UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K


(Mark One)
x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2008.

OR


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

For the Transition Period from to .

Commission File Number 000-24051

UNITED PANAM FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)


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

18191 Von Karman Avenue, Suite 300
Irvine, California 92612

(Address of Principal Executive Offices) (Zip Code)

(949) 224-1917

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, no par value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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


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

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

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $29,503,000 based upon the closing sales price of the Common Stock as reported on The NASDAQ Global Market on June 30, 2008. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. Such determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the Registrant’s Common Stock as of March 12, 2009 was 15,752,593 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2009 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

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UNITED PANAM FINANCIAL CORP.

2008 ANNUAL REPORT ON FORM 10-K


	Page
Cautionary Statement		ii
PART I
Item 1. Business		1
Item 1A. Risk Factors		10
Item 1B. Unresolved Staff Comments		16
Item 2. Properties		16
Item 3. Legal Proceedings		16
Item 4. Submission of Matters to a Vote of Security Holders		16
PART II
Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		17
Item 6. Selected Financial Data		18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 8. Financial Statements and Supplementary Data		37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		37
Item 9A. Controls and Procedures		37
Item 9B. Other Information		38
PART III
Item 10. Directors, Executive Officers and Corporate Governance		39
Item 11. Executive Compensation		39
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		39
Item 13. Certain Relationships and Related Transactions, and Director Independence		39
Item 14. Principal Accountant Fees and Services		39
PART IV
Item 15. Exhibits and Financial Statement Schedules		40
Signatures		43

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CAUTIONARY STATEMENT

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

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PART I

Item 1. Business.

General

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

In 2008, as a result of the continued disruptions in the capital markets, we began our strategy of downsizing our operations and reducing our branch footprint in order to lower expenses and meet required liquidity needs. During the year ended December 31, 2008, we closed 75 branches bringing the total number of branches to 67 branches in operation as of December 31, 2008. The closures of the 75 branches resulted in a decrease in the number of employees of approximately 460 or 40% of the work force since December 31, 2007. In addition, we have suspended new loan originations during the end of the third quarter and the entire fourth quarter of 2008 to allow our outstanding receivables to reduce to a level where our capital base will be able to finance future originations.

We have historically used a warehouse facility to fund our automobile finance operation to purchase automobile contracts pending securitization. The warehouse credit facility converted in 2008 to a term loan, which amortizes pursuant to a pre-determined schedule that requires us to pay all amounts owed under the facility by October 16, 2009. Management is currently pursuing and evaluating alternative sources of financing and is also selling loans on a whole-loan basis to reduce the balance of the term loan. There is no assurance we will be able to arrange for other types of financing or be able to sell receivables on a whole-loan basis in the future. We anticipate that we will resume new loan originations in 2009, but there is no assurance that we will be able to arrange for the alternative sources of financing required to purchase automobile contracts; and there is also no assurance that the business, once resumed, will function similar to how it has in the past.

Development of the Business

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

On April 22, 2005, PAFI was merged with and into the Company, and UACC became a direct wholly-owned subsidiary of the Company. Prior to its dissolution on February 11, 2005, the Bank was a direct wholly-owned subsidiary of PAFI, and UACC was a direct wholly-owned subsidiary of the Bank.

At December 31, 2008, UACC was a direct wholly-owned subsidiary of the Company, and UABO, UPFC Auto Receivables Corporation (“UARC”), UPFC Auto Financing Corporation (“UAFC”) and UPFC Funding Corporation (“UFC”) were direct wholly-owned subsidiaries of UACC. UARC and UAFC are entities whose business is limited to the purchase of automobile contracts from UACC and UABO in connection with the securitization of such contracts; and UFC is an entity whose business is limited to the purchase of such contracts from UACC and UABO in connection with warehouse funding of such contracts.

Automobile Finance

Automobile Finance Industry

Automobile financing is one of the largest consumer finance markets in the United States. The automobile finance industry can be divided into two principal segments: a prime credit market and a non-prime credit

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market. Traditional automobile finance companies, such as commercial banks, savings institutions, credit unions and captive finance affiliates of automobile manufacturers, generally lend to the most creditworthy, or so-called prime, borrowers. The non-prime automobile credit market, in which we operate, provides financing to borrowers who generally cannot obtain financing from traditional lenders.

Historically, traditional lenders have not serviced the non-prime market or have done so only through programs that were not consistently available. Independent companies specializing in non-prime automobile financing and subsidiaries of larger financial services companies currently compete in this segment of the automobile finance market, but we believe it remains highly fragmented, with no company having a significant share of the market.

In 2008, the industry has been significantly impacted by the disruptions in the capital markets and the deteriorating economic environment. As a result, there has been a contraction in both the prime and non-prime segments in the automobile finance market.

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Operating Summary for Automobile Finance Business

The following table presents a summary of our key operating and statistical results for the years ended December 31, 2008, 2007 and 2006.


	December 31,
	2008		2007	2006
	(Dollars in Thousands)
Operating Data
Contracts purchased	$	266,574		$	590,767		$	550,563
Contracts outstanding ⁽¹⁾	$	739,728		$	926,350		$	813,524
Unearned acquisition discounts	$	(29,477	)	$	(43,699	)	$	(39,449	)
Average loan balance ⁽¹⁾	$	875,678		$	898,851		$	755,881
Unearned acquisition discounts to gross loans		3.98	%		4.72	%		4.85	%
Average percentage rate to customers		22.72	%		22.64	%		22.66	%
Loan Quality Data
Allowance for loan losses	$	43,220		$	48,386		$	36,037
Allowance for loan losses to gross loans net of unearned acquisition		6.09	%		5.48	%		4.66	%
Delinquencies (% of net contracts)
31 – 60 days		1.52	%		0.78	%		0.60	%
61 – 90 days		0.39	%		0.30	%		0.21	%
90+ days		0.19	%		0.16	%		0.12	%
Total		2.10	%		1.24	%		0.93	%
Repossessions over 30 days past due (% of net contracts)		1.46	%		0.89	%		0.56	%
Net charge-offs to average loans		8.01	%		6.39	%		5.22	%
Portfolio Data
Used vehicles		98.10	%		99.10	%		99.20	%
Average vehicle age at time of contract (years)		5.1			5.2			5.1
Average original contract term (months)		52.2			50.4			50.2
Average gross amount financed as a percentage of WSB ⁽²⁾		110	%		119	%		117	%
Average net amount financed as a percentage of WSB ⁽³⁾		103	%		111	%		109	%
Average net amount financed per contract	$	9,978		$	9,552		$	9,442
Average down payment		16.70	%		16.80	%		17.30	%
Average monthly payment	$	305		$	296		$	293
Other Data
Number of branches		67			142			131
Number of employees		685			1,147			954
Interest income	$	218,634		$	229,458		$	195,270
Interest expense	$	51,764		$	47,449		$	35,791
Net interest margin	$	166,870		$	182,009		$	159,479
Net interest margin as a percentage of interest income		76.32	%		79.32	%		81.67	%
Net interest margin as a percentage of average loans		19.06	%		20.25	%		21.10	%
Non-interest expense to average loans		11.97	%		10.76	%		10.73	%
Non-interest expense to average loans ⁽⁴⁾		9.79	%		10.76	%		10.73	%
Return on average assets from continuing operations		(0.05	)%		1.11	%		2.44	%
Return on average shareholders’ equity		(0.28	)%		6.74	%		12.14	%
Consolidated capital to assets ratio		20.09	%		16.31	%		18.18	%

(1)

Net of unearned finance charges.

(2)

WSB represents (a) Kelly Wholesale Blue Book for used vehicles, (b) National Automobile Dealers Association trade-in value, or (c) Black Book clean value.

(3)

Net amount financed equals the gross amount financed less unearned finance charges or discounts.

(4)

Excluding restructuring charges and other non-recurring charges.

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Products and Pricing

Our business has historically been focused on providing loans for transactions that involve a used automobile with an average age of five years and an original contract term of 36 to 72 months.

When we have originated new loans, the target profile of our borrowers included average time on the job of four to five years, average time at current residence of four to five years, an average ratio of total debt payment to total income of 32% to 35% and an average ratio of total monthly automobile payments to total monthly income of 12% to 15%.

The automobile purchaser applied for and entered into an automobile installment sales contract with the dealer. We purchased the automobile contract from the dealer at a discount from face value, which increased the effective yield on such automobile contract. As of December 31, 2008, the average annual rate to customers was 22.72% for our portfolio of automobile contracts.

Sales and Marketing

Historically, our main customers have been the automobile dealers from which we purchased our automobile contracts. To enhance our profitability, we strived to compete primarily on the level of service, rather than making concessions on pricing or credit quality. Customer service was centered around a close relationship between our management and our dealer, clear underwriting parameters, consistent credit decisions, quick approval and consistent funding.

We marketed our financing program primarily to independent dealers of used automobiles. Our experienced staff sought to establish a strong relationship with dealers through regular communication and strived to communicate with the dealer about each transaction, further aiding the dealer’s understanding of our program. The decision to do business with a dealer was based on many factors including past performance, time in business, and quality of their inventory.

At December 31, 2008, no dealer accounted for more than 0.28% of our portfolio and the ten dealers from which we purchased the most automobile contracts accounted for approximately 2.41% of our aggregate portfolio.

The following table presents the number of dealers from which we purchased automobile contracts in each of the states we operate at the years ended December 31, 2008, 2007 and 2006.


	At Years Ended December 31,
State	2008 Number of Dealers		2007 Number of Dealers	2006 Number of Dealers
California		1,594			1,715	1,735
Texas		1,361			1,335	1,125
Florida		1,183			1,260	1,201
New York		701			728	684
Georgia		630			650	540
North Carolina		585			575	479
Ohio		500			546	543
Arizona		476			461	431
Alabama		473			473	383
Tennessee		469			469	389
Missouri		436			461	391
Michigan		433			400	248
Colorado		425			393	289
Massachusetts		421			444	463
Pennsylvania		413			385	279
Other ⁽¹⁾		3,806			3,682	2,976
Total		13,906			13,977	12,156

(1)

States with less than 400 dealers at December 31, 2008.

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Underwriting Standards and Purchase of Automobile Contracts

Underwriting Standards and Purchase Criteria

Dealers have submitted credit applications directly to our branches. We have used credit bureau reports in conjunction with information on the credit application to make a final credit decision or a decision to request additional information. Only credit bureau reports that have been obtained directly by us from the credit bureaus are acceptable. In addition, and prior to the approval of any credit application, we typically verified, among other things, the customer’s employment, income and residence.

Our credit policy had placed specific accountability for credit decisions directly within the branches. In general, no branch manager had credit approval authority for contracts greater than $15,000. Any transaction that exceeded a branch manager’s approval limit must have been approved by our divisional vice presidents, or by certain members of our senior management at our corporate offices.

Verification

Upon approving or conditioning any application, all required stipulations were presented to the dealer and had to be satisfied before funding.

All dealers were required to provide us with written evidence of insurance in force on a vehicle being financed when submitting the automobile contract for purchase. Prior to funding an automobile contract, the branch was required to verify by telephone with the insurance agent the customer’s insurance coverage with us as loss payee.

If we receive notice of insurance cancellation or non-renewal, the branch will notify the customer of his or her contractual obligation to maintain insurance coverage at all times on the vehicle. However, we will not “force place” insurance on an account if insurance lapses and, accordingly, we bear the risk of an uninsured loss in these circumstances.

Post-Funding Quality Reviews and Internal Audit Process

Our corporate internal audit group complete quality control reviews of newly purchased automobile contracts. These reviews focus on compliance with underwriting standards, the quality of the credit decision and the completeness of automobile contract documentation.

Additionally, selected branches are audited each year by an independent outside accounting firm appointed by the audit committee for review of compliance with established policies and procedures.

Servicing and Collection

Billing Process

We send each borrower a coupon book, which details the periodic loan payments. All payments are directed to the customer’s respective branch. We also accept payments delivered to the branch by a customer in person as well as payments received through Western Union and Money Gram. Additionally, we allow customers to pay over the internet at our website, http://www.UACC.net , over the phone and customers may choose to have their payments automatically withdrawn from their bank account if they so desire. Subsequently, in 2009 we began to receive payments through a third party lock box provider. We expect to convert all in branch payment processing to a third party lockbox by the end of 2009.

Collection Process

Our collection policy calls for the following sequence of actions to be taken with regard to all problem loans: (i) call the borrower at one day past due; (ii) immediate follow-up on all broken promises to pay; (iii) branch management review of all accounts at ten days past due; and (iv) divisional vice president review of all accounts at 45 days past due, with frequent account inspection thereafter until the delinquency situation is rectified.

We may consider extensions or modifications in collecting certain delinquent accounts. All extensions and modifications require the approval of branch management and are monitored by a divisional vice president. We also may, at our discretion, aid customers with unexpected vehicle repair costs that may otherwise impede that customer’s ability to pay as agreed.

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In 2009, we began to use an outside company to service a portion of our portfolio on a test basis. We believe the use of this outside servicer could enhance our restructuring efforts in the future.

Repossessions

It is our policy to repossess the financed vehicle only if payments are substantially in default, the customer demonstrates an intention not to pay or the customer fails to comply with material provisions of the contract. All repossessions require the prior approval of the branch manager. In certain cases, following repossession, the customer is able to pay the balance due or bring the account current, thereby redeeming the vehicle.

When a vehicle is repossessed, it is generally sold at an automobile auction or, less frequently, through a private sale, and the sale proceeds are subtracted from the net outstanding balance of the loan with any remaining amount recorded as a loss. We often seek to pursue customer deficiencies, where permissible. The net outstanding balance of the loan is the loan balance less any unaccreted acquisition discounts.

In the fourth quarter of 2008, we established a centralized remarketing department to handle the disposal of repossessed automobiles for our closed branches. We expect to centralize all collateral remarketing by the end of 2009.

Competition

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, savings institutions, credit unions and captive finance affiliates of automobile manufacturers. 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.

Employees

At December 31, 2008, we had 685 employees. None of our employees are a part of a collective bargaining agreement. We believe that we have been successful in attracting quality employees and that our employee relations are satisfactory.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, http://www.upfc.com , as soon as reasonably practicable after they are filed electronically with the SEC. We are providing the address to our website solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this Annual Report on Form 10-K.

Regulation

Our business is regulated by federal, state, and local government authorities and is subject to extensive federal, state and local laws, rules and regulations. We are also subject to judicial and administrative decisions that impose requirements and restrictions on our business. Set forth below is a summary description of certain of the material laws and regulations which relate to our business. The description is qualified in its entirety by reference to the applicable laws and regulations.

Several proposals for legislation that could substantially intensify the regulation of the financial services industry (which could include additional regulations for finance companies like ours that acquire and service automobile contracts) are expected to be introduced and possibly enacted in the new Congress in response to the current economic downturn and financial industry instability. Other legislative and regulatory initiatives which could affect us and the financial services industry in general are pending, and additional initiatives may be proposed or introduced, before the Congress, the California legislature, and other governmental bodies in the future. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which our business would be affected thereby. We cannot predict whether or when potential legislation will be enacted, and if enacted, the effect that it, or any implemented regulations, would have on our financial condition or results of operations.

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Recent Economic Developments, Legislation and Regulatory Initiatives

Negative developments beginning in the latter half of 2007 in the sub-prime mortgage market and the securitization markets for such loans and other factors have resulted in uncertainty in the financial markets in general and a related general economic downturn, which continued through 2008 and are anticipated to continue at least well through 2009. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. This market turmoil and tightening of credit has led to increased commercial and consumer delinquencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was enacted (“EESA”) to restore confidence and stabilize the volatility in the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. Initially introduced as the Troubled Asset Relief Program or “TARP”, the EESA authorized the United States Department of the Treasury (“Treasury”) to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in a troubled asset relief program. Treasury has since injected capital into many financial institutions under the TARP Capital Purchase Program.

In addition, on November 25, 2008, the Federal Reserve Board announced the introduction of the Term Asset-Backed Securities Loan Facility (the “TALF”) in an effort to facilitate the issuance of asset-backed securities and improve the market conditions for asset-backed securities generally. The Federal Reserve Board also announced the TALF general terms and conditions and provided further details about the terms and conditions for the program on December 19, 2008. On February 6, 2009, the Federal Reserve Board released additional terms and conditions after further analysis and consultation with issuers, investors and dealers in asset backed securities. The February 6, 2009 terms and conditions provide that the Federal Reserve Bank of New York will lend up to $200 billion of loans on a non-recourse basis to holders of AAA-rated asset backed securities, fully secured by newly or recently originated small business and consumer loans, including auto loans. Asset backed securities that obtain AAA ratings on the benefit of a third-party guarantee, will not be eligible for TALF. TALF loans will have a term of three years and will be fully secured by the eligible collateral. In order to participate in TALF, the sponsor must agree to comply with certain executive compensation requirements. Lastly, Treasury will provide $20 billion of credit protection to the Federal Reserve Board in connection with the TALF.

On February 10, 2009, the Federal Reserve Board announced that it is prepared to undertake a substantial expansion o the TALF. The expansion could increase the size of the TALF to as much as $1 trillion and could broaden the eligible collateral. The Federal Reserve Board’s objective in expanding the TALF would be to provide additional assistance to financial markets and institutions in meeting the credit needs of households and business and thus to support overall economic. It is unclear at this time what impact the TALF program will have on returning the securitization market to historical capacity and pricing levels.

Consumer Protection

Our automobile financing activities are subject to various federal and state consumer protection laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act or FCRA, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Federal Reserve Board’s Regulations B and Z, and state motor vehicle retail installment sales acts. Retail installment sales acts and other similar laws regulate the origination and collection of automobile contracts and impact our business. These laws, among other things, require that we obtain and maintain certain licenses and qualifications, limit the finance charges, fees and other charges on the contracts purchased, require creditors to provide specified disclosures to consumers, limit the terms of the contracts, regulate the credit application and evaluation process, regulate certain servicing and collection practices, and regulate the repossession and sale of collateral. These laws impose specific statutory liabilities upon creditors who fail to comply with their provisions and may give rise to a defense to payment of the consumer’s obligation. In addition, certain of the laws make the assignee of a consumer installment contract liable for the violations of the assignor.

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Each dealer agreement contains representations and warranties by the dealer that, as of the date of assignment, the dealer has complied with all applicable laws and regulations with respect to each automobile contract. The dealer is obligated to indemnify us for any breach of any of the representations and warranties and to repurchase any non-conforming automobile contracts. We generally verify dealer compliance with limitations on the finance charge in state motor vehicle retail installment sales acts, but do not audit a dealer’s full compliance with applicable laws. There can be no assurance that we will detect all dealer violations or that individual dealers will have the financial ability and resources either to repurchase automobile contracts or indemnify us against losses. Accordingly, failure by dealers to comply with applicable laws, or with their representations and warranties under the dealer agreement could have a material adverse effect on us.

If a borrower defaults on an automobile contract, we, as the holder and servicer of the automobile contract, are entitled to exercise the remedies of a secured party under the Uniform Commercial Code as adopted in a particular state, or the UCC, which typically includes the right to repossession by self-help unless such means would constitute a breach of the peace. The UCC and other state laws regulate repossession and sales of collateral by requiring reasonable notice to the borrower of the date, time and place of any public sale of collateral, the date after which any private sale of the collateral may be held and the borrower’s right to redeem the financed vehicle prior to any such sale, and by providing that any such sale must be conducted in a commercially reasonable manner. Financed vehicles repossessed generally are resold by us through unaffiliated wholesale automobile networks or auctions, which are attended principally by used automobile dealers.

Predatory Lending

The term “predatory lending” is far-reaching and covers a potentially broad range of behavior. As such, it does not lend itself to a concise or a comprehensive definition. However, predatory lending typically involves at least one, and perhaps all three, of the following elements:

•

making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation (“asset-based lending”);

•

inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced (“loan flipping”); or

•

engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

In addition, the rules against predatory lending bar loan flipping by the same lender or loan servicer within a year. Lenders also will be presumed to have violated these rules — which says loans should not be made to people unable to repay them — unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.

General Securities Regulation

Our securities are registered with the SEC under the Securities Exchange Act of 1934, as amended, or the Exchange Act. As such we are subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act. Our common stock is publicly held and listed on NASDAQ Global Market and we are subject to the listing requirements of NASDAQ.

The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 implemented legislative reforms applicable to companies with securities traded publicly in the United States. The Sarbanes-Oxley Act is intended to address corporate and accounting fraud and contains provisions dealing with corporate governance and management, disclosure, oversight of the accounting profession, and auditor independence. Although we have incurred and expects to continue to incur additional expenses in complying with the provisions of the Sarbanes-Oxley Act, we do not expect that compliance will have a material effect on our financial condition or results of operations.

USA PATRIOT Act of 2001

The USA PATRIOT Act of 2001 and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws.

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Under the USA PATRIOT Act, financial institutions are required to establish and maintain anti-money laundering programs which include:

•

the establishment of a customer identification program;

•

the development of internal policies, procedures, and controls;

•

the designation of a compliance officer;

•

an ongoing employee training program; and

•

an independent audit function to test the programs.

We have policies and procedures in place to address the requirements of the USA PATRIOT Act. Material deficiencies in anti-money laundering compliance can result in the imposition of civil money penalties and could have serious reputation consequences.

Fair and Accurate Credit Transactions Act of 2003

FCRA, as amended by the Fair and Accurate Credit Transactions Act of 2003, or FACTA, requires certain persons to help deter identity theft, including developing appropriate fraud response programs, and give consumers more control of their credit data. It also reauthorizes a federal ban on state laws that interfere with corporate credit granting and marketing practices. In connection with FACTA, the Federal Trade Commission (the “FTC”) and the financial institution regulatory agencies have adopted final rules that took effect on October 1, 2008 and will prohibit a company or other person from using certain information about a consumer it received from an affiliate to make a solicitation to the consumer, unless the consumer has been notified and given a chance to opt out of such solicitations, subject to certain exceptions. A consumer’s election to opt out would be effective for at least five years. The FTC and the financial institution regulatory agencies have also adopted final rules and guidelines required by FACTA for financial institutions and “creditors,” which term would include a finance company participating in a credit decision with respect to an automobile contract, that require financial institutions and creditors to identify patterns, practices and specific forms of activity, known as “Red Flags,” that indicate the possible existence of identity theft and require financial institutions and creditors to establish reasonable policies and procedures for implementing these guidelines.

Privacy

Federal rules limit the ability of banks and other “financial institutions,” which term would include a finance company acquiring and servicing automobile contracts, to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules, financial institutions must provide:

•

initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates;

•

annual notices of their privacy policies to current customers; and

•

a reasonable method for customers to “opt out” of disclosures to nonaffiliated third parties.

These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

In addition, state laws may impose more restrictive limitations on the ability of financial institutions to disclose such information. California has adopted such a privacy law that among other things generally provides that customers must “opt in” before information may be disclosed by a California financial institution, which term would include a California finance company, to certain nonaffiliated third parties and “opt out” before information may be shared with affiliates. The California limit relating to sharing information with affiliates has been held to be preempted by FCRA, which district court decision is on appeal.

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Item 1A. 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. These risks should be read in conjunction with the other information contained in this Annual Report on Form 10-K.

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 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. Our access to liquidity sources has been negatively impacted by continued disruptions in the credit markets and capital markets, which, in turn, has caused us to downsize our operations and suspend new loan originations. If we are unable to access acceptable liquidity sources, we may be unable to resume new loan originations during 2009 and, as a result, our financial position, liquidity and results of operations would be materially and adversely affected.

If we are unable to access alternative sources of financing or sell receivables on a whole loan basis, then we may be not be able to pay all amounts owed under our term facility by October 16, 2009.

Our agreement with our lender requires payments under a pre-determined schedule, which requires that we pay all amounts owed under the term facility by October 16, 2009. Management is currently pursuing and evaluating alternative sources of financing and is also selling receivables on a whole-loan basis to reduce the balance of the term loan. At this time, there is no assurance we will be able to restructure the facility or negotiate an extension with the current lender and these financing strategies may not be affected on satisfactory terms, if at all. We also cannot forecast if or when market liquidity conditions will improve from current stresses, although it is our expectation that the existing turmoil in the financial and credit markets may continue to affect our performance. In addition, we are subject to restrictive covenants under the term facility, which, require us to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the facility. In the event that we fail to satisfy certain covenants in the sale and servicing agreement requiring minimum financial ratios, asset quality, and portfolio performance ratios (portfolio net loss and delinquency ratios and pool level cumulative net loss ratios), it could result in an event of default under the facility. If an event of default occurs under the facility, the lender could elect to terminate servicing, declare all amounts outstanding under the facility to be immediately due and payable and enforce the interest against collateral pledged. In addition, our breach of any covenant under the term facility would result in a corresponding breach under our agreements with our financial guaranty insurance providers. If we are unable to arrange for other types of financing, or are unable to pay the term facility by October 16, 2009, then our results of operations, financial condition and cash flows would be materially and adversely affected.

If we fail to satisfy certain covenants in our agreements with our financial guaranty insurance providers, we may lose our rights to service the receivables included in our securitization trusts. In addition, our servicing rights for contracts pledged under our term loan renew on a month-to-month basis so we are subject to the potential risk each month of losing our rights to service those contracts.

Our agreements with our financial guaranty insurance providers provide that our servicing rights with respect to the receivables included in a securitization trust may be terminated by the applicable financial guaranty insurance provider if (i) certain performance ratios (delinquency, cumulative default and cumulative net loss on the receivables included in each securitization trust were to exceed specified limits, (ii) we breach our obligations under the servicing agreement, (iii) the financial guaranty insurance provider is required to make payments under a policy, or (iv) certain bankruptcy or insolvency events were to occur. As of December 31, 2008, no such servicing right termination events have occurred with respect to any of the trusts formed by us.

In addition, our term facility provides that our servicing rights for automobile contracts pledged under the term facility expire each month unless extended by the lenders in their sole and absolute good faith discretion.

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Although the lenders have expressed their intention that we continue to service the automobile contracts pledged to the facility our rights to service the contracts could expire at any month. Furthermore, a breach of any covenant under the term facility would result in a breach under our agreements with our financial guaranty insurance providers, which could also cause us to lose our rights to service receivables included in our securitization trusts.

The termination of any or all of our servicing rights would have a material adverse effect on our financial position, liquidity and results of operations.

Our access to liquidity sources has been negatively impacted by changes to our warehouse facility, our inability to access the securitization market and may be further negatively impacted if market conditions persist.

While we actively maintain liquidity at least sufficient to cover all our maturing debt obligations or other forecasted funding requirements, our liquidity has been, and may continue to be affected, by continued disruptions in the capital markets and an inability to access the securitizations markets. Our past primary source of operating liquidity came from a $300 million warehouse facility, which we depended upon to fund our automobile finance operations in order to finance the purchase of automobile contracts pending securitization. We required continued execution of securitization transactions in order to generate cash proceeds for repayment of our warehouse facility and to create availability to purchase additional automobile contracts. However, due to unprecedented disruptions in the asset-backed securities market and credit markets in general, we have not accessed the securitization market with a transaction since November 2007 and our warehouse facility has recently converted to a term loan, providing that the Company will be required to pay all amounts owed under the term facility by October 16, 2009. It is difficult to predict if or when securitization markets will return to historical capacity and pricing levels. On November 25, 2008, the Federal Reserve Board announced the introduction of the Term Asset-Backed Securities Loan Facility (the “TALF”) in an effort to facilitate the issuance of asset-backed securities and improve the market conditions for asset-backed securities and it is currently anticipated that the facility will lend up to $200 billion of loans (although that amount may be increased to up to $1 trillion) on a non-recourse basis to holders of AAA-rated asset backed securities, fully secured by newly or recently originated consumer loans, such as auto loans. It is anticipated that the facility will cease making loans on December 31, 2009, unless that date is extended. It is unclear at this time what impact the TALF program will have on returning the securitization market to historical capacity and pricing levels or whether we will be able to access the program.

We may be unable to manage consolidating our operations.

As a result of the continued disruptions in the capital markets, as well as the lack of available borrowing capacity, we determined to consolidate our operations and reduce our branch footprint in order to lower expenses and meet required liquidity needs. We are vulnerable to a variety of business risks generally associated with downsizing business operations including, among others, portfolio credit deterioration, retaining and motivating qualified employees and successfully managing the resulting consolidated branches. Our failure to effectively manage this consolidation would have a material adverse effect on our financial condition, results of operations and business prospects.

We may be unable to obtain permanent waivers under our insurance agreement for non-compliance with covenants.

As of December 31, 2008, we were in compliance with all terms of the financial covenants related to our securitization transactions. However, there are two non-financial covenants under the various financial guaranty insurance policies for the securitizations for which we are seeking permanent waivers. We are currently operating under temporary waivers for these covenants. These two covenants relate to the appointment of our chief executive officer and our agreement to maintain a warehouse facility. If we are unable to obtain permanent waivers for both these items or continuing temporary waivers, then each insurance provider may elect to enforce the various rights and remedies that are governed by the different transaction documents for each securitization, which could have a material adverse effect on our financial condition, results of operations and business prospects.

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We have a substantial amount of indebtedness.

We currently have a substantial amount of outstanding indebtedness. Our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance, including the performance of automobile receivables that are either pledged under our term facility (which was our prior warehouse facility) or transferred to securitization trusts, and our ability to access alternative sources of financing. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt or to obtain additional financing. There can be no assurance that any refinancings will be possible or that any additional financing could be obtained on acceptable terms. The inability to refinance our existing debt or to obtain additional financing would have a material adverse effect on our financial position, liquidity and results of operations.

If we cannot comply with the requirements in our debt instruments, then our lenders may increase our borrowing costs or require us to repay immediately all of the outstanding debt. If our debt payments were accelerated, our assets might not be sufficient to fully repay our debts. These lenders may require us to use all of our available cash to repay our debt, foreclose upon their collateral or prevent us from making payments to other creditors on certain portions of our outstanding debt. We may not be able to obtain a waiver of these provisions or refinance our debt, if needed. In such case, our financial condition, liquidity and results of operations would suffer.

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. In addition, our relationship with automobile dealers may be adversely impacted during the time we suspend new loan originations. We suspended new loan originations during the third quarter of 2008 and are continuing to suspend new loan originations. While we anticipate that we will resume new loan originations during 2009, it is more difficult to sustain relationships with independent dealers during the suspension period. If we are unsuccessful in maintaining and expanding our relationships with dealers, we may be unable to purchase contracts in the volume and on the terms that we anticipate and consequently our automobile finance business would be materially and adversely affected. In addition, there is also no assurance that the business, once resumed, will function similar to how it was in the past.

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 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 expect our operating results to continue to fluctuate.

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;

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•

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.

We depend on our key personnel.

We are dependent upon the continued services of our key employees. In addition, our business 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.

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. 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. If we expand into new geographic markets, we will face additional competition from lenders already established in those 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.

An interruption in or breach of our security systems could subject us to liability.

If third parties or our employees are able to interrupt or breach our network security systems or otherwise misappropriate our customers’ personal information or loan information, or if we give third parties or our employees improper access to our customers’ personal information or loan information, we could be subject to liability. This liability could include identity theft or other similar fraud-related claims. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential consumer information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Our security measures are designed to protect against security breaches, but our failure to prevent such security breaches could have a material adverse effect on our financial condition, results of operations and business prospects.

We are subject to various consumer claims and litigation.

As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, and breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers. As the assignee of automobile contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but can include requests for compensatory, statutory and punitive damages. We believe that we have taken prudent steps to address and mitigate the litigation risks associated with our business activities. However, any adverse resolution of litigation pending or threatened against us could have a material adverse affect on our financial condition, results of operations and cash flows.

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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 December 31, 2008, our Chairman, Guillermo Bron, beneficially owned 5,741,251 shares of our common stock, representing 36.5% of our total outstanding common stock. As a result, our Chairman will have substantial influence over our management and affairs, including the ability to control substantially all matters submitted to 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 subsidiaries, UACC and UABO. 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 December 31, 2008, 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 may call the debt any time. The redemption price is par plus accrued and unpaid interest. 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 has increased significantly in response to issues arising with respect to subprime mortgage and other consumer lending, and in some cases there is conflict among jurisdictions. From time to time, legislation and regulations are enacted which increase the cost of doing business, limit or expand permissible activities, or affect 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, and also have increased significantly due to subprime mortgage and other consumer lending issues. 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.

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.

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Risks Related to Factors Outside Our Control

Adverse economic conditions have adversely affected our business and could continue to 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. Disruptions in the capital and credit markets have adversely affected our access to liquidity sources which, in turn, has caused us to downsize our operations and suspend new loan originations. During periods of economic slowdown or recession such as we are currently experiencing, we may also 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.

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 term facility 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 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.

Our results of operations may be impaired as a result of natural disasters.

Our automobile contracts are geographically concentrated in the states of Texas, California, and Florida. These and others in which we have loans are particularly susceptible to natural disasters: earthquake in the case of California, and hurricanes and flooding in the states of Florida and Texas. Natural disasters, in those states or others, could cause a material number of our vehicle purchasers to lose their jobs, or could damage or destroy vehicles that secure our automobile contracts. In either case, such events could result in our receiving reduced collections on our automobile contracts, and could thus result in reductions in our revenues or the cash flows available to us.

The effects of terrorism and military action may impair our results of operations.

The long-term economic impact of the events of September 11, 2001, possible future terrorist attacks or other incidents and related military action, or current or future military action by United States forces in Iraq

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and other regions, could have a material adverse effect on general economic conditions, consumer confidence, and market liquidity in the United States. No assurance can be given as to the effect of these events on the performance of our automobile contracts. Any adverse effect resulting from these events could materially affect our results of operations, financial condition and cash flows. In addition, activation of a substantial number of U.S. military reservists or members of the National Guard may significantly increase the proportion of contracts whose interest rates are reduced by the application of the Service members' Civil Relief Act, which provides, generally, that an obligor who is covered by that act may not be charged interest on the related contract in excess of 6% annually during the period of the obligor's active duty.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal executive office consisting of approximately 31,214 square feet, are located at 18191 Von Karman, Suite 300 and Suite 250, Irvine, California 92612. Additionally, as of December 31, 2008, we maintained 67 branch offices for our automobile finance business in 32 states throughout the United States of America, including ten branch offices located in Texas, seven branch offices located in Florida, four branch offices located in each of New York and Tennessee, three branch offices located in each of Alabama, California, Georgia, Michigan, North Carolina and Ohio, two branch offices located in each of Arizona, Colorado, Indiana, Missouri, Oklahoma, and Virginia, and one branch office located in each of Illinois, Kansas, Massachusetts, Minnesota, Mississippi, New Hampshire, Oregon, Pennsylvania, South Carolina, Utah, Washington, and Wyoming. The average size of our branch offices is approximately 2,000 square feet.

In addition, we currently have 51 leases associated with our closed branches. The lease obligation associated with these branches is included in the future minimum rental payments in “Note 13. Commitments and Contingencies” in our Notes to the Consolidated Financial Statements in this Form 10-K.

All of the properties listed above are leased with lease terms expiring on various dates to 2014, most with options to extend the lease term. The net investment in premises, equipment and leaseholds totaled $6.0 million at December 31, 2008. We believe that our properties are in good operating condition and are suitable for the purposes for which they are being used.

Item 3. Legal Proceedings.

As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure, inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, and breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, we may also be named as a codefendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but can include requests for compensatory, statutory and punitive damages. We believe that we have taken prudent steps to address and mitigate the litigation risks associated with our business activities and that the outcome of such claims and litigation will not have a material effect upon our financial condition, results of operations and cash flows.

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

There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2008.

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PART II

Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock has been listed on The NASDAQ Global Market under the symbol “UPFC” since our initial public offering in 1998. The following table shows for the periods indicated the high and low sale prices per share of our common stock.


	High		Low
2008
Fourth Quarter	$	3.58		$	0.87
Third Quarter	$	4.35		$	1.19
Second Quarter	$	4.92		$	2.28
First Quarter	$	6.11		$	2.59
2007
Fourth Quarter	$	8.84		$	4.76
Third Quarter	$	14.67		$	7.30
Second Quarter	$	16.44		$	12.46
First Quarter	$	14.51		$	11.10

On March 12, 2009, the last reported sale price of our common stock on The NASDAQ Global Market was $1.43 per share. As of March 12, 2009 we had 25 shareholders of record and 15,752,593 outstanding shares of common stock.

The following graph compares, for the period from December 31, 2003 through December 31, 2008, the yearly percentage change in our cumulative total return on our common stock with the cumulative total return of the NASDAQ-Total US, an index consisting of NASDAQ-listed U.S.-based companies, and the SNL Auto finance Index, an index consisting of automobile finance companies. This graph assumes an initial investment of $100 and reinvestment of dividends. This graph is not necessarily indicative of future stock performance.

United PanAm Financial Corp.

[GRAPHIC MISSING]

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	Period Ending
Index	12/31/03		12/31/04	12/31/05		12/31/06	12/31/07		12/31/08
United PanAm Financial Corp.		100.00			114.20			155.00		82.44	30.68	9.53
NASDAQ Composite		100.00			108.59			110.08		120.56	132.39	78.72
SNL Auto Finance		100.00			143.81			163.71		181.02	99.67	58.53

We have not declared or paid any cash dividends on our common stock since inception.

We currently anticipate that we will retain all future earnings for use in our business and do not anticipate that we will pay any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements and our general financial condition, general business conditions and contractual restrictions on payment of dividends, if any.

During the quarter ended December 31, 2008, we did not repurchase any shares of our common stock.


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

Item 6. Selected Financial Data

The following table presents our selected consolidated financial data as of and for the years ended December 31, 2008, 2007, 2006, 2005 and 2004. The selected consolidated financial data have been derived from our consolidated financial statements.

You should read the selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto that are included elsewhere in this Annual Report on Form 10-K.

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	As of and for the Year Ended December 31,
	2008		2007	2006		2005	2004
	(Dollars in Thousands, Except per Share Data)
Statement of Operations Data
Interest income	$	218,634		$	229,458		$	195,270		$	157,777	$	117,689
Interest expense		51,764			47,449			35,791			23,228		15,645
Net interest income		166,870			182,009			159,479			134,549		102,044
Provision for loan losses		64,994			69,764			46,800			31,166		25,516
Net interest income after provision for loan losses		101,876			112,245			112,679			103,383		76,528
Non-interest income		2,506			1,730			1,737			830		2,047
Non-interest expense
Compensation and benefits		56,706			62,169			51,905			39,495		33,004
Occupancy		8,348			9,336			7,360			5,764		5,130
Other non-interest expense		20,652			25,201			21,844			19,212		16,767
Restructuring charges		9,209			—			—			—		—
Loss on debt extinguishment		7,610			—			—			—		—
Other non-recurring charges ⁽⁶⁾		2,280			—			—			—		—
Total non-interest expense		104,805			96,706			81,109			64,471		54,901
Income from continuing operations before income taxes		(423	)		17,269			33,307			39,742		23,674
Income taxes		28			6,683			13,562			16,029		9,382
(Loss) income from continuing operations		(451	)		10,586			19,745			23,713		14,292
(Loss) income from discontinued operations, net of tax ⁽¹⁾		—			—			(676	)		2,952		9,413
Net (loss) income	$	(451	)	$	10,586		$	19,069		$	26,665	$	23,705
Earnings (loss) per share – basic:
Continuing operations	$	(0.03	)	$	0.66		$	1.13		$	1.41	$	0.88
Discontinued operations ⁽¹⁾		—			—			(0.04	)		0.17		0.58
Net (loss) income	$	(0.03	)	$	0.66		$	1.09		$	1.58	$	1.46
Weighted average basic shares outstanding		15,740			15,926			17,444			16,874		16,209
Earnings (loss) per share – diluted:
Continuing operations	$	(0.03	)	$	0.65		$	1.06		$	1.27	$	0.79
Discontinued operations ⁽¹⁾		—			—			(0.04	)		0.16		0.52
Net (loss) income	$	(0.03	)	$	0.65		$	1.02		$	1.43	$	1.31
Weighted average diluted shares outstanding		15,740			16,357			18,699			18,644		18,069

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	As of and for the Year Ended December 31,
	2008		2007	2006		2005	2004
	(Dollars in Thousands, Except per Share Data)
Statement of Financial Condition Data
Total assets from continuing operations	$	794,815		$	977,181		$	879,489		$	713,854		$	553,641
Gross loans ⁽²⁾		739,728			926,350			813,524			666,162			524,170
Unearned acquisition discounts		(29,477	)		(43,699	)		(39,449	)		(32,506	)		(24,827	)
Allowance for loan losses		(43,220	)		(48,386	)		(36,037	)		(29,110	)		(25,593	)
Interest receivable		8,476			10,424			9,018			7,213			5,535
Securitization notes payable		406,087			762,245			698,337			521,613			352,564
Term facility and warehouse lines of credit		200,218			35,625			—			54,009			101,776
Junior subordinated debentures		10,310			10,310			10,310			10,310			10,310
Shareholders’ equity		159,750			159,341			159,865			154,915			124,253
Operating Data
Contracts purchased	$	266,574		$	590,767		$	550,563		$	461,483		$	367,965
Contracts outstanding ⁽²⁾	$	739,728		$	926,350		$	813,524		$	666,162		$	524,170
Average loan balance ⁽²⁾	$	875,678		$	898,851		$	755,881		$	605,989		$	469,884
Average yield on automobile contracts, net		27.39	%		27.74	%		27.89	%		27.96	%		27.59	%
Average cost of borrowing		6.85	%		6.05	%		5.58	%		4.37	%		2.91	%
Unearned acquisition discounts to gross loans ⁽³⁾		3.98	%		4.72	%		4.85	%		4.88	%		4.74	%
Nonaccrual loans ⁽³⁾	$	27,686		$	21,185		$	13,314		$	9,838		$	7,169
Nonaccrual loans to gross loans ⁽²⁾		3.74	%		2.29	%		1.64	%		1.48	%		1.36	%
Allowance for loan losses to gross loans net of unearned acquisition discounts		6.09	%		5.48	%		4.66	%		4.59	%		5.13	%
Total delinquencies over 30 days (% of net contracts)		2.10	%		1.24	%		0.93	%		0.90	%		0.72	%
Net charge-offs to average loans		8.01	%		6.39	%		5.22	%		4.51	%		5.24	%
Other Data
Number of branches ⁽⁴⁾		67			142			131			107			87
Net interest margin as a percentage of interest income		76.32	%		79.32	%		81.67	%		85.28	%		86.71	%
Net interest margin as a percentage of average loans		19.06	%		20.25	%		21.10	%		22.20	%		21.72	%
Non-interest expense to average loans		11.97	%		10.76	%		10.73	%		10.64	%		11.68	%
Non-interest expense to average loans ⁽⁵⁾		9.79	%		10.76	%		10.73	%		10.64	%		11.68	%
Return on average assets from continuing operations		(0.05%)			1.11	%		2.44	%		3.59	%		2.84	%
Return on average shareholders’ equity		(0.28%)			6.74	%		12.14	%		16.75	%		12.87	%
Consolidated capital to assets ratio		20.09	%		16.31	%		18.18	%		12.81	%		8.78	%

(1)

Commencing in September 2004, we discontinued our banking operations and insurance premium finance operations. Commencing in March 2006, we discontinued our operations related to investment segment and sold our investment securities portfolio.

(2)

Net of unearned finance charges.

(3)

Net of unearned finance charges, including loans over 30 days delinquent and loans for which vehicles have been repossessed.

(4)

Subsequent to December 31, 2008, management has closed an additional 36 branches.

(5)

Excluding restructuring charges and other non-recurring charges.

(6)

Professional fees incurred in connection with financing transactions which did not materialize.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Overview

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

As a result of the continued disruptions in the capital markets, in the first quarter of 2008, we began a strategy to downsize our operations and reduce our branch footprint in order to lower expenses and meet required liquidity needs. We are continuing to implement this strategy in 2009. During the year ended December 31, 2008, we closed 75 branches bringing the total number of branches to 67 branches in operation as of December 31, 2008. The closures of the 75 branches resulted in a decrease in the number of employees of approximately 460 or 40% of the work force since December 31, 2007. Subsequent to December 31, 2008, management has closed an additional 36 branches.

In addition, we have suspended new loan originations during the end of the third quarter and the entire fourth quarter of 2008 to allow our outstanding receivables to shrink to a level where our capital base will be able to finance future originations.

As a part of our corporate restructuring efforts, we have taken steps to streamline and centralize certain functions that were previously performed in our branches. In the fourth quarter of 2008 we established a centralized remarketing department to handle the disposal of repossessed automobiles for our closed branches. We expect to centralize all collateral remarketing by the end of 2009. In January 2009, we began to receive payments through a third party lock box provider. We expect to convert all in-branch payment processing to the third party lock box by the end of 2009. Additionally, in January 2009, we began to use an outside service provider to verify insurance coverage. Previously this function was performed within the branch. We expect that the above changes will result in both reduced cost and increased efficiency.

We have historically used a warehouse facility to fund our automobile finance operations pending securitization. The warehouse credit facility converted in 2008 to a term loan, which amortizes pursuant to a pre-determined payment schedule requiring the Company to pay all amounts owed under the facility by October 16, 2009. Based on the pre-determined payment schedule, excluding any future loan sales, the term facility is estimated to have outstanding balance of approximately $90 million by October 16, 2009, which will be secured by a collateral balance of approximately $200 million. Management is currently pursuing and evaluating a number of different alternatives to refinance the outstanding balance by October 16, 2009 including but not limited to additional whole loan sales, extending of the facility with the current lender, accessing the Federal Reserve Board new Term Asset Backed Securities Loan Facility (“TALF”) program and other financing sources. In the event that we are unable to refinance the term facility, the lender could among other things, demand payment of the loan and seize the collateral. At this time, management cannot provide any assurances that it will be able to arrange for the refinancing of the term facility.

Management is also currently evaluating the timing of new loan originations, which will depend on our ability to access alternative sources of financing to fund the new loan originations as well as conditions in the capital markets and credit markets in general. At this time, we anticipate that we will resume new loan originations in 2009, but there is no assurance that we will be able to arrange for the alternative sources of financing and there is also no assurance that the business, once resumed, will function similar as it has in the past.

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The following table presents the number of branches, number of contracts and total contracts outstanding in each of the states in which we operate as of December 31, 2008.


	At December 31, 2008
State	Number of Branches		Number of Contracts	Contracts Outstanding
	(Dollars in Thousands)
Texas		10			14,119	$	109,569
California		3			9,770		59,215
Florida		7			9,297		56,939
Georgia		3			5,185		35,649
New York		4			5,823		34,360
Missouri		2			4,521		30,824
North Carolina		3			4,509		30,877
Tennessee		4			4,091		28,982
Ohio		3			4,419		24,881
Arizona		2			4,455		29,533
Michigan		3			3,416		24,235
Alabama		3			4,625		31,200
Indiana		2			3,005		20,879
Colorado		2			3,222		18,773
Virginia		2			2,939		18,209
Oklahoma		2			1,753		13,356
Other ⁽¹⁾		12			26,000		172,811
Total		67			111,149	$	740,292

(1)

One branch in each of Illinois, Kansas, Massachusetts, Minnesota, Mississippi, New Hampshire, Oregon, Pennsylvania, South Carolina, Utah, Washington and Wyoming. We currently originate and service automobile contracts in West Virginia, Connecticut, Arkansas and Nebraska from our Business Operations Unit based in Dallas, Texas. We currently have no branch presence in these four states.

Critical Accounting Policies

We have established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America, or GAAP, in the preparation of our consolidated financial statements. Our accounting policies are integral to understanding the results reported. For a further discussion of our accounting policies, see “Note 3. Summary of Significant Accounting Policies” to our notes to consolidated financial statements in this Form 10-K.

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

Securitization Transactions

The transfer of our automobile contracts to securitization trusts is treated as a secured financing under Statement of Financial Accounting Standard (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . The trusts are considered variable interest entities. The assets, liabilities and results of operations of the trusts have been included in our consolidated financial statements. The contracts are retained on the statement of financial condition with the securities issued to finance the contracts recorded as securitization notes payable. We retain the servicing rights for the loans which have

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been securitized. We record interest income on the securitized contracts and interest expense on the notes issued through the securitization transactions. Debt issuance costs are amortized over the expected term of the securitization using the interest method.

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

Allowance for Loan Losses

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

The allowance for credit losses is established through provision for loan losses recorded as necessary to provide for estimated loan losses in the next 12 months at each reporting date. We account for such loans by static pool, stratified into three-month buckets based upon the period of origination. The credit risk in each individual static pool is evaluated independently in order to estimate the future losses within each pool. We evaluate the adequacy of the allowance by examining current delinquencies, the characteristics of the portfolio, prospective liquidation values of the underlying collateral and general economic and market conditions. As circumstances change, our level of provisioning and/or allowance may change as well. Any such adjustment is recorded in the current period as the assessment is made.

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

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

In determining the possible realization of deferred tax assets, we consider future taxable income from future operations exclusive of reversing temporary differences and tax planning strategies that, if necessary, would be implemented to accelerate taxable income into periods in which net operating losses might otherwise expire.

Share-Based Compensation

On January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment , which requires that the compensation cost relating to share-based payment transactions (including the cost of all employee stock options) be recognized in the financial statements. That cost will be measured based on the estimated fair value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based compensation

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arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion (“APB Opinion”) No. 25, Accounting for Stock Issued to Employees. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB No. 107”) relating to SFAS No. 123(R).

We adopted SFAS No. 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our 2006 fiscal year. Our Consolidated Financial Statements as of and for the years ended December 31, 2008 and 2007 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) was $813,000 and $1,800,000 for the years ended December 31, 2008 and 2007, respectively.

Lending Activities

Summary of Loan Portfolio

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


	December 31,
	2008		2007	2006		2005	2004
	(Dollars in Thousands)
Automobile contracts	$	740,292		$	927,921		$	816,031		$	669,597		$	528,761
Other consumer loans		—			—			—			—			4
Total loans	$	740,292		$	927,921		$	816,031		$	669,597		$	528,765
Unearned finance charges ⁽¹⁾		(564	)		(1,571	)		(2,507	)		(3,435	)		(4,595	)
Unearned acquisition discounts ⁽¹⁾		(29,477	)		(43,699	)		(39,449	)		(32,506	)		(24,827	)
Allowance for loan losses ⁽¹⁾		(43,220	)		(48,386	)		(36,037	)		(29,110	)		(25,593	)
Total loans, net	$	667,031		$	834,265		$	738,038		$	604,546		$	473,750

(1)

See “Note 3. Summary of Significant Accounting Policies” to our Notes to the Consolidated Financial Statements in this Form 10-K.

Allowance for Loan Losses

Our policy is to maintain an allowance for loan losses to absorb inherent losses, which may be realized on our portfolio. These allowances are general valuation allowances for estimates for probable losses not specifically identified that will occur in the next twelve months. The total allowance for loan losses was $43.2 million at December 31, 2008 compared with $48.4 million at December 31, 2007, representing 6.09% of loans at December 31, 2008 and 5.48% at December 31, 2007.

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


	At or for the Year Ended December 31,
	2008		2007	2006		2005	2004
	(Dollars in Thousands)
Allowance for Loan Losses
Balance at beginning of year	$	48,386		$	36,037		$	29,110		$	25,593		$	24,982
Provision for loan losses – continuing operations ⁽¹⁾		64,994			69,764			46,800			31,166			25,516
Net charge-offs		(70,160	)		(57,415	)		(39,873	)		(27,649	)		(24,905	)
Balance at end of year	$	43,220		$	48,386		$	36,037		$	29,110		$	25,593
Annualized net charge-offs to average loans		8.01	%		6.39	%		5.22	%		4.51	%		5.24	%
Ending allowance to period end loans		6.09	%		5.48	%		4.66	%		4.59	%		5.13	%

(1)

See “— Critical Accounting Policies”

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Past Due and Nonaccrual Loans

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


	December 31,
	2008		2007	2006
Loan Delinquencies	Balance		% of Total Loans	Balance		% of Total Loans	Balance		% of Total Loans
	(Dollars in Thousands)
30 to 59 days	$	11,215			1.52	%	$	7,194		0.78	%	$	4,898	0.60	%
60 to 89 days		2,888			0.39	%		2,756		0.30	%		1,678	0.21	%
90+ days		1,407			0.19	%		1,534		0.16	%		966	0.12	%
Total	$	15,510			2.10	%	$	11,484		1.24	%	$	7,542	0.93	%

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

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


	December 31,
	2008		2007	2006		2005	2004
Nonaccrual loans	$	27,686		$	21,185		$	13,314		$	9,838		$	7,169
Nonaccrual loans to gross loans		3.74	%		2.29	%		1.64	%		1.48	%		1.36	%
Allowance for loan losses to gross loans, net of acquisition discounts		6.09	%		5.48	%		4.66	%		4.59	%		5.13	%

Cumulative Losses for Contract Pools

The following table reflects our cumulative losses (i.e., net charge-offs as a percent of original net contract balances) for contract pools (defined as the total dollar amount of net contracts purchased in a three-month period) purchased from January 2004 through September 2008.

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Number of Months Outstanding	Jan-04 – Mar-04		Apr-04 – Jun-04	Jul-04 – Sep-04		Oct-04 – Dec-04	Jan-05 – Mar-05		Apr-05 – Jun-05	Jul-05 – Sep-05		Oct-05 – Dec-05	Jan-06 – Mar-06		Apr-06 – Jun-06	Jul-06 – Sep-06		Oct-06 – Dec-06	Jan-07 – Mar-07		Apr-07 – Jun-07	Jul-07 – Sep-07		Oct-07 – Dec-07	Jan-08 – Mar-08		Apr-08 – Jun-08	Jul-08 – Sep-08
1		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
4		0.02	%		0.04	%		0.08	%		0.05	%		0.03	%		0.06	%		0.12	%		0.05	%		0.02	%		0.06	%		0.09	%		0.10	%		0.05	%		0.08	%		0.08	%		0.10	%		0.04	%		0.05	%		0.11	%
7		0.37	%		0.45	%		0.65	%		0.49	%		0.40	%		0.64	%		0.59	%		0.47	%		0.40	%		0.62	%		0.88	%		0.64	%		0.54	%		0.84	%		0.82	%		0.61	%		0.48	%		0.49	%
10		1.37	%		1.33	%		1.29	%		1.19	%		1.35	%		1.63	%		1.36	%		1.28	%		1.61	%		2.00	%		1.85	%		1.73	%		1.77	%		2.28	%		1.90	%		1.79	%		1.50	%
13		2.44	%		2.13	%		2.21	%		2.41	%		2.48	%		2.57	%		2.37	%		2.71	%		2.96	%		3.14	%		3.23	%		3.09	%		3.29	%		3.51	%		3.30	%		3.59	%
16		3.20	%		2.88	%		3.12	%		3.56	%		3.32	%		3.47	%		3.56	%		4.07	%		3.90	%		4.35	%		4.95	%		4.87	%		4.54	%		4.90	%		5.14	%
19		3.96	%		3.87	%		4.20	%		4.44	%		4.21	%		4.71	%		4.85	%		5.01	%		5.03	%		5.92	%		6.74	%		6.23	%		5.89	%		6.70	%
22		4.87	%		4.77	%		4.95	%		5.17	%		5.50	%		5.95	%		5.76	%		5.96	%		6.42	%		7.41	%		7.98	%		7.53	%		7.53	%
25		5.63	%		5.35	%		5.56	%		6.12	%		6.56	%		6.69	%		6.69	%		7.05	%		7.66	%		8.59	%		9.07	%		9.09	%
28		6.16	%		5.96	%		6.31	%		7.02	%		7.23	%		7.41	%		7.67	%		8.09	%		8.56	%		9.66	%		10.56	%
31		6.76	%		6.62	%		7.05	%		7.66	%		7.86	%		8.24	%		8.62	%		8.78	%		9.41	%		10.78	%
34		7.37	%		7.20	%		7.47	%		8.24	%		8.52	%		9.04	%		9.25	%		9.46	%		10.35	%
37		7.95	%		7.52	%		7.81	%		8.73	%		9.11	%		9.54	%		9.69	%		10.20	%
40		8.24	%		7.83	%		8.21	%		9.12	%		9.43	%		9.91	%		10.31	%
43		8.44	%		8.12	%		8.47	%		9.34	%		9.70	%		10.29	%
46		8.63	%		8.33	%		8.63	%		9.59	%		10.11	%
49		8.81	%		8.43	%		8.82	%		9.73	%
52		8.85	%		8.49	%		8.93	%
55		8.91	%		8.56	%
58		8.95	%
Original Pool ($000)	$	94,369		$	91,147		$	89,688		$	86,697		$	118,869		$	120,491		$	112,466		$	101,439		$	142,839		$	143,964		$	136,107		$	113,718		$	163,987		$	162,839		$	144,519		$	90,667		$	124,991		$	95,869		$	38,532
Remaining Pool ($000)	$	1,112		$	1,879		$	3,032		$	4,207		$	8,950		$	11,475		$	13,593		$	16,224		$	30,321		$	37,024		$	42,057		$	42,267		$	75,175		$	84,769		$	88,089		$	61,106		$	99,139		$	83,096		$	35,447
Remaining Pool (%)		1.18	%		2.06	%		3.38	%		4.85	%		7.53	%		9.52	%		12.09	%		15.99	%		21.23	%		25.72	%		30.90	%		37.17	%		45.84	%		52.06	%		60.95	%		67.40	%		79.32	%		86.68	%		92.00	%

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Loan Maturities

The following table sets forth the dollar amount of automobile contracts maturing in our automobile contracts portfolio at December 31, 2008 based on final maturity. Automobile contract balances are reflected before unearned acquisition discounts and allowance for loan losses.


	One Year or Less		More Than 1 Year to 3 Years	More Than 3 Years to 5 Years		More Than 5 Years to 10 Years	Total Loans
	(Dollars in Thousands)
Total loans	$	30,927		$	340,048		$	320,937	$	47,816	$	739,728

All loans are fixed rate loans.

Liquidity and Capital Resources

General

We require substantial cash and capital resources to operate our business. Our primary funding sources in the past have been a warehouse credit line (which has since converted to a term loan), securitizations and retained earnings. However, as discussed in more detail below, due to the termination of our warehouse credit line and increasing challenges in the credit markets, we are currently evaluating alternative sources of financing.

Our primary uses of cash included:

•

acquisition of automobile contracts;

•

interest expense;

•

operating expenses; and

•

securitization costs.

The capital resources currently available to us include:

•

interest income and principal collections on automobile contracts;

•

servicing fees that we earn under our securitizations; and

•

releases of excess cash from the spread accounts relating to the securitizations.

Recent Market Developments

A number of factors have adversely impacted our liquidity in 2008 and we anticipate these factors will continue to adversely impact our liquidity through 2009. The disruptions in the capital markets and credit markets and, to a lesser extent, the credit deterioration we are experiencing in our portfolio, are limiting our ability to access alternative sources of financing. We may also realize decreased cash distributions from our debt facilities due to weaker credit performance and higher borrowing costs.

The asset-backed securities market, along with credit markets in general, has been experiencing unprecedented disruptions. Market conditions began deteriorating in mid-2007, remained impaired in 2008 and have continued to experience disruptions in 2009. Further, the prime quality automobile securitizations that were executed in 2008 utilized senior-subordinated structures and sold only the highest rated securities. In addition, the financial guaranty insurance providers used by us in the past are facing financial stress and rating agency downgrades. As a result, demand for asset-backed securities backed by a financial guarantee insurance policy has substantially weakened and there have been a limited number of public issuances of insured automobile asset-backed securities in 2008. We have not accessed the securitization market with a transaction since November 2007 and do not anticipate accessing the securitization market during 2009.

Current conditions in the asset-backed securities market include reduced liquidity, increased risk premiums for issuers, reduced investor demand for asset-backed securities, particularly those securities backed by non-prime collateral, financial stress and rating agency downgrades impacting the financial guaranty insurance providers, and a general tightening of availability of credit. These conditions, which have already increased

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our cost of funding and reduced our access to the asset-backed securities market and other types of receivable financings, may continue or worsen in the future. Due to the current conditions in the asset-backed securities market, along with credit markets in general, the execution of securitization transactions is more challenging and expensive and access to alternative sources of financing has also become more limited and, as a result, we are analyzing our liquidity strategies going forward. It is difficult to predict if or when securitization markets will return to historical capacity and pricing levels. On November 25, 2008, the Federal Reserve Board announced the introduction of the Term Asset-Backed Securities Loan Facility (the “TALF”) in an effort to facilitate the issuance of asset-backed securities and improve the market conditions for asset-backed securities. It is currently anticipated that the facility will lend up to $200 billion of loans (although that amount may be increased to up to $1 trillion) on a non-recourse basis to holders of AAA-rated asset backed securities, fully secured by newly or recently originated consumer loans, such as auto loans. It is anticipated that the facility will cease making loans on December 31, 2009, unless that date is extended. It is unclear at this time what impact the TALF program will have on returning the securitization market to historical capacity and pricing levels. We are currently evaluating the TALF program. Additionally, we are pursuing and evaluating alternative sources of financing and are also considering selling receivables on a whole-loan basis. At this time, there is no assurance that we will be able to arrange for other types of interim financing or be able to sell receivables on a whole-loan basis in the future. For a more complete description of the financing risks that we face, see Item 1A. “Risk Factors” in this Annual Report on Form 10-K.

Securitizations

Our securitizations are structured as on-balance-sheet transactions and recorded as secured financings because they do not meet the accounting criteria for sale of finance receivables under SFAS No. 140. Since 2004, regular contract securitizations had been an integral part of our business plan in order to increase our liquidity and reduce risks associated with interest rate fluctuations. We had developed a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. We retain the servicing rights for the loans which have been securitized. Upon the issuance of securitization notes payable, we retain the right to receive over time excess cash flows from the underlying pool of securitized automobile contracts.

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

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

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

The following table lists each of our securitizations and its remaining balance as of December 31, 2008.

(Dollars in Thousands)



Issue Number	Issuance Date		Original Balance	Current Balance Class A-1		Interest Rate	Current Balance Class A-2		Interest Rate	Current Balance Class A-3		Interest Rate	Total Current Balance		Current Receivables Pledged	Surety Costs ⁽¹⁾		Back-up Servicing Fees
2005 A		April 14, 2005			195,000			—			3.12	%		—			3.85	%	9,642	4.84	%		9,642	10,241	0.43	%	0.035	%
2005 B		November 10, 2005			225,000			—			4.28	%		—			4.82	%	23,881	4.98	%		23,881	26,886	0.41	%	0.035	%
2006 A		June 15, 2006			242,000			—			5.27	%		—			5.46	%	47,947	5.49	%		47,947	52,638	0.39	%	0.035	%
2006 B		December 14, 2006			250,000			—			5.34	%		—			5.15	%	74,192	5.01	%		74,192	82,364	0.38	%	0.035	%
2007 A		June14, 2007			250,000			—			5.33	%		12,044			5.46	%	99,000	5.53	%		111,044	124,121	0.37	%	0.032	%
2007 B		November 8, 2007			250,000			—			4.99	%		40,381			5.75	%	99,000	6.15	%		139,381	155,805	0.45	%	0.035	%
				$	1,412,000																	$	406,087	452,055

(1)

Related to premiums on financial guaranty insurance policies.

There is an average of $1.0 million in underwriting and issuance costs associated with each securitization transaction, which is amortized over the term of the securitizations.

As of December 31, 2008, we were in compliance with all terms of the financial covenants related to our securitization transactions. However, there are two non-financial covenant violations under the various financial guaranty insurance policies for the securitizations for which we are seeking permanent waivers. Since August 2008, we have obtained temporary waivers from the insurance providers that insure our outstanding securitizations regarding the approval of the appointment of Mr. James Vagim as our chief executive officer and have also obtained temporary waivers regarding a covenant that we maintain a warehouse facility. We are continuing discussions with the insurance providers to obtain permanent waivers, but there is no assurance we will obtain such waivers. If we are unable to obtain permanent waivers or continued temporary waivers for both these items, then each insurance provider may elect to enforce the various rights and remedies that are governed by the different transaction documents for each securitization such as terminating our servicing rights. In addition, our breach of any covenant under the term facility will result in a corresponding breach under our current agreement with the insurance providers.

Term Facility

On August 22, 2008, we restructured our $300 million warehouse facility, which we had historically used to fund our automobile finance operations to purchase automobile contracts pending securitization. As part of the restructuring, which effectively extinguished the existing warehouse facility, the Company incurred a fee payable in the amount of $7.3 million. The fee has been recorded as part of non-recurring charges during the year ended December 31, 2008. The restructuring continued the revolving nature of the warehouse facility through its previously scheduled maturity of October 16, 2008. Subsequently, the credit facility converted to a term loan for an additional one-year term, which amortizes pursuant to a pre-determined schedule, providing that the Company will be required to pay all amounts owed under the warehouse facility by October 16, 2009. As a result, the Company is unable to access further advances under the newly converted term loan. Prior to being restructured, the warehouse facility included a requirement that the Company access the securitization market and reduce amounts owed under the warehouse facility within certain specified time periods. The August 22, 2008 restructuring removed this securitization requirement. By entering into the August 22, 2008 restructuring, the warehouse facility lenders have approved the July 25, 2008 appointment of James Vagim as our chief executive officer and have removed the requirement that, within certain specified time periods, we access the securitization markets to reduce amounts owed under the warehouse facility.

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Under the previous terms of the warehouse facility, our indirect subsidiary, UFC had obtained advances on a revolving basis by issuing notes to the participating lenders and pledging for each advance a portfolio of automobile contracts. UFC purchased the automobile contracts from UACC and UACC services the automobile contracts, which are held by a custodian. UPFC provides an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance of certain liabilities, agreements and other obligations of UACC and UABO in connection with the new term facility. Although the lenders have expressed their intention that UACC continue to service the automobile contracts pledged to the facility through UACC’s decentralized branches, the facility, as amended, provides that UACC will act as servicer on a month-to-month basis for the automobile contracts pledged to the facility. UACC’s servicing rights automatically expire each month, unless extended by the lenders in their sole and absolute good faith discretion.

In addition, we are required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the facility. In the event that we fail to satisfy certain covenants in the sale and servicing agreement requiring minimum financial ratios, asset quality, and portfolio performance ratios (portfolio net loss and delinquency ratios and pool level cumulative net loss ratios), it could result in an event of default under the facility. If an event of default occurs under the facility, the lender could elect to terminate servicing, declare all amounts outstanding under the facility to be immediately due and payable and enforce the interest against collateral pledged . We were in compliance with the terms of such financial covenants as of December 31, 2008.

Residual Credit Facility

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

Share Repurchase Program

On June 27, 2006, our Board of Directors approved a share repurchase program and authorized us to repurchase up to 500,000 shares of our outstanding common stock from time to time in the open market or in private transactions in accordance with the provisions of applicable state and federal law, including, without limitation, Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. On August 4, 2006, our Board of Directors approved an increase in the aggregate number of shares that we may repurchase pursuant to the previously announced share repurchase program from 500,000 shares to 1,500,000 shares. On December 21, 2006, our Board of Directors approved a second increase in the aggregate number of shares of our outstanding common stock that we may repurchase pursuant to the previously announced share repurchase program from 1,500,000 shares to 3,500,000 shares. We repurchased 1,013,213 shares of our common stock for an average price of $12.98 per share for an aggregate purchase price of $13.2 million during the twelve months ended December 31, 2007 and 1,076,525 shares of our common stocks for an average price of $18.02 per share for an aggregate purchase price of $19.4 million during the twelve months ended December 31, 2006. We did not repurchase any shares of our common stock during the twelve months ended December 31, 2008.

Subordinated Debentures

On July 31, 2003, we issued junior subordinated debentures in the amount of $10.3 million to a subsidiary trust, UPFC Trust I. UPFC Trust I in turn issued $10.0 million of company-obligated mandatorily redeemable preferred securities. The Trust issuer is a “100% owned finance subsidiary” and we “fully and unconditionally” guaranteed the securities. We will pay interest on these funds at a rate equal to the three month LIBOR plus 3.05%, variable quarterly (7.87% as of December 31, 2008). The final maturity of these securities is 30 years (July 2033), however, they can be called at par any time after July 31, 2008 at our discretion.

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Aggregate Contractual Obligations

The following table provides the amounts due under specified obligations for the periods indicated as of December 31, 2008.


	Less Than One Year		One to Three Years	Three to Five Years		More Than Five Years	Total
	(Dollars in Thousands)
Securitization notes payable	$	184,090		$	190,088		$	31,909		—	$	406,087
Term facility		200,218			—			—		—	$	200,218
Operating lease obligations		5,957			9,054			2,611		260	$	17,882
Junior subordinated debentures		—			—			—		10,310	$	10,310
Total	$	390,265		$	199,142		$	34,520	$	10,570	$	634,497

The obligations are categorized by their contractual due dates, except securitization borrowings that are categorized by the expected repayment dates. We may, at our option, prepay the junior subordinated debentures prior to their maturity date. Furthermore, the actual payment of certain current liabilities may be deferred into future periods.

Discontinued Operations

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

Results of Operations

Comparison of Operating Results for the Years Ended December 31, 2008 and December 31, 2007

General

In 2008 we reported net loss of $451,000, or $0.03 per diluted share, compared with net income of $10.6 million, or $0.65 per diluted share for 2007. The reported net loss for the year ended December 31, 2008 includes an after tax charge of $11.8 million or $0.75 per diluted share for restructuring charges associated with the closure of 75 branches during the year ended December 31, 2008 and other non-recurring charges. During the twelve months ended December 31, 2008 we closed 75 branches bringing our total to 67 branches in 32 states.

Interest Income

Interest income decreased 4.7% to $218.6 million for the year ended December 31, 2008 from $229.5 million for the same period a year ago due primarily to a decrease in average automobile contracts of $23.2 million as a result of our strategy of downsizing our operations, suspending new loan originations and reducing our branch footprint in order to lower expenses and meet required liquidity needs. Interest income on loans represents the accretion of the acquisition discount fee on loans acquired.

Interest Expense

Interest expense increased 9.3% to $51.8 million in 2008 from $47.4 million in 2007. The average debt outstanding decreased by 3.5% to $756.2 million in 2008 from $783.8 million in 2007. The weighted average interest rate increased to 6.85% in 2008 from 6.05% in 2007. The increase was mainly the result of a higher interest rate on the new term facility.

Provision and Allowance for Loan Losses

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December 31, 2008 compared with $69.8 million for the year ended December 31, 2007. The decrease in the provision for loan losses was primarily due to a decrease in loans outstanding offset by an increase in the annualized charge-off rate to 8.01% for the year ended December 31, 2008 compared to 6.39% for the year ended December 31, 2007.

The increase in our annualized net charge-off rates was the result of increased defaults due to the overall deteriorating economic environment and the adverse effect from a declining receivable balance.

The total allowance for loan losses was $43.2 million at December 31, 2008 compared with $48.4 million at December 31, 2007, representing 6.09% of automobile contracts, less unearned acquisition discounts, at December 31, 2008 and 5.48% at December 31, 2007. The decrease in the allowance for loan losses was due primarily to a $186.6 million decrease in automobile contracts outstanding, which decreased to $739.7 million at December 31, 2008 from $926.4 million at December 31, 2007.

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 more information, see “— Critical Accounting Policies.”

Non-Interest Income

Non-interest income increased $0.8 million to $2.5 million in 2008 from $1.7 million in 2007. The increase was primarily the result of higher fee income related to collection activities.

Non-Interest Expense

Non-interest expense increased $8.1million to $104.8 million in 2008 from $96.7 million in 2007. The increase in non-interest expense was due to a pretax restructuring charge of $9.2 million ($5.7 million after tax) for the year ended December 31, 2008 associated with the closure of 75 branches, a loss on debt extinguishment of $7.6 million ($4.7 million after tax) related to our exit from the warehouse facility, and other non-recurring charges of $2.3 million ($1.4 million after tax) related to professional fees incurred in connection with pursuing financing transactions that did not materialize. The restructuring charge included severance, fixed asset write-offs, closure and post-closure costs and a $2.1 million reserve for estimated future lease obligations. Non-interest expense, excluding the restructuring charges and other non-current charges as a percentage of average loans dropped to 9.79% for the year ended December 31, 2008 from 10.76% for the same period a year ago. Other non-interest expense decreased to $20.7 million for the year ended December 31, 2008 from $25.2 million for the same period a year ago due primarily to branch closures during 2008.

Income Taxes

Income taxes expense was $28,000 in 2008 compared to $6.7 million in 2007. This decrease occurred primarily as a result of a $17.7 million decrease in income before income taxes from 2007 to 2008 offset by a tax write-off of $188,000.

Comparison of Operating Results for the Years Ended December 31, 2007 and December 31, 2006

General

In 2007 we reported net income of $10.6 million, or $0.65 per diluted share, compared with $19.1 million, or $1.02 per diluted share for 2006. During the twelve months ended December 31, 2007, we opened 15 auto finance branches and closed 4 underperforming branches bringing our total to 142 branches in 39 states.

Interest Income

Interest income increased by 17.5% to $229.5 million in 2007 from $195.3 million in 2006 due primarily to the increase in average automobile contracts of $143.0 million as a result of the purchase of additional automobile contracts in existing and new markets. Interest income on loans represents the accretion of the acquisition discount fee on loans acquired. Investment income increased as a result of higher invested cash balances combined with increased market interest rates.

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Interest Expense

Interest expense increased 32.4% to $47.4 million in 2007 from $35.8 million in 2006. The average debt outstanding increased by 22.1% to $783.8 million in 2007 from $641.9 million in 2006. The average interest rate increased to 6.05% in 2007 from 5.58% in 2006. The increase was the result of higher market interest rates, coupled with pay down of lower priced securitizations.

Provision and Allowance for Loan Losses

Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable incurred credit losses inherent in the portfolio of finance receivables. The provision for loan losses recorded in 2007 and 2006 reflects inherent losses on receivables originated during those periods and changes in the amount of inherent losses on receivables originated in prior periods. A provision for loan losses is charged to operations based on our evaluation of the adequacy of the allowance for loan losses. The provision for loan losses increased to $69.8 million for the year ended December 31, 2007 compared with $46.8 million for the year ended December 31, 2006. The increase in the provision for loan losses was due primarily to a $143.0 million increase in average automobile contracts and an increase in the annualized charge-off rate to 6.39% for the year ended December 31, 2007 compared to 5.22% for the year ended December 31, 2006.

The total allowance for loan losses was $48.4 million at December 31, 2007 compared with $36.0 million at December 31, 2006, representing 5.48% of automobile contracts, less unearned acquisition discounts, at December 31, 2007 and 4.66% at December 31, 2006. The increase in the allowance for loan losses was due primarily to a $112.9 million increase in automobile contracts outstanding, which increased to $926.4 million at December 31, 2007 from $813.5 million at December 31, 2006 and increase in the loss rate within the portfolio.

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

Non-interest Income

Non-interest income was $1.7 million for the years ended December 31, 2007 and 2006.

Non-interest Expense

Non-interest expense increased $15.6 million to $96.7 million in 2007 from $81.1 million in 2006. During 2007, we continued with our growth strategy, resulting in an increase to 1,147 employees as of December 31, 2007, from 954 employees as of December 31, 2006.

Income Taxes

Income taxes from continuing operations decreased $6.9 million to $6.7 million in 2007 from $13.6 million in 2006. This decrease occurred primarily as a result of a $16.0 million decrease in taxable income from continuing operations before income taxes. Our effective tax rate has been lower in 2007 relative to 2006 due to our expansion into lower tax jurisdictions.

Financial Condition

Comparison of Financial Condition at December 31, 2008 and December 31, 2007

Total assets decreased $182.4 million to $794.8 million at December 31, 2008 from $977.2 million at December 31, 2007. The decrease resulted primarily from a $172.6 million decrease in automobile contracts to $710.1 million, net of unearned acquisition discounts and unearned finance charges, at December 31, 2008 from $882.7 million at December 31, 2007 as a result of our strategy of downsizing our operations, suspending new loan originations and reducing our branch footprint.

On August 8, 2008, we entered into an agreement and sold $10.0 million of loans on a whole-loan basis with servicing released. On November 20, 2008, we entered into an agreement and sold an additional $3.0 million of loans on a whole-loan basis with servicing released. In both transactions, the loans were sold without recourse to the Company.

Premises and equipment decreased $1.7 million to $5.1 million at December 31, 2008 from $6.8 million at December 31, 2007 primarily as a result of the closure of 75 branches in 2008.

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Securitization notes payable decreased to $406.1 million at December 31, 2008 from $762.2 at December 31, 2007 due to the payments on the automobile contracts backing the securitized borrowing and the fact that we did not accessed the securitization market with a transaction in 2008.

Term facility and warehouse line of credit borrowing increased to $200.2 million at December 31, 2008 from $35.6 at December 31, 2007 due to borrowings to fund additional automobile contracts and the fact that we did not access the securitization market with a transaction in 2008.

Shareholders’ equity increased to $159.7 million at December 31, 2008 from $159.3 million at December 31, 2007, primarily as a result of recognition of expense for fair value of options of $813,000 during the year ended December 31, 2008, partially offset by net loss of $451,000 during the year ended December 31, 2008.

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

Total assets increased $97.7 million, to $977.2 million at December 31, 2007 from $879.5 million at December 31, 2006. The increase resulted from a $108.6 million increase in automobile contracts to $882.7, net of unearned acquisition discounts and unearned finance charges, at December 31, 2007 from $774.1 million at December 31, 2006 and a $5.6 million increase in restricted cash, partially offset by a $12.6 million decrease in short term investments.

Premises and equipment increased $1.8 million to $6.8 million at December 31, 2007 from $5.0 million at December 31, 2006 primarily as a result of opening 15 new branches in 2007 and the move to our new corporate offices in March 2007.

Securitization notes payable increased to $762.2 million at December 31, 2007 from $698.3 at December 31, 2006 due to the completion of a $250.0 million securitization in June 2007 and November 2007 for a total of $500.0 million, offset by payments on the automobile contracts backing the securitized borrowing.

Warehouse line of credit borrowing increased to $35.6 million at December 31, 2007 from zero at December 31, 2006 due to borrowings to fund additional automobile contracts, partially offset by the completion of a $250.0 million securitization in June 2007 and November 2007 for a total of $500.0 million.

Shareholders’ equity decreased to $159.3 million at December 31, 2007 from $159.9 million at December 31, 2006, primarily as a result of $13.2 million of the Company’s common stock repurchased during the year ended December 31, 2007, partially offset by net income of $10.6 million and recognition of expense for fair value of options of $1.8 million during the year ended December 31, 2007.

Cash Flows

Comparison of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

Management believes that the resources available to us will provide the needed capital and cash flows to fund ongoing operations and serving capabilities for the next twelve months.

We have historically used a warehouse facility to fund our automobile finance operations pending securitization. The warehouse credit facility converted in 2008 to a term loan, which amortizes pursuant to a pre-determined payment schedule requiring the Company to pay all amounts owed due under the facility by October 16, 2009. Based on the pre-determined payment schedule, excluding any future loan sales, the term facility is estimated to have outstanding balance of $90 million by October 16, 2009, which will be secured by approximately $200 Million collateral balance. Management is currently pursuing and evaluating a number of different alternatives to refinancing the outstanding balance by October 16, 2009 including but not limited to additional whole loan sales, extension of the facility with the current lender, accessing the Federal Reserve Board new Term Asset Backed Securities Loan Facility (“TALF”) program and other financing sources. In the event that we are unable to refinance the term facility, the lender could among other things, demand payment of the loan and seize the collateral. At this time, management cannot provide any assurances that it will be able to arrange for the refinancing of the term facility.

Cash provided by operating activities was $55.6 million, $50.4 million and $39.5 million for the twelve months ended December 31, 2008, 2007 and 2006, respectively. Cash provided by operating activities

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increased for the twelve months ended December 31, 2008 compared to the same period in 2007 and 2006 due primarily to an increase in cash received on interest income.

Cash provided by investing activities was $125.4 million for the twelve months ended December 31, 2008. Cash used in investing activities was $142.4 million for the twelve months ended December 31, 2007. Cash provided by investing activities was $337.2 million for the twelve months ended December 31, 2006. Cash provided by investing activities increased for the twelve months ended December 31, 2008 compared to the same period in 2007 due to lower originations in 2008. Cash used in investing activities increased for the twelve months ended December 31, 2007 compared to the same period in 2006 due to the discontinuation of the Company’s operations related to its investment segment in March 2006.

Cash used in financing activities was $188.8 million for the twelve months ended December 31, 2008. Cash provided by financing activities was $81.0 million for the twelve months ended December 31, 2007. Cash used by financing activities was $369.6 million for the twelve months ended December 31, 2006. Cash used in financing activities increased for the twelve months ended December 31, 2008 compared to the same period in 2007 due to the fact we did not access the market with a securitization transaction in 2008. Cash provided by financing activities increased for the twelve months ended December 31, 2007 compared to the same period in 2006 due to the discontinuation of the Company’s operations related to its investment segment in March 2006.

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 and term facility borrowings because the warehouse and term facility borrowings accrue interest at a variable rate.

As of December 31, 2008, we had $406.1 million fixed rate debt outstanding under our securitized borrowings. The fair value of our securitized borrowings is based on quoted market values, which are influenced by a number of factors, including interest rates, amount of debt outstanding, and number of months until maturity. Since we intend to hold the securitized borrowings until maturity, any increases or decreases in interest expense resulting from changes in fair value will reverse by maturity date.

As of December 31, 2008, we had $10.3 million junior subordinated debentures. We will pay interest on these funds at a rate equal to the three month LIBOR plus 3.05%, variable quarterly. The final maturity of these securities is 30 years (July 2033), however, they can be called at par any time after July 31, 2008 at our discretion. For every 1.0% increase in rates on the three month LIBOR, annual after-tax earnings would decrease by approximately $100,000, assuming we maintain a level amount of variable rate debt.

As of December 31, 2008, we had $200.2 million variable rate debt outstanding on our term facility, with no interest rate protection. For every 1.0% increase in rates on our term facility, annual after-tax earnings would decrease by approximately $790,000, assuming we maintain a level amount of variable rate debt.

Recent Accounting Developments

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurement . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The statement was

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effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157 . (“FSP SFAS No. 140-3”) This FSP delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption of was not material. In October 2008, the FASB issued Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active . This FSP clarifies the application of SFAS No. 157 in a market that is not active. The impact of adoption was not material.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . The statement provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The statement was effective for the Company on January 1, 2008. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

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

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

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

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities . SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and requires entities to provide enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and

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amounts of gains and losses on derivative contracts, and disclosures about credit-risk-related contingent features in derivative agreements. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our consolidated financial position, results of operation or cash flows.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements . This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue was effective for as of January 1, 2008. The impact of adoption was not material.

Other recent accounting pronouncements, interpretations and guidance 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information regarding Quantitative and Qualitative Disclosures About Market Risk is set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Interest Rate Risk” of Item 7 to this Annual Report on Form 10-K.

Item 8. Financial Statements and Supplementary Data


Index to Consolidated Financial Statements		F-1
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Financial Condition		F-4
Consolidated Statements of Operations		F-5
Consolidated Statements of Shareholders’ Equity		F-6
Consolidated Statements of Cash Flows		F-7
Notes to Consolidated Financial Statements		F-8

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of 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 December 31, 2008.

(b) Management Report on Internal Control Over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness, as of December 31, 2008, of the Company's internal control over financial reporting based on the framework in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company's management concluded that the Company's internal control over financial reporting was effective as of December 31, 2008. Management's Report on Internal Control over Financial Reporting is set forth in Part II, Item 8 of this Annual Report on Form 10-K.

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Attestation Report of the Independent Registered Public Accounting Firm.

Crowe Horwath LLP, an independent registered public accounting firm, has audited the consolidated financial statements for the years ended December 31, 2008, included in this Annual Report on Form 10-K and, as part of their audit, has issued its report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. Crowe Horwath's report is set forth in Part II, Item 8 of this Annual Report on Form 10-K.

(c ) Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

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PART III