UPFC United Panam Financial (MM)

United PanAm Financial Corp. (Nasdaq: UPFC) today announced results for its second quarter ended June 30, 2008. For the quarter ended June 30, 2008, UPFC reported net income of $4.1 million, compared to net income of $4.6 million for the same period a year ago. Interest income increased 0.9% to $57.6 million for the quarter ended June 30, 2008 from $57.1 million for the same period a year ago. UPFC reported net income of $0.26 per diluted share for the quarter ended June 30, 2008 compared to $0.28 per diluted share for the same period a year ago. The reported net income for the quarter ended June 30, 2008 also includes an after tax charge of $1.7 million or $0.11 per diluted share for restructuring charges associated with the closure of 22 branches. During the quarter ended June 30, 2008, UPFC closed 22 branches bringing the total number of closures to 36 branches in 2008. There were 106 branches in operation as of July 24, 2008. The majority of closures were from the consolidation of branches within the same market. The loan portfolios of the closed branches represented less than 10% of the overall portfolio balance and will continue to be serviced by other branches within the same market or by UPFC�s Business Operation Unit in Texas. The closures resulted in a decrease in the number of employees of approximately 230 or 20% of the work force since December 31, 2007. These closures are expected to result in cost savings, including operating expenses, of $12.0 million to $15.0 million annually. The closures have improved operating leverage and allow UPFC to remain profitable at lower total origination levels. These branch closures have been achieved with no deterioration in servicing quality. The delinquencies over 30 days have dropped to 1.09% at June 30, 2008 from 1.24% at December 31, 2007. Charge-offs for the second quarter decreased to 6.66% from 7.14% in the first quarter of 2008 and 7.99% in the fourth quarter of 2007. For the six months ended June 30, 2008, UPFC reported net income of $5.3 million, compared to net income of $7.7 million for the same period a year ago. Interest income increased 5.3% to $116.1 million for the six months ended June 30, 2008 from $110.3 million for the same period a year ago. UPFC reported net income of $0.34 per diluted share for the six months ended June 30, 2008 compared to $0.46 per diluted share for the same period a year ago. The reported net income for the six months ended June 30, 2008 also includes an after tax charge of $2.3 million or $0.15 per diluted share for restructuring charges associated with the closure of 36 branches during the six month ended June 30, 2008. UPFC purchased $98.5 million of automobile contracts during the second quarter of 2008, compared with $167.8 million during the same period a year ago, representing a 41.3% decrease. This decrease was the result of the slowdown in the economy and current market conditions, in addition to UPFC�s focus on tighter underwriting criteria. Contracts outstanding totaled $917.5 million at June 30, 2008, compared with $918.6 million at June 30, 2007, representing a 0.1% decrease. The decrease in net income for the quarter ended June 30, 2008 compared to the same period a year ago primarily reflects the following: Interest income increased 0.9% to $57.6 million from $57.1 million due primarily to the increase in average loans of $32.7 million as a result of the purchase of additional automobile contracts. Interest expense decreased 0.9% to $11.5 million from $11.6 million due primarily to the lower cost of funds on the warehouse line of credit. As a result, net interest margin increased from 79.7% for the quarter ended June 30, 2007 to 80.1% for the quarter ended June 30, 2008. Provision for loan losses increased due to an increase in the annualized charge-off rate to 6.66% for the quarter ended June 30, 2008 from 5.04% for the same period a year ago. The major factors that continue to impact our charge-off rate are the overall deteriorating economic environment and increasing gasoline prices. Non-interest expense increased to $25.0 million from $24.2 million for the same period a year ago. The increase in non-interest expense was due to a pretax restructuring charge of $2.8 million that was recorded for costs associated with closure of branches in the quarter ended June 30, 2008 ($1.7 million after tax). The restructuring charge included severance, fixed asset write-offs, post-closure costs and a $1.5 million reserve for estimated future lease obligations. Non-interest expense, excluding the restructuring charges, as a percentage of average loans dropped to 9.7% from 10.9% for the same period a year ago. For the six months ended June 30, 2008, UPFC�s securitization notes payable decreased by $213.0 million and the borrowings under UPFC�s warehouse facility increased by $201.5 million. The reduction in securitization notes payable and the increase in borrowings under the warehouse facility reflect the fact that UPFC has not accessed the securitization market with a transaction since November 2007. If UPFC is unable to securitize a sufficient number of automobile installment sales contracts in a timely manner or obtain financing by other means, then UPFC�s liquidity position would be adversely affected, as UPFC will require continued execution of securitization transactions in order to fund future liquidity needs. In addition, unanticipated delays in closing a securitization would also increase UPFC�s interest rate risk by increasing the warehousing period for automobile installment sales contracts. On October 18, 2007, UPFC executed a twelve month extension of the existing $300 million warehouse facility with Deutsche Bank, and as of June 30, 2008 the warehouse facility was drawn to $237.1 million. There is no assurance that UPFC will be able to obtain further advances under this facility during its term or that this facility will continue to be available beyond the current expiration date at reasonable terms or at all. Management is currently evaluating alternative sources of financing in case UPFC is unable to obtain advances for any reason under the warehouse facility. If UPFC is unable to obtain advances under the warehouse facility or arrange for other types of interim financing, UPFC will have to curtail or cease automobile contract purchasing activities, sell receivables on a whole-loan basis or otherwise revise the scale of its business, which would have a material adverse effect on UPFC�s financial position and results of operations. United PanAm Financial Corp. UPFC is a specialty finance company engaged in automobile finance, which includes the purchasing, warehousing, securitizing and servicing of automobile installment sales contracts originated by independent and franchised dealers of used automobiles. UPFC conducts its automobile finance business through its wholly-owned subsidiary, United Auto Credit Corporation, with branch offices in 36 states. Forward Looking Statements Any statements set forth above that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act (�SLRA�) of 1995, including statements concerning the Company�s strategies, plans, objectives, intentions and projections. Generally, the words �believe,� �expect,� �intend,� �estimate,� �anticipate,� �project,� �realize,� �will� and similar expressions identify forward-looking statements, which generally are not historical in nature. Such statements are subject to a variety of estimates, risks and uncertainties, known and unknown, which may cause the Company�s actual results to differ materially from those anticipated in such forward-looking statements. Potential risks and uncertainties include, but are not limited to, such factors as 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 pressures which we face; changes in the interest rate environment; general economic conditions; the effects of accounting changes; and other risks discussed in our Company�s filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K, which filings are available from the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. UPFC undertakes no obligation to publicly update or revise any forward-looking statements. United PanAm Financial Corp. and Subsidiaries Consolidated Statements of Financial Condition � � June 30,2008 � December 31,2007 (Dollars in thousands) Assets Cash $ 8,257 $ 9,909 Short term investments � 14,646 � � 7,332 � Cash and cash equivalents 22,903 17,241 Restricted cash 76,094 73,633 Loans 876,075 882,651 Allowance for loan losses � (49,290 ) � (48,386 ) Loans, net 826,785 834,265 Premises and equipment, net 5,870 6,799 Interest receivable 10,071 10,424 Other assets � 31,144 � � 34,819 � Total assets $ 972,867 � $ 977,181 � � � Liabilities and Shareholders� Equity Securitization notes payable $ 549,157 $ 762,245 Warehouse line of credit 237,144 35,625 Accrued expenses and other liabilities 11,091 9,660 Junior subordinated debentures � 10,310 � � 10,310 � Total liabilities � 807,702 � � 817,840 � � � Preferred stock (no par value): Authorized, 2,000,000 shares; no shares issued and outstanding � � Common stock (no par value): Authorized, 30,000,000 shares; 15,737,399 shares issued and outstanding at June 30, 2008 and December 31, 2007 49,990 49,504 Retained earnings � 115,175 � � 109,837 � � Total shareholders� equity � 165,165 � � 159,341 � � � Total liabilities and shareholders� equity $ 972,867 � $ 977,181 � United PanAm Financial Corp. and Subsidiaries Consolidated Statements of Income � (In thousands, except per share data) � Three Months Ended June 30, � Six Months Ended June 30, 2008 � 2007 2008 � 2007 Interest Income Loans $ 57,090 $ 56,019 $ 114,797 $ 108,298 Short term investments and restricted cash � 536 � 1,036 � 1,299 � 1,981 Total interest income � 57,626 � 57,055 � 116,096 � 110,279 Interest Expense Securitization notes payable 9,304 8,551 20,192 17,751 Warehouse line of credit 2,023 2,763 3,548 3,866 Other interest expense � 146 � 288 � 339 � 498 Total interest expense � 11,473 � 11,602 � 24,079 � 22,115 Net interest income 46,153 45,453 92,017 88,164 Provision for loan losses � 15,080 � 14,024 � 32,722 � 28,505 Net interest income after provision for loan losses � 31,073 � 31,429 � 59,295 � 59,659 � Non-interest Income 568 500 1,039 847 � Non-interest Expense Compensation and benefits 14,904 15,594 31,819 30,933 Occupancy 2,140 2,263 4,604 4,446 Other non-interest expense 5,217 6,345 11,418 12,356 Restructuring charges � 2,751 � � � 3,785 � � Total non-interest expense � 25,012 � 24,202 � 51,626 � 47,735 � Income before income taxes 6,629 7,727 8,708 12,771 Income taxes � 2,565 � 3,090 � 3,370 � 5,108 Net income $ 4,064 $ 4,637 $ 5,338 $ 7,663 Earnings per share-basic: � � � � Net income $ 0.26 $ 0.29 $ 0.34 $ 0.48 Weighted average basic shares outstanding � 15,737 � 15,803 � 15,737 $ 16,121 Earnings per share-diluted: � � � � Net income $ 0.26 $ 0.28 $ 0.34 $ 0.46 Weighted average diluted shares outstanding � 15,763 � 16,494 � 15,763 � 16,766 United PanAm Financial Corp. and Subsidiaries Consolidated Statement of Changes in Shareholders� Equity � � Numberof Shares � CommonStock � RetainedEarnings � TotalShareholders�Equity � (Dollars in thousands) Balance, December 31, 2007 15,737,399 $ 49,504 $ 109,837 $ 159,341 Net income � � 5,338 5,338 Stock-based compensation expense � 486 � 486 � � � � Balance, June 30, 2008 15,737,399 $ 49,990 $ 115,175 $ 165,165 United PanAm Financial Corp. and Subsidiaries Selected Financial Data � (Dollars in thousands) � At or For the Three Months Ended � At or For the Six Months Ended June 30, 2008 � June 30, 2007 June 30, 2008 � June 30, 2007 � Operating Data Contracts purchased $ 98,508 $ 167,807 $ 228,438 $ 335,447 Contracts outstanding $ 917,491 $ 918,638 $ 917,491 $ 918,638 Unearned acquisition discounts $ (41,416 ) $ (45,077 ) $ (41,416 ) $ (45,077 ) Average loan balance $ 925,891 $ 893,174 $ 926,135 $ 865,254 Unearned acquisition discounts to gross loans 4.51 % 4.91 % 4.51 % 4.91 % Average percentage rate to borrowers 22.71 % 22.62 % 22.71 % 22.62 % � Loan Quality Data Allowance for loan losses $ (49,290 ) $ (41,713 ) $ (49,290 ) $ (41,713 ) Allowance for loan losses to gross loans net of unearned acquisition discounts 5.63 % 4.78 % 5.63 % 4.78 % Delinquencies (% of net contracts) 31-60 days 0.73 % 0.53 % 0.73 % 0.53 % 61-90 days 0.25 % 0.20 % 0.25 % 0.20 % 90+ days � 0.11 % � 0.07 % � 0.11 % � 0.07 % Total 1.09 % 0.80 % 1.09 % 0.80 % Repossessions over 30 days past due (% of net contracts) 0.85 % 0.54 % 0.85 % 0.54 % Annualized net charge-offs to average loans (1) 6.66 % 5.04 % 6.91 % 5.32 % � Other Data Number of branches 106 144 106 144 Number of employees 947 1,035 947 1,035 Interest income $ 57,626 $ 57,055 $ 116,096 $ 110,279 Interest expense $ 11,473 $ 11,602 $ 24,079 $ 22,115 Interest margin $ 46,153 $ 45,453 $ 92,017 $ 88,164 Net interest margin as a percentage of interest income 80.09 % 79.67 % 79.26 % 79.95 % Net interest margin as a percentage of average loans (1) 20.05 % 20.41 % 19.98 % 20.55 % Non-interest expense to average loans (1) 10.86 % 10.87 % 11.21 % 11.13 % Non-interest expense to average loans (2) 9.67 % 10.87 % 10.39 % 11.13 % Return on average assets (1) 1.67 % 1.97 % 1.10 % 1.68 % Return on average shareholders� equity (1) 10.03 % 12.04 % 6.65 % 9.89 % Consolidated capital to assets ratio 16.98 % 16.01 % 16.98 % 16.01 % � � (1) Quarterly information is annualized for comparability with full year information. � (2) Excluding restructuring charges.