operations                                                                 |  | $                           | 6,773    |   |      | $ | 5,139    |  
|Reconciliation of income from continuing operations to net cash provided by operating activities: |  |                             |          |   |      |   |          |  
|Provision for loan losses                                                                         |  |                             | 6,798    |   |      |   | 5,713    |  
|Accretion of discount on loans                                                                    |  |                             | (5,477   | ) |      |   | (4,174   | )
|Depreciation and amortization                                                                     |  |                             | 423      |   |      |   | 359      |  
|Stock-based compensation                                                                          |  |                             | 578      |   |      |   |         |  
|Tax benefit from stock-based compensation                                                         |  |                             | (231     | ) |      |   |         |  
|Increase in accrued interest receivable                                                           |  |                             | (121     | ) |      |   | (497     | )
|Decrease in other assets                                                                          |  |                             | 3,630    |   |      |   | 4,596    |  
|Decrease in accrued expenses and other liabilities                                                |  |                             | (1,066   | ) |      |   | (1,767   | )
|                                                                                                  |  |                             |          |   |      |   |          |  
|Net cash provided by operating activities of continuing operations                                |  |                             | 11,307   |   |      |   | 9,369    |  
|(Loss) income from discontinued operations                                                        |  |                             | (684     | ) |      |   | 1,151    |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Net cash provided by operating activities                                                         |  |                             | 10,623   |   |      |   | 10,520   |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                                             |  |                             |          |   |      |   |          |  
|Purchases, net of repayments, of loans                                                            |  |                             | (50,036  | ) |      |   | (45,434  | )
|Change in assets of discontinued operations                                                       |  |                             | 495,318  |   |      |   | 404,256  |  
|Purchase of premises and equipment                                                                |  |                             | (689     | ) |      |   | (384     | )
|Proceeds from redemption of FHLB stock                                                            |  |                             |         |   |      |   | 12,067   |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Net cash provided by investing activities                                                         |  |                             | 444,593  |   |      |   | 370,505  |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                                             |  |                             |          |   |      |   |          |  
|Change in liabilities of discontinued operations                                                  |  |                             | (459,519 | ) |      |   | (385,656 | )
|Proceeds from warehouse line of credit                                                            |  |                             | 89,446   |   |      |   | 87,240   |  
|Repayment of warehouse line of credit                                                             |  |                             | (3,000   | ) |      |   |         |  
|Payments on securitization notes payable                                                          |  |                             | (76,836  | ) |      |   | (59,603  | )
|Increase in restricted cash                                                                       |  |                             | (10,123  | ) |      |   | (9,143   | )
|Proceeds from exercise of stock options                                                           |  |                             | 1,802    |   |      |   | 354      |  
|Tax benefit from stock-based compensation                                                         |  |                             | 231      |   |      |   |         |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Net cash used in financing activities                                                             |  |                             | (457,999 | ) |      |   | (366,808 | )
|                                                                                                  |  |                             |          |   |      |   |          |  
|Net (decrease) increase in cash and cash equivalents                                              |  |                             | (2,783   | ) |      |   | 14,217   |  
|Cash and cash equivalents at beginning of period                                                  |  |                             | 21,295   |   |      |   | 4,237    |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                        |  | $                           | 18,512   |   |      | $ | 18,454   |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Supplemental Disclosures of Cash Payments Made for:                                               |  |                             |          |   |      |   |          |  
|Interest                                                                                          |  | $                           | 8,126    |   |      | $ | 8,131    |  
|                                                                                                  |  |                             |          |   |      |   |          |  
|Income taxes                                                                                      |  | $                           | 2,370    |   |      | $ | 68       |  
|                                                                                                  |  |                             |          |   |      |   |          |  

See notes to consolidated financial statements



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)



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

United PanAm Financial Corp.
(UPFC or 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 UPFC.
Unless the context indicates otherwise, all references to UPFC include the previous Delaware corporation. UPFC 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 UPFC, and United Auto Credit Corp. (UACC) became a direct wholly-owned subsidiary of UPFC. 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 UPFC. 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. UPFCs total outstanding shares did not change as a result of the merger, nor did the underlying beneficial ownership of those shares.

At March 31, 2006, UACC was a direct wholly-owned subsidiary of UPFC, and UPFC Auto Receivables Corporation (UARC) and UPFC Funding
Corporation (UFC) were direct wholly-owned subsidiaries of UACC. UARC is an entity whose business is limited to the purchase of automobile contracts from UACC 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 in connection with warehouse funding of such contracts.



|2. | Basis of Presentation
|-- | ---------------------

The accompanying unaudited
consolidated financial statements include the accounts of UPFC and UACC. 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 (all adjustments
are of normal recurring nature) 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, 2005. 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.

Certain amounts in the 2005 financial
statements have been reclassified to conform with financial statement presentation in 2006.



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##### Table of Contents

|3. | Discontinued Operations
|-- | -----------------------

In July 2004, the Bank
adopted a plan of voluntary dissolution (the Plan) to dissolve and ultimately exit its federal thrift charter. The Office of Thrift Supervision (the OTS) conditionally approved the Plan in August 2004, subject to the Bank
satisfying certain conditions imposed by the OTS.

In September 2004, the Company sold its three retail bank branches (with total deposits
of $223.4 million) and its brokered deposit portfolio (with deposits of $184.3 million). In February 2005, the Company sold its remaining internet originated deposits. The Company recognized a gain on sale of the three retail branches and the
brokered deposit portfolio of $2.7 million after tax. The normal net operating costs and interest expense on deposits of the Bank have not been reclassified as discontinued operations from prior periods because the associated loans funded by these
deposits are not discontinued and the cost of the replacement funds from the securitization and the warehouse line are very similar to the net cost of deposits including operating costs.

On March 7, 2005, the Company received confirmation that the Federal Deposit Insurance Corporation (FDIC) terminated the insured status
of the Bank effective February 7, 2005. On March 8, 2005, the Company received confirmation from the OTS that the Banks federal charter was cancelled effective February 11, 2005. In connection with the Plan and to facilitate the
dissolution, the Company has irrevocably guaranteed all remaining obligations of the Bank.

In connection with the dissolution of the Bank,
and in order to concentrate the Companys efforts on its non-prime automobile finance business, the Company sold its portfolio of insurance premium finance loans to Classic Plan Premium Financing, Inc. in November 2004 at a nominal premium over
par.

On March 30, 2006, the Company discontinued its operations related to its investment segment and sold its investment securities
portfolio to focus solely on its automobile finance business and to provide additional transparency to the public regarding the actual returns of its automobile finance operations. The Company had historically invested in AAA-rated, United States
Government Agency securities primarily to satisfy the Qualified Thrift Lender test that required the Bank to hold at least 60% of its assets in mortgage-related securities. Since the dissolution of the Bank in February 2005, the Company had
maintained its investment securities portfolio to generate a reasonable rate of return on the Companys equity capital. Prior to the completion of this sale, the Companys investment securities portfolio consisted of $276.0 million in
investment securities, and was financed with $262.1 million of repurchase agreements. The Company satisfied these repurchase agreements with the proceeds of this sale.

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



|                                                                                                                        |  |                             |       |   |                  |   |        
|----------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---------------- | - | -------
|(Dollars in Thousands)                                                                                                  |  | March 31,2006               |       |   | December 31,2005
|Assets of discontinued operations                                                                                       |  | $                           |      |   |                  | $ | 495,318
|Liabilities of discontinued operations                                                                                  |  | $                           |      |   |                  | $ | 459,519
|                                                                                                                        | 
|                                                                                                                        |  | Three Months EndedMarch 31,
|                                                                                                                        |  | 2006                        |       |   | 2005            
|Revenue                                                                                                                 |  | $                           | 4,782 |   |                  | $ | 6,188  
|Expense                                                                                                                 |  | $                           | 5,922 |   |                  | $ | 4,245  
|(Loss) income from discontinued operations (after applicable income (tax benefits) taxes of $(456), $793, respectively) |  | $                           | (684  | ) |                  | $ | 1,151  



|4. | 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, stock awards, and shared performance stock awards.



6



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|                                          |  |                             |        |   |      |   |       
|----------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------
|                                          |  | Three Months EndedMarch 31,
|(In thousands, except per share amounts)  |  | 2006                        |        |   | 2005
|Earnings per sharebasic:                 |  |                             |        |   |      |   |       
|Income from continuing operations         |  | $                           | 6,773  |   |      | $ | 5,139 
|Discontinued operations                   |  |                             | (684   | ) |      |   | 1,151 
|                                          |  |                             |        |   |      |   |       
|Net income                                |  | $                           | 6,089  |   |      | $ | 6,290 
|                                          |  |                             |        |   |      |   |       
|Average common shares outstanding         |  |                             | 17,179 |   |      |   | 16,538
|                                          |  |                             |        |   |      |   |       
|Per share from continuing operations      |  | $                           | 0.39   |   |      | $ | 0.31  
|Discontinued operations                   |  |                             | (0.04  | ) |      |   | 0.07  
|                                          |  |                             |        |   |      |   |       
|Per share                                 |  | $                           | 0.35   |   |      | $ | 0.38  
|                                          |  |                             |        |   |      |   |       
|Earnings per sharediluted:               |  |                             |        |   |      |   |       
|Income from continuing operations         |  | $                           | 6,773  |   |      | $ | 5,139 
|Discontinued operations                   |  |                             | (684   | ) |      |   | 1,151 
|                                          |  |                             |        |   |      |   |       
|Net income                                |  | $                           | 6,089  |   |      | $ | 6,290 
|                                          |  |                             |        |   |      |   |       
|Average common shares outstanding         |  |                             | 17,179 |   |      |   | 16,538
|Add: Stock options                        |  |                             | 1,784  |   |      |   | 1,847 
|                                          |  |                             |        |   |      |   |       
|Average common shares outstandingdiluted |  |                             | 18,963 |   |      |   | 18,385
|                                          |  |                             |        |   |      |   |       
|Per share from continuing operations      |  | $                           | 0.36   |   |      | $ | 0.28  
|Discontinued operations                   |  |                             | (0.04  | ) |      |   | 0.06  
|                                          |  |                             |        |   |      |   |       
|Per share                                 |  | $                           | 0.32   |   |      | $ | 0.34  
|                                          |  |                             |        |   |      |   |       

For the three months ended March 31, 2006 and 2005, 77,000 and 298,000 average shares
attributable to outstanding stock options were excluded from the calculation of diluted earnings per share 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.



|5. | Stock-Based Compensation
|-- | ------------------------

On January 1, 2006,
the Company adopted Statement of Financial Accounting Standards (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). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).

The Company 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 the Companys 2006
fiscal year. The Companys Consolidated Financial Statements as of and for the three months ended March 31, 2006 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Companys
Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) for the three months ended
March 31, 2006 was $578,000. There was no stock-based compensation expense recognized during the three months ended March 31, 2005.

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 the Companys Consolidated Statement of Operations. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value
method in accordance with APB Opinion No. 25 as allowed under SFAS No. 123. Under the intrinsic value method, no stock-based compensation expense had been recognized in the Companys Consolidated Statement of Operations, because the
exercise price of the Companys stock options granted equaled the fair market value of the underlying stock at the date of grant.



7



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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 the Companys Consolidated Statement of Operations for the three months ended March 31, 2006 included
compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123 and compensation
expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). As stock-based compensation expense recognized in the
Consolidated Statement of Operations for the three months ended March 31, 2006 is based on awards ultimately expected to vest, 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 the Companys pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, the Company
accounted for forfeitures as they occurred.

On November 10, 2005, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. The Company has 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 months ended March 31, 2006 (there was no share-based compensation expense recognized for the three months ended March 31, 2005).



|                                             |  |                              |      |   |      |   |  
|-------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | -
|                                             |  | Three Months Ended March 31,
|                                             |  | 2006                         |      |   | 2005
|                                             |  | (Dollars in thousands)      
|Stock-based compensation expense             |  | $                            | (578 | ) |      | $ | 
|Tax benefit                                  |  |                              | 231  |   |      |   | 
|                                             |  |                              |      |   |      |   |  
|Stock-based compensation expense, net of tax |  | $                            | (347 | ) |      | $ | 
|                                             |  |                              |      |   |      |   |  

The table below reflects net income and diluted net income per share for the three months ended
March 31, 2006 compared with the pro forma information for the three months ended March 31, 2005.



|                                                                                           |  |                              |       |   |      |   |       |  
|------------------------------------------------------------------------------------------ |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                           |  | Three Months Ended March 31, |      
|                                                                                           |  | 2006                         |       |   | 2005 |  
|                                                                                           |  | (Dollars in thousands)       |      
|Net income - as reported for prior period (1)                                              |  |                              | N/A   |   |      | $ | 6,290 |  
|Stock-based compensation expense                                                           |  | $                            | (578  | ) |      |   | (441  | )
|Tax benefit                                                                                |  |                              | 231   |   |      |   | 180   |  
|                                                                                           |  |                              |       |   |      |   |       |  
|Stock-based compensation expense, net of tax (2)                                           |  |                              | (347  | ) |      |   | 261   |  
|Net income, including the effect of stock-based compensation expense (3)                   |  | $                            | 6,089 |   |      | $ | 6,029 |  
|                                                                                           |  |                              |       |   |      |   |       |  
|Diluted net income per share  as reported for prior period (1)                            |  |                              | N/A   |   |      | $ | 0.34  |  
|                                                                                           |  |                              |       |   |      |   |       |  
|Diluted net income per share, including the effect of stock-based compensation expense (3) |  | $                            | 0.32  |   |      | $ | 0.33  |  
|                                                                                           |  |                              |       |   |      |   |       |  

---

|(1) | Net income and net income per share prior to January 1, 2006 did not include stock-based compensation expense under SFAS No. 123 because the Company did not adopt the
recognition provisions of SFAS No. 123.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Stock-based compensation expense prior to January 1, 2006 is calculated based on the pro forma application of SFAS No. 123.
|--- | ---------------------------------------------------------------------------------------------------------------------------



|(3) | Net income and net income per share prior to January 1, 2006 represents pro forma information based on SFAS No. 123.
|--- | --------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The fair value of options under the Companys Amended and Restated 1997 Employee Stock Incentive
Plan (the 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 12 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 three to five years depending on final maturity of the options.



|                         |  |                              |                |      |   |               
|------------------------ |  | ---------------------------- | -------------- | ---- | - | --------------
|                         |  | Three Months ended March 31,
|                         |  | 2006                         |                | 2005
|Expected dividends       |  | $                            |               |      | $ |              
|Expected volatility      |  |                              | 30% to 31%     |      |   | 32% to 38%    
|Risk-free interest rate  |  |                              | 4.29% to 4.76% |      |   | 3.66% to 4.27%
|Expected life (in years) |  |                              | 3 to 5 years   |      |   | 3 to 5 years  

At March 31, 2006, there was $5.4 million of unrecognized compensation cost related to share
based compensation, which is expected to be recognized over a weighted average period of 4.99 years. A summary of option activity for the three months ended March 31, 2006 is as follows.



|                           |  |           |   |  |                                 |      
|-------------------------- |  | --------- | - |  | ------------------------------- | -----
|                           |  | Shares    |   |  | Weighted Average Exercise Price
|Balance, December 31, 2005 |  | 4,574,390 |   |  | $                               | 10.07
|Granted                    |  | 98,000    |   |  |                                 | 27.57
|Canceled or expired        |  | (37,900   | ) |  |                                 | 18.34
|Exercised                  |  | (123,728  | ) |  |                                 | 6.99 
|                           |  |           |   |  |                                 |      
|Balance, March 31, 2006    |  | 4,510,762 |   |  |                                 | 10.47
|                           |  |           |   |  |                                 |      

At March 31, 2006, options exercisable to purchase 3,856,962 shares of UPFCs common
stock under the Plan were outstanding as follows.



|                         |  |                            |  |                               |       |                                                 |      |                             |           |                                               |   |      
|------------------------ |  | -------------------------- |  | ----------------------------- | ----- | ----------------------------------------------- | ---- | --------------------------- | --------- | --------------------------------------------- | - | -----
|Range of Exercise Prices |  | Number ofSharesOutstanding |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContractualLife (Years) |      | Number of SharesExercisable |           | ExercisableSharesWeightedAverageExercisePrice
|$0.0000 to $2.9720       |  | 812,504                    |  | $                             | 1.32  |                                                 | 2.16 |                             | 812,504   |                                               | $ | 1.32 
|$2.9721 to $5.9440       |  | 715,108                    |  |                               | 4.20  |                                                 | 4.34 |                             | 711,808   |                                               |   | 4.20 
|$5.9441 to $8.9160       |  | 149,200                    |  |                               | 6.99  |                                                 | 5.56 |                             | 106,000   |                                               |   | 6.87 
|$8.9161 to $11.8880      |  | 1,494,500                  |  |                               | 10.18 |                                                 | 5.16 |                             | 1,456,700 |                                               |   | 10.19
|$11.8881 to $14.8600     |  | 69,000                     |  |                               | 14.11 |                                                 | 5.49 |                             | 56,000    |                                               |   | 14.07
|$14.8601 to $17.8320     |  | 380,850                    |  |                               | 15.43 |                                                 | 5.37 |                             | 303,250   |                                               |   | 15.21
|$17.8321 to $20.8040     |  | 462,600                    |  |                               | 19.50 |                                                 | 5.77 |                             | 343,800   |                                               |   | 19.62
|$20.8041 to $23.7760     |  | 128,500                    |  |                               | 22.35 |                                                 | 9.39 |                             | 24,900    |                                               |   | 22.37
|$23.7761 to $26.7480     |  | 136,500                    |  |                               | 25.91 |                                                 | 9.39 |                             | 23,900    |                                               |   | 25.91
|$26.7481 to $29.7200     |  | 162,000                    |  |                               | 28.35 |                                                 | 9.55 |                             | 18,100    |                                               |   | 28.73
|                         |  |                            |  |                               |       |                                                 |      |                             |           |                                               |   |      
|                         |  | 4,510,762                  |  | $                             | 10.47 |                                                 | 4.99 |                             | 3,856,962 |                                               | $ | 8.68 
|                         |  |                            |  |                               |       |                                                 |      |                             |           |                                               |   |      

At March 31, 2006, 504,410 shares of common stock were reserved for future grants or
issuances under the Plan.



|6. | Allowance for Loan Losses
|-- | -------------------------

Our policy is to
charge-off accounts at the earlier of (i) the end of the month in which the collateral has been repossessed and sold, or (ii) the date the account is delinquent in excess of 120 days. Loans over 30 days delinquent are considered nonaccrual
loans.

Until December 31, 2002, allowances for expected losses over the life of the automobile contract were established when each
contract was purchased from the dealer. The allowance was provided from the dealer discount that was taken on each transaction as an adjustment to yield of the automobile contract. Loss allowance analyses were performed regularly to determine the
adequacy of current allowance levels. The loss allowances recorded at the time of purchase represented an estimate of expected losses over the lives of these automobiles contracts. We accounted for such contracts by static pool, stratified into
six-month buckets, so that the credit risk in each individual static pool could be evaluated independently, on a



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periodic basis, in order to estimate the future losses within each pool. Additional provisions for credit losses were recognized immediately for pools
wherein the remaining amount of the initial discount set aside was determined to be insufficient to cover losses expected to be incurred.

As of January 1, 2003, we began to allocate the purchase price entirely to automobile contracts and unearned income at the date of purchase. The unearned income is accreted as an adjustment to yield over the life of the contract. An
allowance for credit losses is now established through provisions for losses recorded in income as necessary to provide for estimated contract losses in the next 12 months (net of remaining unearned income) at each reporting date. We account for
such contracts by static pool, stratified into six-month buckets, so that the credit risk in each individual static pool could be evaluated independently, on a periodic basis, in order to estimate the future losses within each pool. This method of
recording allowance for loan loss for the expected losses over the next 12 months instead of for the life of the loan will ultimately result in a decline in our allowance for loan loss as a percentage of loans outstanding over the next few years as
the percentage of loans included at the 12 month estimate increases.

We modified our underwriting approach in early 2003. Since the second
quarter of 2003, the improvement in overall underwriting of loans has shown a gradual reduction in loss rate by pool as a percentage of the long term historical curve. Since the model also took into account losses from prior to 2003, the overall
historical loss rate was tracking higher than the post 2003 losses. As a result of the incurrence of post-2003 losses at approximately 87% of the historical loss curve, there is a difference between actual losses taken and the estimated reserve for
new pools with 12 months or less of historical data since the historical curve is used to estimate the required reserve for new pools. Starting in the first quarter of 2006, we started to use quarterly pool data points instead of six months pool
data points to derive the historical curve in order to better estimate future losses, to be more responsive to changes in the portfolio as a result of the new underwriting guide line and to correspond to securitization reporting. Additionally,
losses on new pools are estimated using a factor that accounts for the impact of the Companys improved underwriting policies. The impact due to the change in accounting estimate described above was a reduction in provision for loan losses of
$1.7 million before tax (or $1.0 million after tax).



|7. | Recent Accounting Developments
|-- | ------------------------------

In February 2006,
the FASB issued FASB Staff Position (FSP) No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. FAS 123 (R)-4 concludes
that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not become a liability until it becomes probable that the event will occur. An option or similar
instrument that is classified as equity, but subsequently becomes a liability because the contingent cash settlement event is probable of occurring, shall be accounted for similar to modification from an equity to liability award. To the extent that
the liability exceeds the amount previously recognized in equity, the excess is recognized as compensation cost. The total recognized compensation cost for an award with a contingent cash settlement feature shall at least equal the fair value of the
award at the grant date. This FSP is applicable only for options or similar instruments issued as part of employee compensation arrangements. The guidance in this FSP shall be applied upon initial adoption of Statement SFAS No. 123(R). As of
March 31, 2006, this pronouncement had no material impact on our consolidated financial statements.

In March 2006, the FASB issued
FSP No. FAS 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140. FAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value and
requires additional disclosures and separate presentation in the statement of financial position of the carrying amounts of servicing assets and servicing liabilities that an entity elects to subsequently measure at fair value to address concerns
about comparability that may result from the use of elective measurement methods. The provisions of FAS 156 are effective as of the beginning of our first fiscal year that begins after September 15, 2006. Management believes the adoption of
this pronouncement will not have a material impact on the Companys consolidated financial statement. As of March 31, 2006, this pronouncement had no material impact on our consolidated financial statements.

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.



|8. | Restricted Cash
|-- | ---------------

Restricted cash relates to $22.4
million of deposits held as collateral for securitized obligations and warehouse liabilities at March 31, 2006 compared with $19.9 million at December 31, 2005. Additionally, $40.8 million relates to cash



10



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that is in process of being applied to the pay down of securitized obligations and warehouse liabilities compared with $33.2 million at December 31,
2005.



|9. | Loans
|-- | -----

Loans are summarized as follows:



|                                           |  |               |         |   |                  |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                           |  | March 31,2006 |         |   | December 31,2005 |  
|Loans                                      |  | $             | 720,134 |   |                  | $ | 669,597 |  
|Unearned finance charges                   |  |               | (3,194  | ) |                  |   | (3,435  | )
|Unearned discounts                         |  |               | (35,475 | ) |                  |   | (32,506 | )
|Allowance for loan losses                  |  |               | (28,204 | ) |                  |   | (29,110 | )
|                                           |  |               |         |   |                  |   |         |  
|Total loans, net                           |  | $             | 653,261 |   |                  | $ | 604,546 |  
|                                           |  |               |         |   |                  |   |         |  
|Contractual weighted average interest rate |  |               | 22.72   | % |                  |   | 22.72   | %
|                                           |  |               |         |   |                  |   |         |  

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



|                               |  |                                               |        |   |                                      |      |         |   |  |   |         |  
|------------------------------ |  | --------------------------------------------- | ------ | - | ------------------------------------ | ---- | ------- | - |  | - | ------- | -
|                               |  | At or For theThree MonthsEnded March 31, 2006 |        |   | At or For the Year EndedDecember 31, |     
|                               |  |                                               | 2005   |   |                                      | 2004 |        
|                               |  | (Dollars in thousands)                        |       
|Balance at beginning of period |  | $                                             | 29,110 |   |                                      | $    | 25,593  |   |  | $ | 24,982  |  
|Provision for loan losses      |  |                                               | 6,798  |   |                                      |      | 31,166  |   |  |   | 25,516  |  
|Charge-offs                    |  |                                               | (8,343 | ) |                                      |      | (30,063 | ) |  |   | (26,386 | )
|Recoveries                     |  |                                               | 639    |   |                                      |      | 2,414   |   |  |   | 1,481   |  
|                               |  |                                               |        |   |                                      |      |         |   |  |   |         |  
|Net charge-offs                |  |                                               | (7,704 | ) |                                      |      | (27,649 | ) |  |   | (24,905 | )
|                               |  |                                               |        |   |                                      |      |         |   |  |   |         |  
|Balance at end of period       |  | $                                             | 28,204 |   |                                      | $    | 29,110  |   |  | $ | 25,593  |  
|                               |  |                                               |        |   |                                      |      |         |   |  |   |         |  

The total allowance for loan losses was $28.2 million at March 31, 2006 compared with $29.1
million at December 31, 2005, representing 4.14% of loans, less unearned discount, at March 31, 2006 and 4.59% at December 31, 2005. Additionally, unearned discounts on loans totaled $35.5 million at March 31, 2006 compared with
$32.5 million at December 31, 2005, representing 4.95% of loans at March 31, 2006 and 4.88% at December 31, 2005.



|10. | Borrowings
|--- | ----------

Securitizations

We completed our first securitization in the third quarter of 2004, our second securitization in the second quarter of 2005 and our third securitization
in the fourth quarter of 2005. These securitizations are structured as on-balance-sheet transactions, recorded as secured financings. Regular contract securitizations are an integral part of our business plan going forward in order to increase our
liquidity and reduce risks associated with interest rate fluctuations. We have developed a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated
asset-backed securities. Upon the issuance of securitization notes payable, we retain the right to receive over time excess cash flows from the underlying pool of securitized automobile contracts.

In our securitizations to date, we transferred automobile contracts we purchased from new and used automobile dealers to a newly formed owner trust for
each transaction, which trust then issued the securitization notes payable. The net proceeds of our first securitization were used to replace the Banks deposit liabilities and the net proceeds of our subsequent securitization transactions were
used to fund our operations. At the time of securitization of our automobile contracts, we are required to pledge assets equal to a specific percentage of the securitization pool to support the securitization transaction. Typically, the assets
pledged consist of cash deposited to a restricted account known as a spread account and additional receivables delivered to the trusts, which create overcollateralization. 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 are added to the spread account or used to pay down outstanding debt of the trusts, increasing the level of
overcollateralization 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 distribution from the
trusts. Additionally, as the principal balance level of the securitization pool declines, the amount of pledged assets needed to



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maintain the required percentage level is reduced, thereby permitting additional excess cash to be released to us as distribution from the trusts.

To improve the achievable securitization advance rate from the sale of securitized automobile contracts, we have arranged for credit
enhancement to improve the credit rating 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
contract exceed certain targets, the overcollateralization 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 right to the automobile contracts sold to that trust.

The table below provides information about the outstanding trust
assets and liabilities as of March 31, 2006 and December 31, 2005.



|                          |  |                        |         |                  |   |        
|------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                          |  | March 31,2006          |         | December 31,2005
|                          |  | (Dollars in thousands)
|Automobile contracts, net |  | $                      | 528,950 |                  | $ | 582,080
|Restricted cash           |  | $                      | 52,117  |                  | $ | 49,318 
|                          |  |                        |         |                  |   |        
|Total assets              |  | $                      | 581,067 |                  | $ | 631,398
|Total liabilities         |  | $                      | 444,777 |                  | $ | 521,613

The following table lists each of our securitizations as of March 31, 2006.



|                       |  |                  |  |                 |         |                                    |   |                               |  |       |                                              |  |      |                           |  |       |  
|---------------------- |  | ---------------- |  | --------------- | ------- | ---------------------------------- | - | ----------------------------- |  | ----- | -------------------------------------------- |  | ---- | ------------------------- |  | ----- | -
|IssueNumber            |  | Maturity Date(1) |  | OriginalBalance |         | Remaining Balance atMarch 31, 2006 |   | Original Weighted Average APR |  |       | Original Weighted AverageSecuritization Rate |  |      | Gross InterestRate spread | 
|(Dollars in thousands) | 
|2004A                  |  | September 2010   |  | $               | 420,000 |                                    | $ | 140,672                       |  | 22.75 | %                                            |  | 2.62 | %                         |  | 20.13 | %
|2005A                  |  | December 2010    |  | $               | 195,000 |                                    | $ | 116,987                       |  | 22.80 | %                                            |  | 3.93 | %                         |  | 18.87 | %
|2005B                  |  | August 2011      |  | $               | 225,000 |                                    | $ | 187,118                       |  | 22.73 | %                                            |  | 4.78 | %                         |  | 17.95 | %
|                       |  |                  |  |                 |         |                                    |   |                               |  |       |                                              |  |      |                           |  |       |  
|                       |  | Total            |  | $               | 840,000 |                                    | $ | 444,777                       |  |       |                                              |  |      |                           |  |       |  
|                       |  |                  |  |                 |         |                                    |   |                               |  |       |                                              |  |      |                           |  |       |  

---

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

Warehouse Facility

As of
March 31, 2006 we were party to one $250 million warehouse facility, 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 March 31, 2006. The principal and interest collected on the automobile contracts pledged is used to pay the principal and 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.
| | - |  | -----------------------------------------------------------------



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

During the year ended
December 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 7.65% as of March 31, 2006. The final maturity of these
securities is 30 years, however, they can be called at par any time after five years, at the option of the Company.



|12. | Consolidation of Variable Interest Entities
|--- | -------------------------------------------

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



|13. | Redemption of the Preferred Stock of AirTime Technologies Inc.
|--- | --------------------------------------------------------------

In connection with the discontinuation of UPFCs operations related to World Cash Technologies, Inc., a wholly-owned subsidiary of UPFC, UPFC recorded a charge of $500,000 in both 2000 and 2001 to write off the
preferred stock of AirTime Technologies, Inc. owned by UPFC through World Cash Technologies, Inc. In March 2006, an agreement was reached to merge AirTime Technologies Inc. with InComm Holdings Inc. As part of the agreement, the preferred stock
owned by UPFC through World Cash Technologies Inc. was redeemed for $520,000.



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|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 financial statements, the accompanying notes to the financial statements, and the other information included or incorporated by reference herein.

Overview

We are a specialty finance company engaged
in non-prime automobile finance. We provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources. Financing arms of automobile manufacturers generally
do not make these loans to non-prime borrowers, nor do many other traditional automotive lenders. Non-prime borrowers generally pay higher interest rates and loan fees than do prime borrowers. We conduct our automobile finance business through our
direct wholly-owned subsidiary UACC. We purchase and hold for investment non-prime automobile installment sales contracts, or automobile contracts, originated by independent and franchised automobile dealers.

We fund our business through warehouse financing and periodic securitizations. We have a warehouse line of credit with Deutsche Bank to fund our ongoing
operations. This facility was originally $200 million, and was increased to $250 million in the first quarter of 2005. In September 2004, we closed our first securitization composed of a $420 million offering of automobile receivable backed
securities. In April 2005, we closed our second securitization composed of a $195 million offering of automobile receivable backed securities. In December 2005, we closed our third securitization composed of a $225 million offering of automobile
receivable backed securities. We plan to price a new securitization approximately every six months.

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

Critical Accounting Policies

We have established various accounting policies, which govern the application of accounting principles generally accepted in the United
States of America 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 4 to our Notes to Consolidated
Financial Statements presented in our 2005 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
balance sheet dates and our results of operations for the reporting periods. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Securitization Transactions

The
transfer of our automobile contracts to the securitization trust is treated as a secured financing under accounting principles generally accepted in the United States of America, also known as GAAP. For GAAP purposes, the contracts are retained on
the balance sheet 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.

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.



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Allowance for Loan Losses

Our loan loss allowances are monitored by management based on a variety of factors including an assessment of the credit risk inherent in the portfolio,
prior loss experience, the levels and trends of nonperforming loans, current and prospective economic conditions and other factors. Management also undertakes a review of various quantitative and qualitative analyses. Quantitative analyses include
the review of charge-off trends by loan type, analysis of cumulative losses and evaluation of credit loss experienced by credit tier and geographic location. Other quantitative analyses include the concentration of any credit tier, the level of
nonperformance and the percentage of delinquency. Qualitative analysis includes trends in charge-offs over various time periods and at various statistical midpoints and high points, the severity of depreciated values of repossession and trends in
the economy generally or in specific geographic locations.

We modified our underwriting approach in early 2003. Since the second quarter
of 2003, the improvement in overall underwriting of loans has shown a gradual reduction in loss rate by pool as a percentage of the long term historical curve. Since the model also took into account losses from prior to 2003, the overall historical
loss rate was tracking higher than the post 2003 losses. As a result of the incurrence of post-2003 losses at approximately 87% of the historical loss curve, there is a significant difference between actual losses taken and the estimated reserve for
new pools with 12 months or less of historical data since the historical curve is used to estimate the required reserve for new pools. Starting in the first quarter of 2006, we started to use quarterly pool data points instead of six months pool
data points to derive the historical curve in order to better estimate future losses, to be more responsive to changes in the portfolio as a result of the new underwriting guideline and to correspond to securitization reporting. Additionally, losses
on new pools are estimated using a factor that accounts for the impact of the Companys improved underwriting policies. The impact due to the change in accounting estimate described above was a reduction in provision for loan losses of $1.7
million before tax (or $1.0 million after tax).

Despite these analyses, we recognize that establishing an allowance is an estimate, which
is inherently uncertain and depends on the outcome of further events. Our operating results and financial conditions 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 immediately pass through our income statement as an additional provision expense. Management updates our loan loss estimates quarterly to reflect
current charge-offs.

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 rates. Because of this inverse relationship, we were able to effectively lock in a gross interest rate spread for our automobile contracts held in portfolio prior to the sale of the securitization notes payable.
Losses related to these agreements were recorded on our Consolidated Statements of Operations during the quarter we held the forward agreements, because the derivative transactions did not meet the accounting requirements to qualify for hedge
accounting in order to amortize them over the life of the automotive contracts.

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

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (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). The Company has applied the provisions of SAB No. 107 in its adoption of
SFAS No. 123(R).



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The Company 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 the Companys 2006 fiscal year. The Companys Consolidated Financial Statements as of and for the three months ended March 31, 2006 reflect the
impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Companys Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS
No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) -for the three months ended March 31, 2006 was $578,000. There was no stock-based compensation expense recognized during the three months ended
March 31, 2005.

Discontinued Operations

On March 30, 2006, the Company discontinued its operations related to its investment segment and sold its investment securities portfolio to focus solely on its automobile finance business and to provide additional transparency to the
public regarding the actual returns of its automobile finance operations. The Company had historically invested in AAA-rated, United States Government Agency securities primarily to satisfy the Qualified Thrift Lender test that required the Bank to
hold at least 60% of its assets in mortgage-related securities. Since the dissolution of the Bank in February 2005, the Company had maintained its investment securities portfolio to generate a reasonable rate of return on the Companys equity
capital. Prior to the completion of this sale, the Companys investment securities portfolio consisted of $276.0 million in investment securities, and was financed with $262.1 million of repurchase agreements. The Company satisfied these
repurchase agreements with the proceeds of this sale and has recorded an after-tax loss of $0.7 million from the discontinuation of its investment segment for the quarter ended March 31, 2006.

Risk Factors

Our business faces significant risks.
These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our financial condition, results of operations and business prospects could be materially
and adversely affected by any of these risks, and the trading price of our common stock could decline. These risks should be read in conjunction with the other information contained in this Quarterly Report on Form 10-Q.

Risks Related to Our Business

We require
substantial liquidity to run our business.

We require a substantial amount of liquidity to operate our business and fund the growth of
our automobile finance operations. Among other things, we use such liquidity to acquire automobile contracts, pay securitization costs and fund related accounts, satisfy working capital requirements and pay operating expenses and interest expense.
We depend on warehouse financing and securitizations to fund our operations and there is no assurance that we will be able to obtain warehouse financing or access the public capital markets in the future. In addition, since we shifted the funding
source of our automobile finance business to the public capital markets through warehouse facilities and securitizations during the third quarter of 2004, we have only limited experience in managing such warehouse facilities and securitizations. If
we are unable to access acceptable warehouse financing or the capital markets, our financial position, liquidity and results of operations would be materially and adversely affected.

Our automobile finance business would be harmed if we cannot maintain relationships with independent dealers and franchisees of automobile manufacturers.

We purchase automobile contracts primarily from automobile dealers. Many of our competitors have long-standing relationships with used automobile dealers
and may offer dealers or their customers other forms of financing that we currently do not provide. If we are unsuccessful in maintaining and expanding our relationships with dealers, we may be unable to purchase contracts in volume and on the terms
that we anticipate and consequently our automobile finance business would be materially and adversely affected.

Because we loan money to
credit-impaired borrowers, we may have a higher risk of delinquency and default.

Substantially all of our automobile contracts involve
loans made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than are permitted by traditional lenders. Loans made to borrowers who are restricted in their ability to obtain financing from traditional lenders
generally entail a higher risk of delinquency, default and repossession, and higher losses than loans made to borrowers with better credit. Delinquency interrupts the flow of projected interest income from a loan, and default can ultimately lead to
a loss if the net realizable value of the automobile securing the loan is



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insufficient to cover the principal and interest due on the loan. Although we believe that our underwriting criteria and collection methods enable us to
manage the higher risks inherent in loans made to non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If we experience higher losses than anticipated, our financial
condition, results of operations and business prospects would be materially and adversely affected.

We depend on our warehouse facility to fund our
automobile finance operations in order to finance the purchase of automobile contracts pending a new securitization. Our business strategy requires that such financing continues to be available to us.

Our primary source of operating liquidity comes from a $250 million warehouse facility, which we use to fund our automobile finance operations in order to
finance the purchase of automobile contracts pending securitization. Whether we may obtain further advances under the facility depends on, among other things, the performance of the automobile receivables that are pledged under the facility and
whether we maintain compliance with certain financial covenants contained in the sale and servicing agreement. 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;
| | - |  | ----------------------------------------------------------------------------



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



| |  |  | how quickly new automobile finance branches become cash flow positive.
| | - |  | ----------------------------------------------------------------------

There is no assurance that our warehouse facility will continue to be available to us or that it will continue to be available on favorable terms. If our existing credit facility expires or is terminated and we are
then unable to arrange new warehousing credit facilities, our results of operations, financial condition and cash flows would be materially and adversely affected.

We depend on securitizations to generate cash.

We rely on our ability to aggregate and pledge receivables to securitization
trusts and sell securities in the asset-backed securities market to generate cash proceeds for repayment of our automobile warehouse credit facility and to create availability to purchase additional automobile contracts. Our ability to complete
securitizations of our automobile contracts is affected by a number of factors, including:



| |  |  | conditions in the securities markets, generally;
| | - |  | ------------------------------------------------



| |  |  | conditions in the asset-backed securities market, specifically;
| | - |  | ---------------------------------------------------------------



| |  |  | yields of our portfolio of automobile contracts;
| | - |  | ------------------------------------------------



| |  |  | the credit quality of our portfolio of automobile contracts; and
| | - |  | ----------------------------------------------------------------



| |  |  | our ability to obtain credit enhancement.
| | - |  | -----------------------------------------

If we are
unable to securitize a sufficient number of our contracts in a timely manner, our liquidity position would be adversely affected, as we will require continued execution of securitization transactions in order to fund our future liquidity needs. In
addition, unanticipated delays in closing a securitization would also increase our interest rate risk by increasing the warehousing period for our contracts. There can be no assurance that funding will be available to us through these sources or, if
available, that it will be on terms acceptable to us. If these sources of funding are not available to us on a regular basis for any reason, including the occurrence of events of default, deterioration in loss experience in the underlying pool of
receivables or otherwise, we will be required to reduce the purchase of contracts, sell receivables on a whole-loan basis or otherwise revise the scale of our business, which would have a material adverse effect on our ability to achieve our
business and financial objectives.

The terms of our securitizations depend on credit enhancement and there is no assurance we will be able to continue
to obtain credit enhancement.

Our securitizations to date have utilized credit enhancement in the form of a financial guaranty
insurance policy in order to achieve AAA/Aaa rating for the asset-backed securities issued to investors. This form of credit enhancement reduces the cost of the securitizations compared to alternative forms of credit enhancement
currently available to us and enhances the marketability of these transactions to investors in asset-backed securities. The willingness of an insurance



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provider to insure our future securitizations is subject to many factors outside our control including the insurance providers own rating
considerations. As a result, there can be no assurance that we will be able to continue to obtain credit enhancements in any form or on acceptable terms or that future securitizations will be similarly rated. Our failure to obtain credit
enhancements in the future would have an adverse impact on the achievable securitization advance rate that we obtain from the sale of securitized automobile contracts, which could have a material adverse effect on our financial condition, results of
operations and business prospects.

We expect our operating results to continue to fluctuate, which may adversely impact our business.

Our results of operations have fluctuated in the past and are expected to fluctuate in the future. Factors that could affect our quarterly results
include:



| |  |  | seasonal variations in the volume of automobile contracts purchased, which historically tend to be higher in the first and second quarters of the year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interest rate spreads;
| | - |  | ----------------------



| |  |  | credit losses, which historically tend to be higher in the third and fourth quarters of the year; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | operating costs.
| | - |  | ----------------

As a result of such fluctuations, our
quarterly results may be difficult to predict, which may create uncertainty surrounding the market price for our securities. In particular, if our results of operations fail to meet the expectations of securities analysts or investors in a future
quarter, the market price of our securities could be materially adversely affected.

If we do not retain our key employees and we fail to attract new
employees, our business will be impaired.

We are dependent upon the continued services of our key employees. In addition, our growth
strategy depends in part on our ability to attract and retain qualified branch managers. The loss of the services of any key employee, or our failure to attract and retain other qualified personnel, could have a material adverse effect on our
financial condition, results of operations and business prospects. However, the Company does maintain a key personal insurance on its CEO and two executive vice presidents.

Competition may adversely affect our performance.

Our business is highly competitive. Competition in
our markets can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and terms of the loan and interest rates. Many of our competitors are substantially larger and have
considerably greater financial, technical and marketing resources than us. We compete primarily with independent companies specializing in non-prime automobile finance and, to a lesser extent, with commercial banks, the captive finance affiliates of
automobile manufacturers and savings associations. Fluctuations in interest rates and general and local economic conditions also may affect the competition we face. Competitors with lower costs of capital have a competitive advantage over us. As we
expand into new geographic markets, we will face additional competition from lenders already established in these markets. There can be no assurance that we will be able to compete successfully with these lenders. Our failure to compete successfully
would have a material adverse effect on our financial condition, results of operations and business prospects.

We may be unable to manage or sustain
our growth.

We have realized substantial growth in our automobile finance business since its inception in 1996. Consequently, we are
vulnerable to a variety of business risks generally associated with rapidly growing companies. At March 31, 2006, we had 113 branches, of which 4 were opened in 1996, 5 in 1997, 5 in 1998, 6 in 1999, 8 in 2000, 12 in 2001, 14 in 2002, 16 in
2003, 17 in 2004, 20 in 2005 and 6 in 2006. The amount of automobile contracts purchased has increased from $151.6 million for 2001 to $184.4 million for 2002 to $265.4 million for 2003 to $368.0 million for 2004 to $461.5 million for 2005. In the
future, our rate of growth will be dependent upon, among other things, the continued success of our efforts to expand the number of branches, attract qualified branch managers, and expand our relationships with independent and franchised dealers of
used automobiles. In addition, we may broaden our product offerings to include additional types of consumer loans or may enter other specialty finance businesses.

Our growth strategy requires that we successfully obtain and manage acceptable warehouse financing and access the capital markets. It also requires additional capital and human resources as well as improvements to our
infrastructure and management information systems. Our failure to implement our planned growth strategy or the failure of our automated systems, including a failure of data integrity or accuracy, would have a material adverse effect on our financial
condition, results of operations and business prospects.



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We face risks related to our recent accounting restatements.

During 2004 and the first quarter of 2005, we decided to restate our consolidated financial statements for the three and six months ended June 30,
2004 and 2003, three months ended March 31, 2004 and 2003, three and nine months ended September 30, 2003 and each of the years ended December 31, 2003, 2002 and 2001 to correct certain accounting entries. The restatement of these
consolidated financial statements may lead to litigation claims and/or regulatory proceedings against us. The defense of any such claims or proceedings may cause the diversion of managements attention and resources, and we may be required to
pay damages if any such claims or proceedings are not resolved in our favor. Any litigation or regulatory proceeding, even if resolved in our favor, could cause us to incur significant legal and other expenses. We also may have difficulty obtaining
financing such as warehouse lines of credit or otherwise and we may not be able to effectuate our current operating strategy, including the ability to acquire contracts at projected levels if such claims or proceedings occur. Moreover, we may be the
subject of negative publicity focusing on the financial statement inaccuracies and resulting restatements and negative reactions from our shareholders, creditors or others with which we do business. The occurrence of any of the foregoing could harm
our business and reputation and cause the price of our securities to decline.

If we fail to maintain an effective system of internal and disclosure
controls, we may not be able to accurately report our financial results or prevent fraud.

Effective internal and disclosure controls
are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be
harmed. We have in the past discovered, and may in the future discover, material weaknesses in our internal controls as defined under interim standards adopted by the Public Company Accounting Oversight Board, or PCAOB and significant deficiencies
and deficiencies in certain of our disclosure controls and procedures. Under the PCAOB standards, a material weakness is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected. A significant deficiency is a control deficiency or combination of control deficiencies, that adversely affect a companys
ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a companys annual
or interim financial statements that is more than inconsequential will not be prevented or detected.

While we have taken steps to improve
our internal and disclosure controls, we cannot be certain that we will be able to maintain adequate controls over our financial processes and reporting in the future. Any failure to maintain effective controls or timely effect any necessary
improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the NASDAQ National Market. Ineffective internal and
disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our securities.

Risks Related to Our Ownership and Organizational Structure

The ownership of our common
stock is concentrated, which may result in conflicts of interest and actions that are not in the best interests of all of our shareholders.

As of March 31, 2006, Pan American Financial, L.P. and its general partner, PAFGP, LLC, together owned 6,673,515 shares of our common stock, representing 38.7% of our total outstanding common stock. Our Chairman, Guillermo Bron,
beneficially owns these shares through his sole ownership, and position as Managing Member, of PAFGP. As a result, our officers and directors, acting together, will have substantial influence over our management and affairs, including the ability to
control substantially all matters submitted to a our shareholders for approval, the election and removal of our Board of Directors, any amendment of our articles of incorporation or bylaws and the adoption of measures that could delay or prevent a
change of control or impede a merger. This concentration of ownership could adversely affect the price of our securities or lessen any premium over market price that an acquirer might otherwise pay.

We are a holding company with no operations of our own.

The results of our operations and our financial condition are principally dependent upon the business activities of our principal consolidated subsidiary, UACC. In addition, our ability to fund our operations, meet our obligations for
payment of principal and interest on our outstanding debt obligations and pay dividends on our common stock are dependent upon the earnings from the business conducted by our subsidiaries. Our ability to pay dividends on our common stock is also
subject to the restrictions of the California Corporations Code. As of March 31, 2006, we had approximately $10.3 million of junior subordinated debentures issued to a subsidiary trust, UPFC Trust I, which, in turn, had $10.0 million of
company-obligated mandatorily redeemable preferred securities outstanding. The junior subordinated debentures mature in 2033. However, we



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may call the debt any time on or after July 7, 2008 and may call it before July 7, 2008 if certain events occur as described in the subordinated
debt agreement. The redemption price is par plus accrued and unpaid interest unless we make a redemption call before July 7, 2008. It is possible that we may not have sufficient funds to repay that debt at the required time. Our subsidiaries
are separate and distinct legal entities and have no obligation to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. Any distribution of funds to us from our subsidiaries is subject to
statutory, regulatory or contractual restrictions, the level of the subsidiaries earnings and various other business considerations.

Risks Related to Regulatory Factors

The scope of our operations exposes us to risks of noncompliance with an increasing and
inconsistent body of complex state and local regulations and laws.

Because we operate in 32 states, we must comply with the laws and
regulations, as well as judicial and administrative decisions, for all of these jurisdictions. The volume of new or modified laws and regulations has increased in recent years, and in some cases there is conflict among jurisdictions. From time to
time, legislation, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance among financial services providers. Proposals
to change the laws and regulations governing the operations and taxation of financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and by various regulatory agencies. This
legislation may change our operating environment and that of our subsidiaries in substantial and unpredictable ways. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing
regulations, would have on the financial condition or results of operations of us or any of our subsidiaries. Furthermore, as our operations continue to grow, it may be more difficult to comprehensively identify, accurately interpret and properly
train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of non-compliance with these laws and regulations which could have a material adverse effect on our results of
operations, financial condition and business prospects.

We believe that we maintain all material licenses and permits required for our
current operations and are in substantial compliance with all applicable local, state and federal regulations. There can be no assurance, however, that we will be able to maintain all requisite licenses and permits, and the failure to satisfy those
and other regulatory requirements could have a material adverse effect on our operations.

Risks Related to Factors Outside Our Control

Adverse economic conditions could adversely affect our business.

Our business is affected directly by changes in general economic conditions, including changes in employment rates, prevailing interest rates and real wages. During periods of economic slowdown or recession, we may
experience a decrease in demand for our financial products and services, an increase in our servicing costs, a decline in collateral values or an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies
and defaults increase the probability and severity of losses. Any sustained period of increased delinquencies, defaults or losses would materially and adversely affect our financial condition, results of operations and business prospects.

Fluctuations in interest rates could adversely affect our margin spread and the profitability of our lending activities.

Our results of operations depend to a large extent upon our net interest income, which is the difference between interest received by us on the automobile
contracts acquired and the interest payable under our credit facilities and further to the asset-backed securitization notes payable issued in our securitizations.

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions, which are beyond our control. Several factors affect our
ability to manage interest rate risk, such as the fact that automobile contracts are purchased at fixed interest rates, while amounts borrowed under our warehouse facilities bear interest at variable rates that are subject to frequent adjustment to
reflect prevailing rates for short-term borrowings. In addition, the interest rates charged on the automobile contracts purchased from dealers are limited by statutory maximums, restricting our opportunity to pass on increased interest costs.

Also, the interest rate demanded by investors in securitizations is a function of prevailing market rates for comparable transactions and
the general interest rate environment. Because the contracts purchased by us have fixed rates, we bear the



20



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##### Table of Contents

risk of spreads narrowing because of interest rate increases during the period from the date the contracts are purchased until the pricing of our
securitizations of such contracts.

Decreases in wholesale auction proceeds could adversely impact our recovery rates.

We generally sell repossessed automobiles at wholesale auction markets located throughout the United States. Auction proceeds from the sale of repossessed
vehicles and other recoveries usually do not cover the net outstanding balance of the automobile contracts, and the resulting deficiencies are charged off. Decreased auction proceeds resulting from the depressed prices at which used automobiles may
be sold during periods of economic slowdown, recession or otherwise will result in higher credit losses for us. Furthermore, wholesale prices for used automobiles may decrease as a result of significant liquidations of rental or fleet inventories
and from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. If our recovery rates decline, our financial position, liquidity and results of operations would be materially and adversely affected.

Comparison of Operating Results for the Three Months Ended March 31, 2006 and 2005

General

For the three months ended
March 31, 2006, our net income decreased $0.2 million to $6.1 million from $6.3 million for the three months ended March 31, 2005.

The decrease in net income was due primarily to a $3.3 million increase in non-interest expense, a $1.1 million increase in provision for loan losses, a $1.0 million increase in income taxes and a $1.8 million increase in loss from
discontinued operations, net of tax, partially offset by a $6.6 million increase in net interest income and a $0.4 million increase in non-interest income. Net interest income was favorably impacted by the continued expansion and growth of our
automobile finance business. The increase in the provision for loan losses was due primarily to a $130.9 million increase in average automobile contracts, partially offset by a reduction in provision for loan losses of $1.7 million before tax (or
$1.0 million after tax) due to a change in accounting estimate described above in Note 6 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q.

Automobile contracts purchased increased $25.2 million to $145.8 million for the three months ended March 31, 2006 from $120.6 million for the three
months ended March 31, 2005, as a result of the growth of our automobile finance business.

Interest Income

Interest income increased to $43.5 million for the three months ended March 31, 2006 from $33.7 million for the three months ended March 31,
2005 due primarily to a $130.9 million increase in average loans. The increase in average loans principally resulted from the purchase of additional automobile contracts in existing and new markets consistent with the planned growth of these
operations.

Interest Expense

Interest expense increased to $7.5 million for the three months ended March 31, 2006 from $4.4 million for the three months ended March 31, 2005 due to a 132 basis point increase in average interest rate on securitization notes
payable, a 228 basis point increase in average interest rate on warehouse borrowings, a $162.0 million increase in average balance of securitization notes payable, partially offset by a $50.2 million decrease in average balance of warehouse
borrowings. Securitization notes payable had an average balance of $483.2 million in the three months ended March 31, 2006 compared to $321.1 million for the same period in 2005 due to the completion of a $195.0 million securitization in April
2005 and a $225.0 million securitization in December 2005. Warehouse borrowings had an average balance of $90.8 million in the three months ended March 31, 2006 compared to $141.0 million for the same period in 2005 because of funding of new
automobile contracts partially offset by the two securitizations in 2005.



21



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##### Table of Contents

Average Balance Sheets

The following table sets forth information relating to our operations for the three month periods ended March 31, 2006 and 2005. The yields and costs
are derived by dividing annualized income or expense by the average balance of assets or liabilities for the periods shown. The yields and costs include fees, which are considered adjustments to yields.



|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|---------------------------------------------------------------- |  | ---------------------------- | --------- | -------- | ---- | ----------------- |  | ----- | ----------------- |  | -------- | --------- | ----------------- | - | ------ |  | ----- | -
|                                                                 |  | Three Months Ended March 31, |          
|                                                                 |  | 2006                         |           |          | 2005 |                  
|(Dollars in thousands)                                           |  | AverageBalance(1)            |           | Interest |      | AverageYield/Cost |  |       | AverageBalance(1) |  | Interest |           | AverageYield/Cost |  
|Assets                                                           |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Interest earning assets                                          |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Securities and short term investments(5)                         |  | $                            | 387,501   |          | $    | 4,804             |  | 5.03  | %                 |  | $        | 572,482   |                   | $ | 4,453  |  | 3.15  | %
|Loans, net(2)                                                    |  |                              | 625,359   |          |      | 43,456            |  | 28.18 | %                 |  |          | 494,460   |                   |   | 33,728 |  | 27.66 | %
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total interest earning assets                                    |  |                              | 1,012,860 |          | $    | 48,260            |  | 19.32 | %                 |  |          | 1,066,942 |                   | $ | 38,181 |  | 14.51 | %
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Non-interest earning assets                                      |  |                              | 44,834    |          |      |                   |  |       |                   |  |          | 89,728    |                   |   |        |  |       |  
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total assets                                                     |  | $                            | 1,057,694 |          |      |                   |  |       |                   |  | $        | 1,156,670 |                   |   |        |  |       |  
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Liabilities and Equity                                           |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Interest bearing liabilities                                     |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Warehouse line of credit                                         |  |                              | 90,758    |          |      | 1,394             |  | 6.23  | %                 |  |          | 141,006   |                   |   | 1,374  |  | 3.95  | %
|Securitization notes payable                                     |  |                              | 483,159   |          |      | 5,937             |  | 4.98  | %                 |  |          | 321,134   |                   |   | 2,898  |  | 3.66  | %
|Repurchase agreements(5)                                         |  |                              | 307,213   |          |      | 4,243             |  | 5.60  | %                 |  |          | 548,008   |                   |   | 3,547  |  | 2.62  | %
|Junior subordinated debentures                                   |  |                              | 10,310    |          |      | 191               |  | 7.51  | %                 |  |          | 10,310    |                   |   | 143    |  | 5.63  | %
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total interest bearing liabilities                               |  |                              | 891,440   |          | $    | 11,765            |  | 5.35  | %                 |  |          | 1,020,458 |                   | $ | 7,962  |  | 3.16  | %
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Non-interest bearing liabilities                                 |  |                              | 7,249     |          |      |                   |  |       |                   |  |          | 6,978     |                   |   |        |  |       |  
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total liabilities                                                |  |                              | 898,689   |          |      |                   |  |       |                   |  |          | 1,027,436 |                   |   |        |  |       |  
|Equity                                                           |  |                              | 159,005   |          |      |                   |  |       |                   |  |          | 129,234   |                   |   |        |  |       |  
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total liabilities and equity                                     |  | $                            | 1,057,694 |          |      |                   |  |       |                   |  | $        | 1,156,670 |                   |   |        |  |       |  
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Net interest income before provision for loan losses             |  |                              |           |          | $    | 36,495            |  |       |                   |  |          |           |                   | $ | 30,219 |  |       |  
|                                                                 |  |                              |           |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Net interest rate spread(3)                                      |  |                              |           |          |      |                   |  | 13.97 | %                 |  |          |           |                   |   |        |  | 11.35 | %
|Net interest margin(4)                                           |  |                              |           |          |      |                   |  | 14.61 | %                 |  |          |           |                   |   |        |  | 11.49 | %
|Ratio of interest earning assets to interest bearing liabilities |  |                              |           |          |      |                   |  | 114   | %                 |  |          |           |                   |   |        |  | 105   | %

---

|(1) | Average balances computed on a month-end basis.
|--- | -----------------------------------------------



|(2) | Net of unearned finance charges, unearned discounts and allowance for losses; includes non-performing loans.
|--- | ------------------------------------------------------------------------------------------------------------



|(3) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------



|(5) | Included in discontinued operations.
|--- | ------------------------------------



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Provision and Allowance for Loan Losses

The provision for loan losses was $6.8 million for the three months ended March 31, 2006 compared to $5.7 million for the three months ended
March 31, 2005. The increase in the provision for loan losses was due primarily to a $130.9 million increase in average automobile contracts, partially offset by a reduction in provision for loan losses of $1.7 million before tax (or $1.0
million after tax) due to a change in accounting estimate described above in Note 6 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q.

The total allowance for loan losses was $28.2 million at March 31, 2006 compared with $25.0 million at March 31, 2005, representing 4.14% of
loans less unearned discounts at March 31, 2006 and 4.60% at March 31, 2005. Additionally, unearned discounts on loans totaled $35.5 million at March 31, 2006 compared with $27.9 million at March 31, 2005, representing 4.95% of
loans at March 31, 2006 compared with 4.89% at March 31, 2005. The increase in allowance for loan losses and unearned discounts on loans was due primarily to a $146.4 million increase in loans outstanding, which increased to $716.9 million
at March 31, 2006 from $570.5 million at March 31, 2005.

A provision for loan losses is charged to operations based on our
regular evaluation of loans held for investments and 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.

Annualized net charge-offs to average loans were 4.53% for the three months ended March 31, 2006 compared with 4.71% for the three months ended
March 31, 2005. The decrease in net charge-offs to average loans was due primarily to a $130.9 million increase in average automobile contracts.

For further information, see Critical Accounting Policies.

Non-interest Income

Non-interest income increased to $1.4 million for the three months ended March 31, 2006 from $1.1 million for the three months
ended March 31, 2005. This increase was primarily the result of the redemption of the preferred stock of AirTime Technologies Inc. held by World Cash Technologies Inc., a wholly-owned subsidiary of UPFC. In March 2006, an agreement was reached
to merge AirTime Technologies Inc. with InComm Holdings Inc. As part of the agreement, the preferred stock owned by UPFC through World Cash Technologies Inc. was redeemed for $520,000.

Non-interest Expense

Non-interest
expense increased $3.3 million to $19.3 million for the three months ended March 31, 2006 from $16.0 million for the three months ended March 31, 2005. This increase was driven primarily by an increase in salaries, employee benefit costs
and occupancy expenses associated with the growth of our automobile finance business. During the last 12 months, we continued with the planned expansion of our automobile finance operations, resulting in an increase to 738 employees in 113 branches
as of March 31, 2006, from 616 employees in 92 branches as of March 31, 2005.

Income Taxes

Income taxes before discontinued operations increased $1.0 million to $4.5 million for the three months ended March 31, 2006 from $3.5 million for
the three months ended March 31, 2005. This increase occurred primarily as a result of a $2.6 million increase in taxable income from continuing operations before income taxes.

Loss (Income) From Discontinued Operations, Net of Tax

Loss from discontinued operations , net of tax, was $0.7 million for the three month ended March 31, 2006. Income from discontinued operations, net of tax, was $1.2 million for the three months ended
March 31, 2005. On March 30, 2006, the Company discontinued its operations related to its investment segment and sold its investment securities portfolio to focus solely on its automobile finance business and to provide additional
transparency to the public regarding the actual returns of its automobile finance operations.



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##### Table of Contents

Comparison of Financial Condition at March 31, 2006 and December 31, 2005

Total assets decreased $441.2 million, to $768.0 million at March 31, 2006, from $1,209.2 million at December 31, 2005. The decrease resulted
primarily from a $495.3 million decrease in assets of discontinued operations to zero at March 31, 2006 from $495.3 million at December 31, 2005, partially offset by a $48.7 million increase in loans. The increase in loans principally
resulted from the purchase of additional automobile contracts in existing and new markets consistent with the planned growth of these operations.

Warehouse line of credit borrowing increased to $140.5 million as of March 31, 2006 from $54.0 million as of December 31, 2005 due to the borrowings to fund additional automobile contracts.

Securitization notes payable decreased to $444.8 million at March 31, 2006 from $ 521.6 million at December 31, 2005 due to payments on
the automobile contracts backing the securitized borrowings.

Liabilities of discontinued operations decreased to zero at March 31,
2006 from $459.5 million at December 31, 2005.

Shareholders equity increased to $164.7 million at March 31, 2006 from
$154.9 million at December 31, 2005, primarily as a result of net income of $6.1 million during the three months ended March 31, 2006 and $2.4 million additional capital obtained as of result of stock options exercised.

Management of Interest Rate Risk

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

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

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

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

Liquidity and Capital Resources

General

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

Our primary uses of cash include:



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



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



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



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



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The capital resources available to us include:



| |  |  | interest income 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 credit facilities; and
| | - |  | -------------------------------------------



| |  |  | releases of excess cash from our warehouse facilities.
| | - |  | ------------------------------------------------------

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

Securitizations

We completed our
first securitization in the third quarter of 2004, our second securitization in the second quarter of 2005 and our third securitization in the fourth quarter of 2005. These securitizations are structured as on-balance-sheet transactions, recorded as
secured financings. Regular contract securitizations are an integral part of our business plan going forward in order to increase our liquidity and reduce risks associated with interest rate fluctuations. We have developed a securitization program
that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. Upon the issuance of securitization notes payable, we retain the right to receive over time
excess cash flows from the underlying pool of securitized automobile contracts.

In our securitizations to date, we transferred automobile
contracts we purchased from new and used automobile dealers to a newly formed owner trust for each transaction, which trust then issued the securitization notes payable. The net proceeds of our first securitization were used to replace the
Banks deposit liabilities and the net proceeds of our subsequent securitization transactions were used to fund our operations. At the time of securitization of our automobile contracts, we are required to pledge assets equal to a specific
percentage of the securitization pool to support the securitization transaction. Typically, the assets pledged consist of cash deposited to a restricted account known as a spread account and additional receivables delivered to the trusts, which
create overcollateralization. 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 are added
to the spread account or used to pay down outstanding debt of the trusts, increasing the level of overcollateralization 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 distribution from the trusts. Additionally, as the principal balance level of the securitization pool declines, the amount of pledged assets needed to maintain the required
percentage level is reduced, thereby permitting additional excess cash to be released to us as distribution from the trusts.

To improve
the achievable securitization advance rate from the sale of securitized automobile contracts, we have arranged for credit enhancement to improve the credit rating 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 overcollateralization 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 right to the automobile contracts sold to that trust.

Warehouse Facility

As of
March 31, 2006 we were party to one $250 million warehouse facility, 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



25



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##### Table of Contents

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 March 31, 2006. The principal and interest collected on the automobile contracts pledged is used to pay the principal and 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.
| | - |  | -----------------------------------------------------------------

Other Sources of Funds

The collection of principal and interest from automobile contracts purchased and securitized and the
release of cash from the securitization spread accounts are other sources of significant funds for us. Pursuant to the securitization documents, we receive cash released from a spread account for a securitization transaction once the spread account
reaches a predetermined funding level. The amount released from a spread account over time represents the return of the initial deposits to such spread account as well as the release of the excess spread on the securitized automobile contracts in
the related securitization transaction.

Subordinated Debentures

In 2003, we issued junior subordinated debentures in the amount of $10.3 million to a subsidiary trust, UPFC Trust I, to enhance our liquidity. UPFC Trust
I in turn issued $10.0 million of company-obligated mandatorily redeemable preferred securities.

Aggregate Contractual Obligations

The following table provides the amounts due under specified obligations for the periods indicated as of March 31, 2006.



|                               |  |                        |         |                   |   |                   |  |                  |        |       |   |        |  |   |        
|------------------------------ |  | ---------------------- | ------- | ----------------- | - | ----------------- |  | ---------------- | ------ | ----- | - | ------ |  | - | -------
|                               |  | Less than 1 Years      |         | 1 Year to 3 Years |   | 4 Yearsto 5 Years |  | More Than5 Years |        | Total
|                               |  | (Dollars in thousands)
|Warehouse line of credit       |  | $                      | 140,455 |                   | $ |                  |  | $                |       |       | $ |       |  | $ | 140,455
|Securitization notes payable   |  |                        | 184,633 |                   |   | 228,615           |  |                  | 31,529 |       |   |       |  |   | 444,777
|Operating lease obligations    |  |                        | 4,287   |                   |   | 6,372             |  |                  | 3,380  |       |   | 253    |  |   | 14,292 
|Junior subordinated debentures |  |                        |        |                   |   |                  |  |                  |       |       |   | 10,310 |  |   | 10,310 
|                               |  |                        |         |                   |   |                   |  |                  |        |       |   |        |  |   |        
|Total                          |  | $                      | 329,375 |                   | $ | 234,987           |  | $                | 34,909 |       | $ | 10,563 |  | $ | 609,834
|                               |  |                        |         |                   |   |                   |  |                  |        |       |   |        |  |   |        

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.

Lending Activities

Summary of Loan
Portfolio

At March 31, 2006, our net loan portfolio, net of unearned finance charges and allowance for loan losses, consisted of
$653.3 million, representing 85.1% of our total assets. The following table sets forth the composition of our loan portfolio at the dates indicated.



|                          |  |               |         |   |                  |   |         |  
|------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                          |  | March 31,2006 |         |   | December 31,2005 |  
|Loans                     |  | $             | 720,134 |   |                  | $ | 669,597 |  
|Unearned finance charges  |  |               | (3,194  | ) |                  |   | (3,435  | )
|Unearned discounts        |  |               | (35,475 | ) |                  |   | (32,506 | )
|Allowance for loan losses |  |               | (28,204 | ) |                  |   | (29,110 | )
|                          |  |               |         |   |                  |   |         |  
|Total loans, net          |  | $             | 653,261 |   |                  | $ | 604,546 |  
|                          |  |               |         |   |                  |   |         |  



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##### Table of Contents

Loan Maturities

The following table sets forth the dollar amount of automobile contracts maturing in our automobile contracts portfolio at March 31, 2006 based on final maturity. Automobile contract balances are reflected before
unearned discounts and allowance for loan losses.



|            |  |                        |        |                           |   |                            |  |                             |         |            |   |       |  |   |        
|----------- |  | ---------------------- | ------ | ------------------------- | - | -------------------------- |  | --------------------------- | ------- | ---------- | - | ----- |  | - | -------
|            |  | OneYear orLess         |        | More Than1 Year to3 Years |   | More Than3 Years to5 Years |  | More Than5 Years to10 Years |         | TotalLoans
|            |  | (Dollars in thousands)
|            |  |                        |        |                           |   |                            |  |                             |         |            |   |       |  |   |        
|Total loans |  | $                      | 14,462 |                           | $ | 227,174                    |  | $                           | 472,306 |            | $ | 2,998 |  | $ | 716,940
|            |  |                        |        |                           |   |                            |  |                             |         |            |   |       |  |   |        

All loans are fixed rate loans.

Classified Assets and 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. The total allowance for loan losses was $28.2 million at March 31, 2006 compared with $29.1 million at December 31, 2005, representing 4.14% of loans less unearned discounts at March 31, 2006 and 4.59% at
December 31, 2005. Additionally, unearned discounts on loans totaled $35.5 million at March 31, 2006 compared with $32.5 million at December 31, 2005, representing 4.95% of loans at March 31, 2006 compared with 4.88% at
December 31, 2005.

Allowance for Loan Losses

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



|                                                               |  |                                               |        |   |                                      |   |         |   |  |   |         |  
|-------------------------------------------------------------- |  | --------------------------------------------- | ------ | - | ------------------------------------ | - | ------- | - |  | - | ------- | -
|                                                               |  | At or For theThree MonthsEnded March 31, 2006 |        |   | At or For the Year EndedDecember 31, |  
|                                                               |  | 2005                                          |        |   | 2004                                 |  
|                                                               |  | (Dollars in thousands)                        |       
|Balance at beginning of period                                 |  | $                                             | 29,110 |   |                                      | $ | 25,593  |   |  | $ | 24,982  |  
|Provision for loan losses                                      |  |                                               | 6,798  |   |                                      |   | 31,166  |   |  |   | 25,516  |  
|Charge-offs                                                    |  |                                               | (8,343 | ) |                                      |   | (30,063 | ) |  |   | (26,386 | )
|Recoveries                                                     |  |                                               | 639    |   |                                      |   | 2,414   |   |  |   | 1,481   |  
|                                                               |  |                                               |        |   |                                      |   |         |   |  |   |         |  
|Net charge-offs                                                |  |                                               | (7,704 | ) |                                      |   | (27,649 | ) |  |   | (24,905 | )
|                                                               |  |                                               |        |   |                                      |   |         |   |  |   |         |  
|Balance at end of period                                       |  | $                                             | 28,204 |   |                                      | $ | 29,110  |   |  | $ | 25,593  |  
|                                                               |  |                                               |        |   |                                      |   |         |   |  |   |         |  
|Annualized net charge-offs to average loans                    |  |                                               | 4.53   | % |                                      |   | 4.51    | % |  |   | 5.24    | %
|Ending allowance to period end loans net of unearned discounts |  |                                               | 4.14   | % |                                      |   | 4.59    | % |  |   | 5.13    | %

The allowance for loan losses decreased from $29.1 million at December 31, 2005 to $28.2
million at March 31, 2006 due primarily to a change in accounting estimate of $1.7 million resulting from continued improvement in the quality of the Companys loan portfolio and reduction in losses.

Nonaccrual and Past Due Loans

The
following table sets forth the remaining balances of all loans that were more than 30 days delinquent at March 31, 2006, December 31, 2005 and 2004.



|                   |  |                        |       |                 |      |   |                  |   |                 |  |      |                  |  |                 |       |  |      |  
|------------------ |  | ---------------------- | ----- | --------------- | ---- | - | ---------------- | - | --------------- |  | ---- | ---------------- |  | --------------- | ----- |  | ---- | -
|Loan Delinquencies |  | March 31,2006          |       | % of TotalLoans |      |   | December 31,2005 |   | % of TotalLoans |  |      | December 31,2004 |  | % of TotalLoans |      
|                   |  | (Dollars in thousands) |      
|30 to 59 days      |  | $                      | 2,803 |                 | 0.39 | % |                  | $ | 3,697           |  | 0.55 | %                |  | $               | 2,522 |  | 0.48 | %
|60 to 89 days      |  |                        | 1,043 |                 | 0.15 | % |                  |   | 1,548           |  | 0.23 | %                |  |                 | 856   |  | 0.16 | %
|90+ days           |  |                        | 580   |                 | 0.08 | % |                  |   | 802             |  | 0.12 | %                |  |                 | 416   |  | 0.08 | %
|                   |  |                        |       |                 |      |   |                  |   |                 |  |      |                  |  |                 |       |  |      |  
|Total              |  | $                      | 4,426 |                 | 0.62 | % |                  | $ | 6,047           |  | 0.90 | %                |  | $               | 3,794 |  | 0.72 | %
|                   |  |                        |       |                 |      |   |                  |   |                 |  |      |                  |  |                 |       |  |      |  

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



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##### Table of Contents

The following table sets forth the aggregate amount of nonaccrual loans (net of unearned discounts,
premiums and unearned finance charges) at March 31, 2006, December 31, 2005 and 2004. Loans over 30 days delinquent are considered nonaccrual loans.



|                                                                                   |  |                        |       |   |              |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | ---------------------- | ----- | - | ------------ | - | ----- | - |  | - | ----- | -
|                                                                                   |  | March 31,2006          |       |   | December 31, |  
|                                                                                   |  | 2005                   |       |   | 2004         |  
|                                                                                   |  | (Dollars in thousands) |      
|Nonaccrual loans                                                                   |  |                        |       |   |              |   |       |   |  |   |       |  
|Total nonaccrual loans                                                             |  | $                      | 7,859 |   |              | $ | 9,838 |   |  | $ | 7,169 |  
|                                                                                   |  |                        |       |   |              |   |       |   |  |   |       |  
|Non accrual loans as a percentage of total loans                                   |  |                        | 1.10  | % |              |   | 1.48  | % |  |   | 1.36  | %
|Allowance for loan losses as a percentage of gross loans net of unearned discounts |  |                        | 4.14  | % |              |   | 4.59  | % |  |   | 5.13  | %

Forward Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, as well as some statements by the Company in periodic press releases and some oral statements by Company officials to securities analysts and
shareholders during presentations about the Company 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, 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 Company 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, the 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 the Companys actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, our recent shift of the funding source of
our business, 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 the caption Risk Factors of this Item 1. The Companys past performance or
past or present economic conditions are not indicative of future performance or conditions. Undue reliance should not be placed on forward-looking statements. In addition, the Company undertakes 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.



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##### Table of Contents

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

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



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

Disclosure Controls and
Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of March 31, 2006.

Changes in Internal Control Over Financial
Reporting

There was no change in our internal control over financial reporting during the quarter ended March 31, 2006 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



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

Not applicable



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

Not applicable



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

Not applicable



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

Not
applicable



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

Not applicable



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

Not applicable



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



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



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##### Table of Contents

SIGNATURES

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



|      |  |             |  |                              |  |     |  |                                                                                                  
|----- |  | ----------- |  | ---------------------------- |  | --- |  | -------------------------------------------------------------------------------------------------
|      |  |             |  | United PanAm Financial Corp.
|      |  |             |  |                             
|Date: |  | May 4, 2006 |  |                              |  | By: |  | /s/    RAY THOUSAND                                                                              
|      |  |             |  |                              |  |     |  | Ray Thousand                                                                                     
|      |  |             |  |                              |  |     |  | Chief Executive Officer and President (Principal Executive Officer)                              
|      |  |             |  |                             
|      |  | May 4, 2006 |  |                              |  | By: |  | /s/    GARLAND W. KOCH                                                                           
|      |  |             |  |                              |  |     |  | Garland W. Koch                                                                                  
|      |  |             |  |                              |  |     |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)



31