Triad Financial SM 10-Q 2007 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2007

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: 333-126538

TRIAD FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

California	33-0356705
(State of Incorporation)	(IRS Employer Identification No)
7711 Center Avenue, Suite 100	92647
Huntington Beach, California	(Zip Code)
(Address of principal executive offices)

(714) 373-8300
(Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or non-accelerated filer (as defined in Rule 12b-2 of the Act).

o Large accelerated filer      o Accelerated filer      þ Non-accelerated filer

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

     As of August 10, 2007, the registrant had 9,069 shares of common stock outstanding, all of which were owned by the registrant’s parent, Triad Holdings Inc.

TRIAD FINANCIAL CORPORATION
INDEX TO FORM 10-Q

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS		2
	CONSOLIDATED STATEMENTS OF INCOME		3
	CONSOLIDATED STATEMENTS OF CASH FLOWS		4
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36
ITEM 4.	CONTROLS AND PROCEDURES		38
PART II	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		39
ITEM 1A.	RISK FACTORS		39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		39
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		39
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		39
ITEM 5.	OTHER INFORMATION		39
ITEM 6.	EXHIBITS		40
SIGNATURES			42
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on the current beliefs of the company’s management as well as assumptions made by and information currently available to management. All statements other than statements of historical fact included in this quarterly report, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. When used in this quarterly report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar meaning, as they relate to the company or the management, are intended to identify forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from management’s expectations (“cautionary statements”) include, but are not limited to:

• our ability to make payments of principal and interest on, or refinance, our substantial indebtedness;

• our reliance on our warehouse facilities, residual facilities, securitization program and credit enhancement arrangements;

• our ability to generate significant amounts of cash to service our debt and fund our operations;

• loss of contractual servicing rights;

• our exposure to the risk of increases in defaults and prepayments of contracts purchased and held by us prior to their securitization and the subsequent performance of receivables held in securitization trusts;

• changes in the delinquency, default and loss rates on the receivables included in each securitization trust;

• failure to implement our business strategy;

• the high degree of risk associated with non-prime borrowers;

• general economic conditions, including wholesale auction values and interest rates;

• our ability to successfully compete in our industry; and

• our ability to maintain the material licenses and permits required for our operations.

     Based upon changing conditions, if any one or more of these risks or uncertainties materialize, or if any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. We do not intend to update these forward-looking statements.

1

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TRIAD FINANCIAL CORPORATION

Consolidated Balance Sheets

	June 30, 2007		December 31, 2006
	(Dollars in thousands)
	(Unaudited)
ASSETS
Cash and cash equivalents	$	62,297	$	60,367
Cash — restricted		310,828		274,059
Finance receivables held for investment, net		3,634,730		3,781,469
Retained interest in securitized assets, net		47,545		102,531
Accounts receivable, net		43,846		50,918
Fixed assets, net of accumulated depreciation of $18,635 in 2007 and $13,913 in 2006		15,948		19,294
Collateral held for resale		15,275		17,072
Capitalized financing costs, net of accumulated amortization of $17,922 in 2007 and $20,826 in 2006		13,549		15,031
Deferred tax asset, net		81,798		63,731
Goodwill		30,446		30,446
Other assets		4,066		3,617
Total assets	$	4,260,328	$	4,418,535
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Revolving credit facilities	$	302,553	$	529,131
Securitization notes payable		3,336,163		3,258,215
Senior notes payable		149,210		149,167
Taxes payable		9,458		3,499
Other liabilities		72,529		72,364
Total liabilities		3,869,913		4,012,376
Commitments and contingencies (Note 12)
Stockholder’s Equity
Preferred stock, no par value; authorized 3,000,000 shares; issued and outstanding none at June 30, 2007 and 1,500,000 shares at December 31, 2006		—		30,000
Common stock, no par value; authorized 9,069 shares; issued and outstanding 9,069 shares at June 30, 2007 and December 31, 2006		—		—
Additional paid in capital		345,000		345,000
Retained earnings		38,334		22,075
Accumulated other comprehensive income		7,081		9,084
Total stockholder’s equity		390,415		406,159
Total liabilities and stockholder’s equity	$	4,260,328	$	4,418,535

The accompanying notes are an integral part of these consolidated financial statements.

2

TRIAD FINANCIAL CORPORATION

Consolidated Statements of Income

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	June 30, 2007		June 30, 2006		June 30, 2007		June 30, 2006
	(Dollars in thousands)
	(Unaudited)
Financing and other interest income	$	158,174	$	138,641	$	319,704	$	249,242
Interest expense		55,711		48,873		110,574		88,777
Net interest margin		102,463		89,768		209,130		160,465
Provision for credit losses		60,225		52,510		122,855		95,042
Net interest margin after provision for credit losses		42,238		37,258		86,275		65,423
Servicing income		2,071		5,978		5,048		13,281
Other income		5,937		8,769		8,596		16,298
Total other revenues		8,008		14,747		13,644		29,579
Operating expenses:
Compensation and employee benefits		22,905		20,196		43,657		38,686
Occupancy and equipment		3,907		3,571		8,049		7,718
Systems and data processing		3,291		3,487		6,628		6,777
Professional services		1,073		1,275		2,607		3,021
Telecommunications		872		809		1,818		1,613
Advertising		1,143		714		1,922		1,080
Other		3,045		5,600		6,525		8,986
Total operating expenses		36,236		35,652		71,206		67,881
Income before income taxes		14,010		16,353		28,713		27,121
Provision for income taxes		5,897		6,387		11,666		10,597
Net income	$	8,113	$	9,966	$	17,047	$	16,524

The accompanying notes are an integral part of these consolidated financial statements.

3

TRIAD FINANCIAL CORPORATION

Consolidated Statements of Cash Flows

	Six Months Ended			Six Months Ended
	June 30, 2007			June 30, 2006
	(Dollars in thousands)
	(Unaudited)
Cash flows from operating activities
Net income	$	17,047		$	16,524
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,450			10,617
Provision for credit losses		122,855			95,042
Deferred income tax benefit		(16,758	)		(20,964	)
Accretion of present value discount		(10,396	)		(14,420	)
Amortization of purchase premium		17,620			35,417
Loss on repurchase of receivables from gain on sale trusts		2,864			—
Changes in operating assets and liabilities
Accounts receivable		7,072			(10,719	)
Other assets		(1,236	)		(119	)
Other liabilities		424			(342	)
Current tax receivable/payable		5,959			(1,238	)
Net cash provided by operating activities		159,901			109,798
Cash flows from investing activities
Distributions from gain on sale trusts		61,915			86,282
Repurchases from gain on sale trusts		(93,712	)		(45,632	)
Purchases of finance receivables held for investment		(669,098	)		(1,596,461	)
Collections on finance receivables held for investment		762,467			589,843
Change in restricted cash		(36,769	)		(83,331	)
Purchases of fixed assets		(1,636	)		(6,269	)
Net cash provided by (used in) investing activities		23,167			(1,055,568	)
Cash flows from financing activities
Net change in warehouse credit facilities		(191,578	)		(298,639	)
Net change in residual credit facilities		(35,000	)		3,000
Net change in due to Ford Motor Credit Company		—			(26,752	)
Issuance of securitization notes		775,100			1,737,882
Payment on securitization notes		(697,152	)		(491,495	)
Capitalized finance costs		(2,508	)		(5,685	)
Issuance of preferred stock		—			30,000
Redemption of preferred stock		(30,000	)		—
Net cash (used in) provided by financing activities		(181,138	)		948,311
Net increase in cash and cash equivalents		1,930			2,541
Cash and cash equivalents
Beginning of period		60,367			45,295
End of period	$	62,297		$	47,836
Supplemental Disclosure
Interest paid	$	111,553		$	86,374
Income taxes paid	$	22,468		$	32,793

The accompanying notes are an integral part of these consolidated financial statements.

4

Triad Financial Corporation

Notes to Consolidated Financial Statements

1. Organization and Nature of Business

     Triad Financial Corporation (the “Company”) was incorporated as a California corporation on May 19, 1989. The Company engages primarily in the business of purchasing and servicing automobile retail installment sales contracts (“Contracts”) originated by automobile dealers located throughout the United States. The Company also originates automobile loans directly to consumers. The Company specializes in providing financing to consumers with limited credit histories, modest incomes or those who have experienced prior credit difficulties, generally referred to as “non-prime” borrowers.

     From June 1999 through April 29, 2005, the Company was a wholly-owned subsidiary of Fairlane Credit, LLC, a wholly-owned subsidiary of Ford Motor Credit Company (“Ford Credit”).

     On April 29, 2005, a newly formed entity, Triad Holdings Inc. (“Triad Holdings”) and its wholly-owned subsidiary, Triad Acquisition Corp., acquired all of the outstanding capital stock of the Company from Fairlane Credit, LLC (the “Acquisition”). As part of the Acquisition, Triad Acquisition Corp. was merged with and into Triad Financial Corporation with the Company being the surviving corporation. Triad Holdings is beneficially owned by Hunter’s Glen/Ford Ltd. and affiliates of Goldman, Sachs & Co. and GTCR Golder Rauner, L.L.C.

     In accordance with the guidelines for accounting for business combinations, the purchase price paid by Triad Holdings, plus related purchase accounting adjustments, have been recorded in our consolidated financial statements for the period subsequent to April 29, 2005. This has resulted in a new basis of accounting reflecting the fair market value of our assets and liabilities for the successor period beginning April 30, 2005.

     As of the acquisition date, we recorded our assets and liabilities at their estimated fair values. The purchase price paid by Triad Holdings plus acquisition and closing costs, exceeded the fair value of net assets acquired, resulting in approximately $30.4 million of goodwill.

2. Accounting Policies

  Basis of Presentation

     The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, all of which are Delaware corporations, Triad Financial Special Purpose Corporation, Triad Financial Special Purpose LLC, Triad Financial Residual Special Purpose LLC, and Triad Financial Warehouse Special Purpose LLC (the “Subsidiaries”). Triad Financial Warehouse Special Purpose LLC includes its wholly-owned subsidiary, Triad Automobile Receivables Warehouse Trust, a Delaware trust.

     The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the results for interim periods. Results for interim periods should not be considered indicative of results for a full year.

     Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

  Cash Equivalents

     Investments in highly liquid securities with original maturities of 90 days or less are included in cash and cash equivalents.

5

  Restricted Cash

     Cash pledged to support securitization transactions and warehouse loan facilities is deposited into restricted accounts and recorded on the Company’s consolidated balance sheets as restricted cash.

  Finance Receivables

     Finance receivables are classified as held for investment and carried at amortized cost, net of an allowance for credit losses, as the Company has the ability and intent to hold these receivables until maturity. Financing income for finance receivables originated and purchased subsequent to the Acquisition is recognized using the interest method based on contractual cash flows. Premiums and discounts and origination costs are deferred and amortized as adjustments to financing income over the estimated life of the related receivables.

     In connection with the Acquisition, the carrying value of our predecessor finance receivables held for investment owned as of the Acquisition was adjusted to fair market value taking into account future expected credit losses and a required rate of return commensurate with the associated risk. The carrying value of our finance receivables repurchased from gain on sale trusts was recorded at fair market value upon repurchase taking into account future expected credit losses and a required rate of return commensurate with the associated risk. Financing income on these receivables includes interest income recognized using the interest method based on contractual cash flows and taking into account expected prepayments and is net of premium amortization.

     The accrual of financing income is suspended on accounts when they are deemed impaired. Accounts are generally deemed impaired when they are 30 days past due. We generally recognize interest income on impaired contracts on a cash basis when received.

  Sale of Receivables

     All securitization transactions executed by the Company subsequent to April 29, 2005 have been accounted for as secured financings in accordance with GAAP. These transaction structures allow the trust to enter into interest rate derivative contracts with respect to retained interests and also allow the servicer the discretion to sell charged-off finance receivable contracts. No charged-off receivables were sold in 2007 or 2006.

     Prior to April 30, 2005, finance receivables were sold in securitization transactions that were accounted for as sales of finance receivables in accordance with GAAP. These transaction structures involved the Company surrendering control over these assets by selling finance receivables to off-balance sheet securitization entities. The securitization entities issued interest-bearing securities collateralized by future collections on the sold receivables.

     Estimated gains or losses from the sale of finance receivables were recognized in the period in which the sale occurred. In determining the gain or loss on each qualifying sale of finance receivables, the investment in the sold receivables pool was allocated between the portions sold and the portions retained based on their relative fair values at the date of sale. The Company retained certain interests in the sold receivables. These retained interests included subordinated certificates, restricted cash and interest-only strips held for the benefit of securitization entities. These retained interests are classified as securities available for sale and are reported at fair value. If there is a decline in fair value and it is judged to be other than temporary, the individual security is written down to fair value and the amount of the write-down is included in earnings. If there is a change in fair value and it is judged to be temporary, the securities are recorded at fair value with unrealized gains and losses recorded, net of tax, as a separate component of accumulated other comprehensive income in stockholder’s equity. In securitization transactions accounted for as a sale of receivables, the Company retains the servicing rights and receives a servicing fee. Since the servicing fee adequately compensates us for retaining the servicing rights, no servicing asset or liability is recorded and the fee is recognized as collected over the remaining term of the related sold finance receivables.

  Allowance for Credit Losses

     The allowance for credit losses is our estimate of incurred credit losses related to held for investment receivables as of the date of the financial statements. This allowance is based on such factors as historical credit loss trends, the credit quality of our present portfolio, trends in historical used vehicle values and general economic measures.

6

Finance receivables are charged to the allowance for credit losses when an account is deemed to be uncollectible. This charge takes into account the estimated value of any collateral. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses.

     Charge-offs on predecessor finance receivables held for investment and finance receivables repurchased from gain on sale trusts are charged against the Company’s probable future expected credit losses established as a component of the asset’s net carrying value.

  Charge-Off Policy

     Our policy is to charge off owned receivables in the month in which the borrowers become 120 days contractually delinquent if we have not previously repossessed the related vehicle. If a vehicle has been repossessed, and the underlying contract is an owned receivable, we charge off the underlying receivable upon repossession, taking into account the estimated value of our collateral, with a reconciliation upon liquidation. For sold receivables, the debt is charged off upon liquidation of the collateral. The net charge-off represents the difference between the actual net sales proceeds and the amount of the delinquent contract, including accrued interest, on our owned receivables. Accrual of finance charge income is suspended on accounts that are more than 30 days contractually delinquent.

  Derivative Financial Instruments

     In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, our interest rate swap agreements outstanding are recognized on our consolidated balance sheet at fair value with changes in the value recorded in earnings as a component of other income. Fair value is calculated using current market rates for similar instruments with the same remaining maturities.

  Fixed Assets

     Fixed assets are carried at cost less accumulated depreciation. Fixed assets owned as of the acquisition date were adjusted to fair market value and are being depreciated over their remaining useful lives.

     Depreciation is calculated principally on the straight-line method over their remaining useful lives of the assets as follows:

Equipment	3-5 years
Software	3-5 years
Furniture and fixtures	5 years

     Depreciation expense totaled $2.3 million and $1.9 million for the three months ended June 30, 2007 and 2006, respectively. Depreciation expense was $4.7 million and $4.1 million for the six months ended June 30, 2007 and 2006, respectively.

     Leasehold improvements are stated at cost and depreciated over the useful lives of the improvements or term of the lease, whichever is less.

     Upon sale or retirement, the cost of assets and related accumulated depreciation is eliminated from the respective accounts, and the resulting gain or loss is included in operations. Repairs and maintenance expenses are charged to operations as incurred.

  Goodwill

     In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, the Company reviews its goodwill for impairment annually and when events or changes in circumstances indicate the carrying amount may not be recoverable. Management evaluates the recoverability of goodwill by comparing the carrying value of the Company’s only reporting unit to its fair value.

7

  Income Taxes

     The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, resulting in two components of income tax expense; current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled.

     Effective January 1, 2007, the Company accounts for uncertainty in income taxes recognized in the financial statements in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 requires that a more likely than not threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It also provides guidance on derecognition, measurement, classification, interest and penalties, interim accounting periods, disclosure and transition. FIN 48 requires that the new standard be applied to the balances of the assets and liabilities as of the beginning of the period of adoption and that any corresponding adjustment be made to the opening balance of retained earnings. The Company’s adoption of FIN 48 is further described in Note 11.

  Stock-Based Compensation

     Effective July 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”, revised 2004, (“SFAS 123R”) prospectively for all awards granted, modified or settled after June 30, 2005. The Company adopted the standard by using the modified prospective method which is one of the adoption methods provided in the statement. SFAS 123R, which revised Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, requires that the cost resulting from all share-based payment transactions be measured at fair value and recognized in the financial statements. Additionally, on July 1, 2005, the Company adopted Staff Accounting Bulletin No. 107 “Share-Based Payment”, which the SEC issued in March 2005 to provide its view on the valuation of share-based payment arrangements for public companies.

  Use of Estimates

     The preparation of the financial statements, in conformity with generally accepted accounting principles, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates. The primary estimates inherent within these financial statements include the market value adjustments recorded in connection with purchase accounting, the allowance for credit losses and the fair value of retained interests in securitized assets.

8

3. Finance Receivables

     Finance receivables at June 30, 2007 and December 31, 2006 are summarized as follows:

	2007			2006
	(Dollars in thousands)
Finance receivables held for investment	$	3,108,893		$	3,045,938
Premiums and discounts, net		(5,031	)		(7,699	)
Deferred costs, net		24,302			26,325
Finance receivables held for investment, gross		3,128,164			3,064,564
Allowance for credit losses		(219,501	)		(195,000	)
Finance receivables held for investment, net		2,908,663			2,869,564
Predecessor finance receivables held for investment, net		639,375			849,246
Finance receivables repurchased from gain on sale trusts, net		86,692			62,659
Finance receivables, net	$	3,634,730		$	3,781,469

     The aggregate unpaid principal balances of all owned finance receivables more than 60 days past due were $129.7 million at June 30, 2007 and $97.3 million at December 31, 2006.

     The activity in the predecessor finance receivables held for investment for the periods indicated is summarized as follows:

	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)
Balance, December 31, 2006	$	1,246,836		$	(253,238	)	$	993,598		$	(144,352	)	$	849,246
Interest income		(63,537	)		—			(63,537	)		48,034			(15,503	)
Principal collections		(194,368	)		—			(194,368	)		—			(194,368	)
Charge-offs, net of sales proceeds and recoveries		(25,057	)		25,057			—			—			—
Reclassifications		—			1,817			1,817			(1,817	)		—
Change in cash flows		(36,975	)		36,975			—			—			—
Balance, June 30, 2007	$	926,899		$	(189,389	)	$	737,510		$	(98,135	)	$	639,375

	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)
Balance, December 31, 2005	$	2,220,192		$	(524,710	)	$	1,695,482		$	(227,072	)	$	1,468,410
Interest income		(109,557	)		—			(109,557	)		75,945			(33,612	)
Principal collections		(318,135	)		—			(318,135	)		—			(318,135	)
Charge-offs, net of sales proceeds and recoveries		(33,707	)		33,707			—			—			—
Reclassifications		—			102,268			102,268			(102,268	)		—
Change in cash flows		(84,124	)		84,124			—			—			—
Balance, June 30, 2006	$	1,674,669		$	(304,611	)	$	1,370,058		$	(253,395	)	$	1,116,663

9

     The activity in the finance receivables repurchased from gain on sale trusts for the periods indicated is summarized as follows:

	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)
Balance, December 31, 2006	$	70,453		$	(4,137	)	$	66,316		$	(3,657	)	$	62,659
Finance receivables repurchased		103,295			(8,011	)		95,284			(5,795	)		89,489
Interest income		(9,420	)		—			(9,420	)		7,304			(2,116	)
Principal collections		(63,340	)		—			(63,340	)		—			(63,340	)
Charge-offs, net of sales proceeds and recoveries		(2,155	)		2,155			—			—			—
Reclassifications		—			4,180			4,180			(4,180	)		—
Change in cash flows		2,279			(2,279	)		—			—			—
Balance, June 30, 2007	$	101,112		$	(8,092	)	$	93,020		$	(6,328	)	$	86,692

	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
							(Dollars in thousands)
Balance, December 31, 2005	$	—		$	—		$	—		$	—		$	—
Finance receivables repurchased		49,846			(6,028	)		43,818			(2,179	)		41,639
Interest income		(3,219	)		—			(3,219	)		1,414			(1,805	)
Principal collections		(20,191	)		—			(20,191	)		—			(20,191	)
Charge-offs, net of sales proceeds and recoveries		(1,525	)		1,525			—			—			—
Reclassifications		—			2,455			2,455			(2,455	)		—
Change in cash flows		355			(355	)		—			—			—
Balance, June 30, 2006	$	25,266		$	(2,403	)	$	22,863		$	(3,220	)	$	19,643

     During the first six months of 2007 and 2006, expected cash flows from predecessor finance receivables held for investment and receivables repurchased from gain on sale trusts were reevaluated and determined to be greater than originally expected. This resulted in a reclassification of cash flows from nonaccretable discount to accretable discount. This also resulted in a higher net yield being recognized on these receivables, which is expected to continue in future periods.

4. Allowance For Credit Losses

     The changes in the allowance for credit losses for the periods indicated are summarized as follows:

	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Dollars in thousands)
Balance, beginning of period	$	208,077		$	82,962
Provision for credit losses		60,225			52,510
Charge-offs, net of sales proceeds		(55,018	)		(16,577	)
Recoveries		6,217			728
Balance, end of period	$	219,501		$	119,623

10

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Dollars in thousands)
Balance, beginning of period	$	195,000		$	51,259
Provision for credit losses		122,855			95,042
Charge-offs, net of sales proceeds		(109,846	)		(27,873	)
Recoveries		11,492			1,195
Balance, end of period	$	219,501		$	119,623

     The allowance for credit losses is maintained at a level adequate to cover probable credit losses related to impaired receivables originated subsequent to April 29, 2005 and classified as held for investment as of the date of the financial statements, taking into account the credit quality of the portfolio, historical credit loss trends, trends in projected used car values and general economic factors.

     The carrying value of Predecessor Finance Receivables Held For Investment were adjusted to fair market value taking into account future expected credit losses and a required rate of return commensurate with the associated risk.

5. Sales of Receivables

  Servicing Portfolio

     The Company retains servicing rights for receivables sold in securitization transactions meeting the criteria for sales of receivables. The activity in the servicing portfolio for the periods indicated are summarized as follows:

	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Dollars in thousands)
Balance, beginning of period	$	322,579		$	917,878
Collections and write-offs		(52,671	)		(139,096	)
Balance, end of period	$	269,908		$	778,782

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Dollars in thousands)
Balance, beginning of period	$	484,818		$	1,130,352
Called receivables		(93,712	)		(45,632	)
Collections and write-offs		(121,198	)		(305,938	)
Balance, end of period	$	269,908		$	778,782

     The aggregate unpaid principal balances of sold finance receivables more than 60 days past due were $11.8 million at June 30, 2007 and $18.0 million at December 31, 2006. Credit losses, net of recoveries, totaled $4.1 and $10.6 million for the three and six months ended June 30, 2007, respectively, as compared to $10.7 million and $28.2 million for the three and six months ended June 30, 2006, respectively

11

  Retained Interest in Securitized Assets

     The components of the retained interest in securitized assets, carried at fair value, at June 30, 2007 and December 31, 2006 are summarized as follows:

	2007			2006
	(Dollars in thousands)
Restricted cash held for the benefit of securitizations		35,225			57,751
Overcollaterization receivable		35,088			63,026
Interest-only		746			2,257
Retained interest in securitized assets, gross	$	71,059		$	123,034
Payable to Ford Credit		(23,514	)		(20,503	)
Retained interest in securitized assets, net	$	47,545		$	102,531

     The Company’s retained interests in securitization transactions includes the value associated with future cash flows generated from overcollateralization and any excess spread amounts. Overcollateralization receivable represents the difference between securitized receivables outstanding and notes outstanding.

     Retained interests in securitized assets are recorded at fair value. The fair value of retained interests is determined based on calculating the present value of the projected cash flows to be received using management’s best estimates of key assumptions, including discount rate, prepayment rate and credit losses.

     Retained interests in securitized assets is net of an estimated amount owed to Ford Credit pursuant to a contractual agreement entered into with Ford Credit at the closing of the Acquisition. We believe the present value of the payment that will be due to Ford Credit pursuant to the agreement will be approximately $23.5 million. The exact amount of this payment will not be known until the last of five securitizations entered into by the Company prior to the Acquisition are called. The Company anticipates that this will occur, at the earliest, in the second quarter of 2008. The exact amount of the financial payment to Ford Credit will be dependent upon, among other things, the performance of the contracts and loans in the respective pools and the net collections ultimately received on those loans.

     Accrued servicing fees due from the securitization trusts are included in accounts receivable in our consolidated balance sheets. The amount of accounts receivable representing receivables from securitization trusts totaled $9.0 million at June 30, 2007 and $9.7 million at December 31, 2006.

     The activity in the retained interest in securitized assets for the periods indicated are summarized as follows:

										Retained						Retained
										Interest in						Interest in
	Restricted			Over-			Interest-			Securitized			Payable to			Securitized
	Cash			Collateralization			Only			Assets, Gross			Ford Credit			Assets, Net
	(Dollars in thousands)
Balance, December 31, 2006	$	57,751		$	63,026		$	2,257		$	123,034		$	(20,503	)	$	102,531
Distributions		(22,526	)		(21,091	)		(5,442	)		(49,059	)		—			(49,059	)
Residual interest income		—			—			6,795			6,795			(583	)		6,212
Unrealized losses		—			—			(2,108	)		(2,108	)		(433	)		(2,541	)
Balance, March 31, 2007	$	35,225		$	41,935		$	1,502		$	78,662		$	(21,519	)	$	57,143
Distributions		—			(6,847	)		(6,009	)		(12,856	)		—			(12,856	)
Residual interest income		—			—			5,056			5,056			(872	)		4,184
Unrealized losses		—			—			197			197			(1,123	)		(926	)
Balance, June 30, 2007	$	35,225		$	35,088		$	746		$	71,059		$	(23,514	)	$	47,545

12

										Retained						Retained
										Interest in						Interest in
	Restricted			Over-			Interest-			Securitized			Payable to			Securitized
	Cash			Collateralization			Only			Assets, Gross			Ford Credit			Assets, Net
	(Dollars in thousands)
Balance, December 31, 2005	$	80,298		$	150,283		$	(7,556	)	$	223,025		$	(6,073	)	$	216,952
Distributions		(9,360	)		(32,121	)		(10,151	)		(51,632	)		—			(51,632	)
Residual interest income		—			—			8,295			8,295			(124	)		8,171
Unrealized losses		—			—			3,021			3,021			(1,745	)		1,276
Balance, March 31, 2006	$	70,938		$	118,162		$	(6,391	)	$	182,709		$	(7,942	)	$	174,767
Distributions		—			(17,853	)		(16,798	)		(34,651	)		—			(34,651	)
Residual interest income		—			—			6,571			6,571			(322	)		6,249
Unrealized losses		—			—			24,081			24,081			(11,862	)		12,219
Balance, June 30, 2006	$	70,938		$	100,309		$	7,463		$	178,710		$	(20,126	)	$	158,584

     At June 30, 2007, the key assumptions utilized in determining fair value of our retained interest in securitized assets include a discount rate of 16%, an ABS rate, which represents the average monthly total reduction of principal, of 1.35 to 1.40 and an expected cumulative lifetime loss of 10.5% to 11.3%.

     The Company has not presented the expected weighted average life assumption used in determining the gain on sale and in measuring the fair value of retained interest in securitized assets due to the stability of this attribute over time. A significant portion of the Company’s prepayment experience relates to defaults that are considered in the cumulative lifetime loss assumption. The Company’s voluntary prepayment experience on its gain on sale receivables portfolio typically has not fluctuated significantly with changes in market interest rates or other economic or market factors.

6. Revolving Credit Facilities

     Amounts outstanding under our warehouse and residual loan facilities at June 30, 2007 and December 31, 2006 are summarized as follows:

	2007		2006
	(Dollars in thousands)
Warehouse loan facilities	$	242,553	$	434,131
Residual loan facilities		60,000		95,000
Total revolving credit facilities	$	302,553	$	529,131

     Facility amount advances outstanding and collateral pledged under our warehouse and residual loan facilities at June 30, 2007 are summarized as follows:

	Facility		Collateral		Advances
	Amount		Pledged		Outstanding
	(Dollars in thousands)
Warehouse loan facility, due April 2009	$	625,000	$	146,734	$	126,243
Residual loan facility, due April 2009		125,000		211,520		30,000
Warehouse loan facility, due October 2007(a)		625,000		136,582		116,310
Residual loan facility, due October 2007(a)		125,000		211,520		30,000
					$	302,553

(a) Warehouse and residual loan facilities provided by Goldman Sachs Mortgage Company, an affiliate of one of our equity investors.

13

     Our warehouse loan facilities each provide for borrowings up to $750.0 million less amounts drawn on each of our corresponding residual facilities. Our residual loan facilities each provide for borrowings up to $125.0 million. Each of our warehouse and residual loan facilities bear interest at a floating rate. At June 30, 2007, the interest rate on our two warehouse loan facilities was 5.80% and the interest rate on our two residual loan facilities was 7.85%.

     Under the terms of our revolving credit facilities, the Company transfers eligible collateral, including finance receivables and retained interests in securitized assets, to special purpose finance subsidiaries of the Company. These subsidiaries pledge collateral to secure advances under the facilities, pursuant to advance formulas and available credit. These subsidiaries then forward funds to the Company in consideration for the transfer of eligible collateral. While these subsidiaries are included in the Company’s consolidated financial statements, these subsidiaries are separate legal entities and the collateral and other assets held by these subsidiaries are legally owned by these subsidiaries and are not available to creditors of the Company or its other subsidiaries.

     The Company’s warehouse and residual loan facility agreements also contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios, including net loss, delinquency and repossession ratios. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interest against collateral pledged under these agreements or restrict the Company’s ability to obtain additional borrowings under these agreements. As of June 30, 2007, the Company was in compliance with all covenants under its warehouse and residual loan facility agreements.

     Capitalized financing costs with an unamortized balance of $1.2 million at June 30, 2007 are being amortized over the contractual terms of the warehouse and residual loan facilities. These capitalized financing costs consist primarily of unamortized fees paid to Goldman Sachs Mortgage Company, an affiliate of one of our equity investors. Interest expense for the three and six months ended June 30, 2007 includes $3.2 million and $8.1 million, respectively, of expense incurred to Goldman Sachs Mortgage Company. Interest expense for the three and six months ended June 30, 2006 includes $4.4 million and $7.4 million, respectively, of expense incurred to Goldman Sachs Mortgage Company.

7. Securitization Notes Payable

     Securitization notes payable represent debt issued by the Company in securitization transactions accounted for as secured financings. Securitization notes payable outstanding at June 30, 2007 are summarized as follows:

			Original
			Weighted			Collateral		Note
	Original		Average			Pledged		Balance
	Note		Interest			at		at
Transaction	Amount		Rate			June 30, 2007		June 30, 2007
(Dollars in thousands)
2005-A, due June 12, 2012(a)	$	1,104,000		4.09	%	$	427,455	$	395,882
2005-B, due April 12, 2013(a)	$	905,303		4.32	%	$	386,628	$	354,155
2006-A, due April 12, 2013(a)	$	822,500		4.88	%	$	484,894	$	436,857
2006-B, due November 12, 2012(a)	$	915,500		5.50	%	$	631,174	$	579,122
2006-C, due May 13, 2013(a)	$	1,092,200		5.37	%	$	894,054	$	820,547
2007-A, due February 12, 2014(a)	$	775,110		5.34	%	$	807,716	$	749,600
								$	3,336,163

(a) Maturity date represents final legal maturity of securitization notes payable. Securitization notes payable are expected to be paid based on amortization of the finance receivables pledged to the Trusts.

14

     Under the terms of our securitization transactions, the Company transfers finance receivables to special purpose finance subsidiaries of the Company. While these subsidiaries are included in the Company’s consolidated financial statements, these subsidiaries are separate legal entities and the collateral and other assets held by these subsidiaries are legally owned by these subsidiaries and are not available to creditors of the Company or its other subsidiaries.

     Capitalized financing costs with an unamortized balance of $8.0 million at June 30, 2007 are being amortized over the expected term of the securitization transactions. Capitalized financing costs include $2.1 million in remaining unamortized underwriting fees paid to Goldman, Sachs & Co., an affiliate of one of our equity investors.

     All of the Company’s securitization transactions are covered by financial guaranty insurance policies, which agreements provide that if certain portfolio performance ratios (delinquency or cumulative net loss triggers) in a Trust’s pool of receivables exceeded certain targets, the specified credit enhancement levels would be increased by increasing the required spread account level.

     Agreements with the Company’s guarantee insurance providers contain additional specified targeted portfolio performance ratios. If, at any measurement date, the targeted portfolio performance ratios with respect to any insured Trust were to exceed these additional levels, provisions of the agreements permit the Company’s guaranty insurance providers to terminate the Company’s servicing rights to the receivables sold to that Trust. These financial guaranty insurance policies also contain minimum financial ratio requirements. As of June 30, 2007, the Company was in compliance with its agreements with its guarantee insurance providers.

8. Senior Notes Payable

     On April 29, 2005, Triad Acquisition Corp. issued $150.0 million of Senior Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, to certain accredited investors pursuant to Rule 501 under the Securities Act, and to non-U.S. persons in reliance on Regulation S under the Securities Act. The Notes also included a registration rights agreement requiring the Company to file a registration statement under the Securities Act and to consummate an exchange offer after the effective date of the registration statement. The exchange offer was consummated on January 9, 2006. In connection with the Acquisition, Triad Acquisition Corp. was merged with and into Triad Financial Corporation.

     The Notes have a stated coupon of 11.125% and were issued at a discount to yield 11.25%. The Notes mature on May 1, 2013 but can be redeemed, in whole or in part, on or after May 1, 2010, at specified redemption prices, and on or after May 1, 2012, at par value.

     Capitalized financing costs with an unamortized balance of $4.3 million at June 30, 2007 are being amortized over the contractual term of the notes. Capitalized financing costs include $3.0 million in remaining unamortized fees paid to Goldman, Sachs & Co., an affiliate of one of our equity investors.

9. Preferred Stock

     On June 30, 2006, the Company sold 1,500,000 shares of Non-Voting Preferred Stock to Triad Holdings for an aggregate purchase price of $30,000,000 in cash. No underwriting discounts or commissions were paid. The Non-Voting Preferred Stock was issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act based on Triad Holdings investment intent, financial and business matters sophistication and other typical investment representations. These shares are restricted securities and may not be resold unless registered under the Securities Act or exempted from the registration requirements thereof. The shares of Non-Voting Preferred Stock are not convertible or exchangeable into the Company’s Common Stock. The shares of Non-Voting Preferred Stock are not redeemable at the option of any holder of Non-Voting Preferred Stock. To the extent declared by the board of directors of the Company, quarterly dividends are payable at an annual rate of 10.5%. Triad Holdings pledged its Non-Voting Preferred Stock of Triad Financial Corporation to secure its loan with Citigroup Global Markets Realty Corp. The Non-Voting Preferred Stock was redeemed at par on April 27, 2007.

     For the six months ended June 30, 2007, the Company declared and settled through intercompany transactions dividends of $787,500 based on an annual rate of 10.5% to Triad Holdings.

15

10. Derivative Financial Instruments

     At June 30, 2007, the Company had interest rate swap agreements with external third parties with underlying notional amounts of $407.6 million. These agreements represent a net fair value of $0.3 million at June 30, 2007 and are included in other assets. Other income for the three and six months ended June 30, 2007 included $1.0 million and $0.2 million, respectively, in gains on our interest rate swap agreements. Other income for the three and six months ended June 30, 2006 included $3.6 million and $5.6 million, respectively in gains on our interest rate swap agreements. Goldman, Sachs & Co., an affiliate of one of our equity investors, was the counterparty to all of the Company’s interest rate swap agreements.

11. Income Taxes

     On January 1, 2007, the Company adopted the provisions of FIN 48. Upon adoption of FIN 48, the Company identified certain tax positions for which deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. As a result, the Company reclassified approximately $3.4 million of tax benefit from its deferred tax liability to its FIN 48 current tax liability. There were no material changes to the amount of the Company’s FIN 48 current tax liability during the three or six months ended June 30, 2007. This amount, if recognized, would have no impact on the Company’s effective tax rate.

     The Company’s policy is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. At June 30, 2007, the Company had accrued $650,000 for the potential payment of interest in accordance with FIN 48.

     The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. All tax periods subsequent to the Acquisition are open to examination by the Internal Revenue Service and the states to which we are subject to tax.

12. Commitments and Contingencies

     Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against the Company and its subsidiaries. As a consumer finance company, the Company is 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, breach of contract and discriminatory treatment of credit applicants. Some litigation against the Company could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, the Company 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.

     Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance and it is reasonably possible that some of the foregoing matters could be decided unfavorably to the Company or the subsidiary involved. Although the amount of liability at June 30, 2007 with respect to these matters cannot be ascertained, the Company believes that any resulting liability should not materially affect the consolidated financial position, results of operations or cash flows of the Company and its subsidiaries.

     Under the management agreement among the Company, Triad Holdings LLC (98.9% owner of Triad Holdings), Triad Holdings and Hunter’s Glen/Ford Ltd., the parties engaged Hunter’s Glen/Ford as a financial and management consultant. During the term of the engagement, Hunter’s Glen/Ford will provide Gerald J. Ford to serve as the chief executive officer of Triad LLC and executive chairman of the Company as specified in the agreement and will provide Carl B. Webb and J. Randy Staff, or similarly qualified individuals, to furnish a portion of the services required by the management agreement. The Company agreed to pay Hunter’s Glen/Ford Ltd a management fee of $1.5 million per annum for the services described above.

16

     In December 2006, the Company entered into an agreement with Kevin Harvick, Inc. regarding the sponsorship of a Busch Series race car for the 2007 racing season. Under the terms of that agreement, the Company will pay $2.5 million in sponsorship fees in 2007. At June 30, 2007, the Company has a remaining obligation of approximately $1.1 million under this agreement.

     At June 30, 2007, the Company has accrued approximately $1.6 million for an anticipated payment to a former chief executive officer for the repurchase of his option shares vested as of his July 2005 termination date.

     The Company’s operations are conducted from leased facilities under noncancellable lease agreements accounted for as operating leases. The Company also leases certain equipment. Rental expense charged to operations totaled $1.0 million and $2.1 million for the three and six months ended June 30, 2007, respectively. Rental expense charged to operations totaled $0.9 million and $2.2 million for the three and six months ended June 30, 2006, respectively.

     Future minimum rental commitments under all noncancellable leases at June 30, 2007 are summarized as follows:

	(Dollars in thousands)
Year ending December 31,
2007	$	1,977
2008	$	2,524
2009	$	2,299
2010	$	2,371
2011	$	2,371
2012 and thereafter	$	2,174

     In July 2007, the Company entered into a renewal and extension agreement for a portion of the space currently occupied by the Company in Huntington Beach, California.

13. Comprehensive Income

     Comprehensive income for the period indicated is summarized as follows:

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Dollars in thousands)
Net income	$	17,047		$	16,524
Other comprehensive income, net
Unrealized holding gains on available for sale securities (net of tax of $676 and $5,376)		1,036			8,231
Net unrealized holding gains reclassified into earnings (net of tax of $1,985, and $44)		(3,039	)		(68	)
Total other comprehensive income, net		(2,003	)		8,163
Comprehensive income	$	15,044		$	24,687

     The changes in accumulated other comprehensive income for the six months ended June 30, 2007 and 2006 are summarized as follows:

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2007			2006
	(Dollars in thousands)
Balance, beginning of period	$	9,084		$	1,849
Current period change		(2,003	)		8,163
Balance, end of period	$	7,081		$	10,012

17

14. Stock-Based Compensation

     Following the closing of the Acquisition, Triad Holdings adopted a stock plan under which employees, officers, directors and consultants of the Company could be granted options to purchase shares of Triad Holdings’ common stock. The maximum number of shares available for grant is equal to approximately 8% of the fully diluted shares of Triad Holdings. The stock options vest annually, generally at the rate of 20% per year, provided the grantees continue to provide services to the Company. All options not exercised expire ten years after the date of grant.

     Because the Company is considered to be nonpublic under SFAS 123R, the Company elected to use the formula value (book value) method to calculate compensation expense, in which the Company remeasures its liability each period. The awards are liability-classified based on a repurchase feature of the option agreements. The Company has elected to use a straight-line vesting attribution method for awards granted upon its adoption of SFAS 123R.

     The Company recorded compensation expense of $0.4 million and $0.3 million for stock-based employee compensation for the three and six months ended June 30, 2007. No expense was recorded during the three and six months ended June 30, 2006. The Company granted 12,000 and 212,000 options during the three and six months ended June 30, 2007, respectively. The Company granted 1.0 million options during the six months ended June 30, 2006. No options were granted during the three months ended June 30, 2006.

     A summary of stock option activity under the Company’s stock option plan for the periods indicated is summarized as follows:

				Weighted-
				Average
				Exercise
	Shares			Price
	(Amounts in thousands except
	weighted-average
	exercise price)
Outstanding at March 31, 2007		3,038		$	7.62
Granted		12			8.33
Canceled		(75	)		7.55
Forfeited		—			—
Outstanding at June 30, 2007		2,975		$	7.63
Outstanding at December 31, 2006		2,988		$	7.58
Granted		212			8.30
Canceled		(75	)		7.55
Forfeited		(150	)		7.59
Outstanding at June 30, 2007		2,975		$	7.63
Exercisable at June 30, 2007		1,518		$	7.58
Weighted-average remaining contractual life in years					8.46
Outstanding at March 31, 2006		3,000		$	7.58
Granted		—			—
Canceled		—			—
Forfeited		—			—
Outstanding at June 30, 2006		3,000		$	7.58
Outstanding at December 31, 2005		2,000		$	7.50
Granted		1,000			7.73
Canceled		—			—
Forfeited		—			—
Outstanding at June 30, 2006		3,000		$	7.58

18

15. Subsequent Event

     In July 2007, the Company announced that it would be transitioning certain functions from its Huntington Beach, California facility to its North Richland Hills, Texas facility. These functions include loss recovery, remarketing, risk management, human resources and corporate legal. The Company also announced that it would be designating North Richland Hills, Texas as its corporate headquarters.

     This transition is expected to be substantially completed by the end of 2007. The Company expects to take charges totaling approximately $7.5 million during the third and fourth quarters of 2007 related to this transition.

19

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     From June 1999 through April 29, 2005, the Company was a wholly owned subsidiary of Fairlane Credit, LLC, a wholly-owned subsidiary of Ford Motor Credit Company, or “Ford Credit”. On April 29, 2005, a newly formed entity, Triad Holdings Inc. and its wholly-owned subsidiary, Triad Acquisition Corp., acquired all of the outstanding capital stock of the Company from Fairlane Credit, LLC, or the “Acquisition”. As part of the Acquisition, Triad Acquisition Corp. was merged with and into Triad Financial Corporation with the Company being the surviving corporation.

     In accordance with the guidelines for accounting for business combinations, the purchase price paid by Triad Holdings Inc. plus related purchase accounting adjustments have been pushed-down and recorded in our financial statements for the period subsequent to April 29, 2005. This has resulted in a new basis of accounting reflecting the fair market value of our assets and liabilities for the successor period beginning April 30, 2005.

     The statements in the discussion and analysis regarding our expectations regarding the performance of our business, our liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any of these forward-looking statements.

General

     Historically, we have generated earnings and cash flow primarily from the purchase, origination, retention, subsequent securitization and servicing of automobile installment contracts. We purchase auto finance contracts from franchised and select independent automobile dealerships and originate auto loans directly to consumers. As used in this document, “contracts” include retail installment contracts originated by dealers and purchased by us and note and security agreements evidencing loans made directly by us to consumers. To fund the purchase and origination of receivables, we rely upon warehouse and residual credit facilities. Prior to the Acquisition, we relied upon lines of credit, including advances from Ford Credit since we were acquired by a subsidiary of Ford Motor Company in June 1999. During the period from June 1999 through July 2002, we did not securitize any auto receivables and held all auto receivables in our portfolio. Since August 2002, we have completed eleven securitizations of auto receivables. Prior to our May 2005 securitization transaction, all of our securitizations were accounted for as sales in accordance with accounting principles generally accepted in the United States of America, or “GAAP”.

     We periodically sell receivables to securitization trusts, or “Trusts,” that, in turn, sell asset-backed securities to investors. For all securitizations accounted for as sales, we recognized a gain upon the sale of receivables to the Trusts, which represented the difference between the sale proceeds to us, net of transaction costs, and our net carrying value of the receivables, plus the present value of the estimated future excess cash flows to be received by us over the life of the securitization. Excess cash flows result from the difference between the interest received from the obligors on the receivables and the interest paid to investors in the asset-backed securities, net of credit losses and expenses. Excess cash flows from the Trusts are initially utilized to fund credit enhancement requirements in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. Once predetermined credit enhancement requirements are reached and maintained, excess cash flows are distributed to us. In addition to excess cash flows, we earn monthly base servicing fee income of 2.25% per annum on the outstanding principal balance of receivables securitized, or “sold receivables,” and collect other fees such as late charges and extension fees as servicer for those Trusts.

     Beginning with our May 2005 securitization, we made a decision to alter the structure of our securitization transactions to no longer meet the criteria for sales of auto receivables, but instead to meet the criteria for on-balance sheet reporting. Accordingly, following a securitization accounted for as a secured financing, the receivables and the related securitization indebtedness will remain on our balance sheet. We recognize finance revenue and fee income on the receivables and interest expense on the securities issued in the securitization and record a provision for credit losses over the life of the securitization. The principal changes to our securitization structures that result in the differing accounting treatment include the right of the trust to enter into interest rate derivative contracts with respect to retained interests and also allows the servicer to sell charged-off finance receivable contracts. Provisions such as

20

these preclude the use of sale treatment in accordance with Statement of Financial Accounting Standards, or “SFAS”, No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”.

Critical Accounting Policies and Use of Estimates

     Critical accounting policies and use of estimates are fully described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operations” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and there have been no material changes.

Components of Revenues and Expenses

     Most of our revenues are generated from the purchase and origination of receivables, other interest income, and securitization and servicing of our automobile installment contracts. Our revenues include financing revenue, other interest income, income related to sales of receivables and other income. We earn financing revenue from contracts we purchase and originate. Other interest income includes: (1) residual interest income on the retained interest in securitized assets we retain from securitization transactions, and (2) income on our restricted cash accounts. Our servicing income includes: (1) the base servicing fee income we receive from the Trusts for servicing the receivables in those Trusts and (2) the supplemental servicing fee income we receive from servicing the receivables in those Trusts. Our other income includes fees we collect on receivables, such as late charges, extension fees, proceeds from sales of gap insurance and extended service contracts, referral fees received from other lenders and payment convenience fees. Our other income also includes gains and losses on our interest rate swap agreements and gains and losses related to the repurchase of receivables from gain on sale trusts.

     Our costs and expenses consist of interest expense, operating expenses, provision for credit losses and provision for income taxes. Our interest expense is the amount of interest and fees we pay on borrowings used to finance our purchase and origination of receivables and working capital needs. Our operating expenses represent costs associated with operating our dealer and direct channels and servicing our receivables, including rent and occupancy expense, compensation expense and servicing costs. Our provision for credit losses represents the charge necessary to maintain our allowance for credit losses at a level considered adequate to cover probable credit losses on receivables that are held for investment and originated subsequent to April 29, 2005.

Results of Operations

  Three Months Ended June 30, 2007 as Compared to Three Months Ended June 30, 2006

     Our net income was $8.1 million for the three months ended June 30, 2007, compared to $10.0 million for 2006. The decrease in net income was primarily due to a higher provision for credit losses and a decline in revenue from other sources, partially offset by higher net interest margin.

     Net Interest Margin

     Our revenues are primarily generated from the purchase, origination, retention, subsequent securitization and servicing of auto receivables. Our average owned finance receivables outstanding are summarized as follows:

	For the Three Months Ended
	June 30,
	2007		2006
	(Dollars in thousands)
Average owned finance receivables, carrying value	$	3,878,415	$	3,369,959

     Average owned finance receivables increased by 15.1% for the three months ended June 30, 2007 as compared to 2006. This increase was primarily attributable to an increased level of loan originations during 2006. The Company purchased and originated $2,650.3 million of auto contracts during 2006. We purchased and originated $358.8 million of auto contracts during the second quarter of 2007, compared to $851.0 million during same period last year. This decrease was primarily due to lower levels of originations in our dealer channel. In response to higher

21

than expected losses on receivables originated during 2006, we modified our contract origination strategy to better manage our credit risk, which resulted in lower volume levels during the first six months of 2007.

     The average new contract size was $18,931 for the three months ended June 30, 2007, compared to $18,756 for 2006. The average annual percentage rate on contracts purchased and originated was 16.4% and 17.2% during the three months ended June 30, 2007 and 2006, respectively. This decrease was due to an increased concentration of contracts from our direct channel during 2007, which had a lower weighted-average coupon. Our yields were also impacted by the implementation of new proprietary scorecards for the direct channel during the first quarter of 2007 combined with new pricing strategies within the direct channel designed to attract customers with higher expected credit quality. Our proprietary scorecards are designed to enable us to tailor each contract’s pricing to a statistical assessment of the underlying credit risk. We created our credit scoring system from our consumer demographic and portfolio performance databases.

     Net interest margin on our owned finance receivables is summarized as follows:

	For the Three Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Financing income	$	150,608		$	130,247
Other interest income		7,566			8,394
Interest expense		(55,711	)		(48,873	)
Net interest margin	$	102,463		$	89,768
Annualized financing income as a percentage of average owned finance receivables		15.5	%		15.5	%

     The 14.1% increase in net interest margin for the three months ended June 30, 2007 as compared to 2006 was due to an increase in financing income, partially offset by an increase in interest expense and a decrease in other interest income. Net interest margin included $8.6 million and $14.6 million of premium amortization for the three months ended June 30, 2007 and 2006, respectively, related to our predecessor finance receivables held for investment and our receivables repurchased from gain on sale trusts.

     The increase in financing income was primarily due to an increase in our average owned receivables. Effective April 30, 2005, we adjusted predecessor finance receivables held for investment to fair market value, taking into account future expected credit losses and a required rate of return commensurate with the associated risk in connection with the purchase transaction. Financing income was reduced by $8.6 million and $14.6 million of premium amortization for the three months ended June 30, 2007 and 2006, respectively, related to these receivables and receivables repurchased from gain on sale trusts. Excluding the premium amortization, the average yield on receivables for the three months ended June 30, 2007 and 2006 would have been 16.4% and 17.2%, respectively.

     During the first six months of 2007 and 2006, expected cash flows from predecessor finance receivables held for investment and receivables repurchased from gain on sale trusts were reevaluated and determined to be greater than originally expected. This resulted in a reclassification of cash flows from nonaccretable discount to accretable discount. This also resulted in a higher net yield being recognized on these receivables, which is expected to continue in future periods.

     Other interest income decreased to $7.6 million for the three months ended June 30, 2007, compared to $8.4 million for 2006. This decrease was mainly due to a decrease in residual interest income caused by lower retained interest in securitized asset balances, partially offset by the realization of $2.1 million in previously unrealized gains on our retained interest in securitized assets, combined with an increase in interest income received on restricted cash accounts.

     The increase in interest expense was due to both a higher cost of funds and higher average debt levels. Our effective cost of funds increased to 5.8% for the three months ended June 30, 2007, as compared to 5.6% for the three months ended June 30, 2006. This increase in our effective cost of funds was primarily due to higher interest

22

rates on our 2006 and 2007 securitization transactions. Average debt outstanding was $3,810.3 million and $3,475.6 million for the three months ended June 30, 2007 and 2006, respectively.

  Provision for Credit Losses

     Our provision for credit losses was $60.2 million for the three months ended June 30, 2007 as compared to $52.5 million for 2006. Our provision for credit losses increased as a result of the increase in size of the portfolio as well as an increase in the average age, or seasoning, of the portfolio and higher net charge-offs. In addition, we have been experiencing higher than expected losses on receivables originated after the Acquisition.

  Servicing Income

     Servicing income decreased to $2.1 million for the three months ended June 30, 2007, compared to $6.0 million for 2006. Servicing income represents servicing fees and late fees collected on sold receivables. The decrease in servicing income for the three months ended June 30, 2007 as compared to 2006 was primarily attributable to the declining balance of our sold receivables.

  Other Income

     Other income is summarized as follows:

	For the Three Months Ended
	June 30,
	2007		2006
	(Dollars in thousands)
Customer fees	$	4,550	$	4,701
Gains on interest rate swap agreements		1,025		3,573
Other		362		495
Other income	$	5,937	$	8,769

     Our other income includes customer fees we collect on owned finance receivables, such as late charges and extension fees, proceeds from sales of gap insurance and extended service contracts, referral fees received from other lenders, payment convenience fees, gains and losses on our interest rate swap agreements and gains and losses related to the repurchase of receivables from gain on sale trusts. Customer fees decreased to $4.6 million for the three months ended June 30, 2007 as compared to $4.7 million for 2006 primarily due to a decrease in late charges collected attributable to rising delinquencies. Our interest rate swap agreements are recognized on our consolidated balance sheet at fair value with changes in the value recorded in earnings as a component of other income.

  Expenses

     Operating expenses were $36.2 million for the three months ended June 30, 2007, compared to $35.7 million for 2006. The $0.5 million increase in operating expenses for the three months ended June 30, 2007 as compared to 2006 was mainly due to higher compensation and employee benefits and advertising expenses partially offset by the inclusion of a $2.0 million charge in the second quarter of 2006 associated with the sale of extended service contracts. Compensation and employee benefits expense for the three months ended June 30, 2007 included approximately $1.6 million accrued for an anticipated payment to a former chief executive officer for the repurchase of his option shares vested as of his July 2005 termination date. Annualized operating expenses as a percentage of average total managed receivables slightly increased to 3.5% for the three months ended June 30, 2007 as compared to 3.4% for the three months ended June 30, 2006

  Income Taxes

     Income tax expense was $5.9 million for the three months ended June 30, 2007, as compared to $6.4 million in 2006. Our effective income tax rate was 42.1% and 39.1% for the three months ended June 30, 2007 and 2006, respectively. Income tax expense for the three months ended June 30, 2007 included $650,000 recognized for the potential payment of interest in accordance with FIN 48.

23

     Six Months Ended June 30, 2007 as Compared to Six Months Ended June 30, 2006

     Our net income was $17.0 million for the six months ended June 30, 2007, compared to $16.5 million for 2006. The increase in net income was primarily due to higher net interest margin, partially offset by a higher provision for credit losses, a decline in revenue from other sources and higher operating expenses.

     Net Interest Margin

     Our average owned finance receivables outstanding are summarized as follows:

	For the Six Months Ended
	June 30,
	2007		2006
	(Dollars in thousands)
Average owned finance receivables, carrying value	$	3,906,566	$	3,116,190

     Average owned finance receivables increased by 25.4% for the six months ended June 30, 2007 as compared to 2006. This increase was primarily attributable to an increased level of loan originations during 2006. The Company purchased and originated $2,650.3 million of contracts during 2006. We purchased and originated $662.8 million of contracts during the first six months of 2007, compared to $1,588.2 million during same period last year. This decrease was due to lower levels of originations in our dealer channel. In response to higher than expected losses on receivables originated during 2006, we modified our contract origination strategy to better manage our credit risk which resulted in lower volume levels during the first six months of 2007.

     The average new contract size was $18,719 for the six months ended June 30, 2007, compared to $18,645 for 2006. The average annual percentage rate on contracts purchased and originated was 16.5% and 17.1% during the six months ended June 30, 2007 and 2006, respectively. This decrease was due to an increased concentration of contracts from our direct channel during 2007, which had a lower weighted-average coupon. Our yields were also impacted by the implementation of new proprietary scorecards for the direct channel during the first quarter of 2007 combined with new pricing strategies within the direct channel designed to attract customers with higher expected credit quality.

     Net interest margin on our owned finance receivables is summarized as follows:

	For the Six Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Financing income	$	302,804		$	230,802
Other interest income		16,900			18,440
Interest expense		(110,574	)		(88,777	)
Net interest margin	$	209,130		$	160,465
Annualized financing income as a percentage of average owned finance receivables		15.5	%		14.8	%

     The 30.3% increase in net interest margin for the six months ended June 30, 2007 as compared to 2006 was due to an increase in financing income, partially offset by an increase in interest expense and a decrease in other interest income. Net interest margin included $17.6 million and $35.4 million of premium amortization for the six months ended June 30, 2007 and 2006, respectively, related to our predecessor finance receivables held for investment and our receivables repurchased from gain on sale trusts.

     The increase in financing income was due to both an increase in our average owned receivables and an increase in our average yield on receivables. The increase in our average yield on receivables to 15.5% for the six months ended June 30, 2007 from 14.8% in 2006 was primarily due to a lower level of premium amortization for the six months ended June 30, 2007 as compared with 2006.

24

     Financing income was reduced by $17.6 million and $35.4 million of premium amortization for the six months ended June 30, 2007 and 2006, respectively, related to our predecessor finance receivables held for investment and receivables repurchased from gain on sale trusts. Excluding the premium amortization, the average yield on receivables for the six months ended June 30, 2007 and 2006 would have been 16.4% and 17.1%, respectively.

     Other interest income decreased to $16.9 million for the six months ended June 30, 2007, compared to $18.4 million for 2006. This decrease was mainly due to a decrease in residual interest income caused by lower retained interest in securitized asset balances, partially offset by $3.0 million in gains on our retained interest in securitized assets that were realized upon the exercise of the clean-up call of receivables from a gain on sale trust, the realization of $2.1 million of previously unrealized gains on our retained interest in securitized assets and an increase in interest income received on restricted cash accounts.

     The increase in interest expense was due to both higher average debt levels and a higher cost of funds. Our effective cost of funds was 5.8% for the six months ended June 30, 2007, as compared to 5.5% for 2006. This increase in our effective cost of funds was primarily due to higher interest rates on our 2006 and 2007 securitization transactions. Average debt outstanding was $3,838.6 million and $3,229.5 million for the six months ended June 30, 2007 and 2006, respectively.

  Provision for Credit Losses

     Our provision for credit losses was $122.9 million for the six months ended June 30, 2007 as compared to $95.0 million for 2006. Our provision for credit losses increased as a result of the increase in size of the portfolio as well as an increase in the average age, or seasoning, of the portfolio and higher net charge-offs. In addition, we have been experiencing higher than expected losses on receivables originated after the Acquisition.

  Servicing Income

     Servicing income decreased to $5.0 million for the six months ended June 30, 2007, compared to $13.3 million for 2006. The decrease in servicing income for the six months ended June 30, 2007 as compared to 2006 was primarily attributable to the declining balance of our sold receivables.

  Other Income

     Other income is summarized as follows:

	For the Six Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Customer fees	$	10,533		$	9,771
Gains on interest rate swap agreements		218			5,565
Other		(2,155	)		962
Other income	$	8,596		$	16,298

     Customer fees increased to $10.5 million for the six months ended June 30, 2007 as compared to $9.8 million in 2006 primarily due to higher owned receivable balances, partially offset by a decrease in late charges collected attributable to rising delinquencies. Our interest rate swap agreements are recognized on our consolidated balance sheet at fair value with changes in the value recorded in earnings as a component of other income. Other income decreased to an expense of $2.2 million for the six months ended June 30, 2007, compared to income of $1.0 million in 2006, primarily due to a $2.9 million loss recorded on the repurchase of receivables from a gain on sale trust during the first quarter of 2007.

  Expenses

     Operating expenses were $71.2 million for the six months ended June 30, 2007, compared to $67.9 million for 2006. The $3.3 million increase in operating expenses for the six months ended June 30, 2007 as compared to 2006

25

was mainly due to higher levels of expenses related to the growth in the Company’s total managed receivables portfolio partially offset by the inclusion of a $2.0 million charge in the second quarter of 2006 associated with the sale of extended service contracts. Compensation and employee benefits expense for the six months ended June 30, 2007 included approximately $1.6 million accrued for an anticipated payment to a former chief executive officer for the repurchase of his option shares vested as of his July 2005 termination date. Annualized operating expenses as a percentage of average total managed receivables remained unchanged at 3.3% for the six months ended June 30, 2007 and 2006.

Income Taxes

     Income tax expense was $11.7 million for the six months ended June 30, 2007, as compared to $10.6 million in 2006. Our effective income tax rate was 40.6% and 39.1% for the six months ended June 30, 2007 and 2006, respectively. Income tax expense for the six months ended June 30, 2007 included $650,000 recognized for the potential payment of interest in accordance with FIN 48.

Credit Quality

     We provide financing in relatively high-risk markets, and, therefore, anticipate a corresponding higher level of delinquencies and charge-offs.

     Provisions for credit losses are charged to operations in amounts sufficient to maintain the allowance for credit losses on the balance sheet at a level considered adequate to cover our probable incurred credit losses related to impaired held for investment receivables as of the date of the balance sheet. Receivables held for investment are charged-off to the allowance for credit losses at the earlier of repossession of the collateral or when the account is otherwise deemed uncollectible. Predecessor finance receivables held for investment were adjusted to fair market value in connection with the purchase transaction taking into account future expected credit losses and a required rate of return commensurate with the associated risk.

     The following table presents certain data related to our owned finance receivables:

	At June 30,			At December 31,
	2007			2006
	(Dollars in thousands)
Finance receivables held for investment	$	3,108,893		$	3,045,938
Allowance for credit losses		(219,501	)		(195,000	)
Finance receivables held for investment, net of allowance		2,889,392			2,850,938
Allowance for credit losses as a percentage of receivables		7.1	%		6.4	%
Predecessor finance receivables held for investment, net		639,375			849,246
Finance receivables repurchased from gain on sale trusts, net		86,692			62,659
Total owned finance receivables held for investment, net	$	3,615,459		$	3,762,843

     The increase in the allowance for credit losses as a percentage of receivables at June 30, 2007 as compared to December 31, 2006 was due to the continued aging of our owned finance receivables held for investment and our higher than expected losses on receivables originated after the Acquisition. As of June 30, 2007 and December 31, 2006, finance receivables held for investment are aged, on a weighted average basis, 11.5 months and 8.0 months, respectively.

26

     Finance receivables that are (1) more than 30 days delinquent, but not yet in repossession, and (2) in repossession are summarized as follows:

	At June 30,					At December 31,
	2007					2006
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Delinquent contracts:
31 to 60 days	$	293,538		7.5	%	$	269,861		6.7	%
Greater than 60 days		129,658		3.3			97,332		2.4
		423,196		10.8			367,193		9.1
In repossession		15,275		0.4			17,072		0.4
	$	438,471		11.2	%	$	384,265		9.5	%

     Delinquencies in our receivables portfolio may vary from period to period based upon the average age, or seasoning of the portfolio, seasonality within the calendar year and economic factors. Due to our target customer base, a relatively high percentage of accounts become delinquent at some point in the life of a contract and there is a fairly high rate of account movement between current and delinquent status in the portfolio. Total delinquencies were higher at June 30, 2007 as compared to December 31, 2006. Historically, the Company has benefited from improved collection trends during the first half of the year. In April 2007, we observed that these seasonal benefits were not as pronounced as they had been in prior years. The Company has been and continues to investigate possible reasons for this variance, which include macroeconomic factors, servicing practices, and the average age and credit characteristics of the portfolio.

     We at times offer payment extensions, in accordance with our policies and guidelines, to consumers to assist them when temporary financial difficulties interfere with their ability to make scheduled payments. Our policies and guidelines, as well as certain contractual restrictions in our securitization transactions, limit the number and frequency of extensions that may be granted. An account for which all delinquent payments are extended is classified as current at the time the extension is granted, resulting in lower delinquencies. Thereafter, such account’s delinquency status is determined in the same manner as any other account.

     We evaluate the results of our extension strategies based upon the portfolio performance on accounts that have been extended versus accounts that have not been extended over the same period of time. We believe that payment extensions granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

     Payment extensions as a percentage of owned finance receivables outstanding is summarized as follows:

	At June 30,			At December 31,
	2007			2006
	Percent			Percent
Never extended		78.6	%		83.3	%
Extended:
1-2 times		21.0	%		16.4	%
3-4 times		0.4	%		0.3	%
Total extended		21.4	%		16.7	%
Total		100.0	%		100.0	%

     Payment extensions as a percentage of total owned finance receivables increased to 21.4% at June 30, 2007 compared with 16.7% at December 31, 2006, mainly driven by an increase in 1-2 times payment extensions which increased to 21.0% at June 30, 2007 as compared to 16.4% at December 31, 2006. The increase in payment extensions is due to an increase in the average age, or seasoning, of our portfolio. In addition, we adopted a strategy to increase the number of extensions granted on a seasonal basis, as our historical data indicated that contracts extended are more likely than not to result in additional collections over the life of the contract. We continue to monitor our extension strategy, and we believe that the judicious use of payment extensions is an effective portfolio management technique.

27

     Payment extensions do not have a direct impact on the amount of our finance receivables charged-off and the corresponding credit quality ratios. Payment extensions may, however, impact the timing of these charge-offs in the event a previously extended account is ultimately charged-off. Additionally, the impact of payment extensions is considered in determining the allowance for credit losses and the resulting provision for credit losses.

     Charge-off data with respect to our average owned finance receivables is summarized as follows:

	For the Three Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Repossession charge-offs	$	90,790		$	49,753
Less: Sales proceeds and recoveries		(57,593	)		(31,147	)
Mandatory charge-offs(1)		27,245			11,816
Net charge-offs(2)	$	60,442		$	30,422
Annualized net charge-offs as a percentage of average total owned receivables outstanding		6.2	%		3.6	%
Sales proceeds and recoveries as a percentage of charge-offs		48.8	%		50.6	%

	For the Six Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Repossession charge-offs	$	181,810		$	100,421
Less: Sales proceeds and recoveries		(116,921	)		(65,910	)
Mandatory charge-offs(1)		60,677			27,400
Net charge-offs(2)	$	125,566		$	61,911
Annualized net charge-offs as a percentage of average total owned receivables outstanding		6.4	%		4.0	%
Sales proceeds and recoveries as a percentage of charge-offs		48.2	%		51.6	%

(1)	Mandatory charge-offs represent accounts charged-off in full with no recovery amounts realized at time of charge-off.
(2)	Net charge-offs for our owned portfolio include charge-offs from our finance receivables held for investment, our predecessor finance receivables held for investment and our finance receivables repurchased from gain on sale trusts.

     Annualized net charge-offs as a percentage of our average owned finance receivables outstanding may vary from period to period based upon the credit quality of the portfolio, average age or seasoning of the portfolio and economic factors. The increase in annualized net charge-offs as a percentage of average owned finance receivables to 6.2% and 6.4% for the three and six months ended June 30, 2007 as compared to 3.6% and 4.0% for 2006 was due to higher charge-offs and a decrease in recoveries as a percentage of charge-offs. The increase in charge-offs was due to an increase in the average age, or seasoning, of our portfolio and higher than expected credit losses on receivables originated after the Acquisition. The decrease in recoveries as a percentage of charge-offs was primarily due to a higher level of mandatory charge-offs.

Total Managed Information

     We evaluate the profitability of our lending activities based partly upon our total managed auto finance receivables portfolio, including both owned finance receivables and sold finance receivables. We have historically securitized our receivables in transactions that met the criteria for a sale of such receivables. The net margin and credit quality information presented below on a total managed basis assumes that securitized and sold receivables had not been sold and are still on our consolidated balance sheet. Accordingly, no gain on sale or servicing fee income would have been recognized. Instead, finance charge and fee income would be recognized over the life of

28

the securitized receivables as accrued, and interest expense and other costs related to the asset-backed securities would be recognized as incurred.

     We use this information to analyze trends in the components of the profitability of our total managed receivables portfolio. Analysis of this data on a total managed basis helps us to determine which origination channels and finance products are most profitable, guide us in making pricing decisions for finance products and indicates if sufficient spreads exist between our revenues and cost of funds to cover operating expenses and achieve corporate profitability objectives. Additionally, total managed information facilitates comparisons of our results with other finance companies that do not securitize their receivables or other finance companies that securitize their receivables in securitization transactions that do not meet the criteria for sales of receivables. Total managed information is not a measurement of financial performance under GAAP and should not be considered as an alternative to any other measures of performance determined under GAAP.

     Beginning with our May 2005 securitization transaction, we altered the structure of our securitization transactions to no longer meet the criteria for sales of auto receivables, but instead to meet the criteria for on-balance sheet reporting. Accordingly, following a securitization accounted for as a secured financing, the receivables and the related securitization indebtedness will remain on our balance sheet. Additionally, we will recognize finance revenue and fee income on the receivables and interest expense on the securities issued in the securitization and record a provision for credit losses over the life of the securitization. As a result of this change, our provision for credit losses and our net margin increased significantly, with our provision for credit losses increasing initially at a greater rate than our net margin because we began recording a provision for credit losses upon the purchase of each contract. In addition, our securitization income decreased and net income initially decreased, with no change to our cash flows, as a result of this accounting change.

     Our average total managed finance receivables outstanding are summarized as follows:

	For the Three Months Ended
	June 30,
	2007		2006
	(Dollars in thousands)
Average owned finance receivables, carrying value	$	3,878,415	$	3,369,959
Average sold finance receivables		296,565		848,846
Average total managed finance receivables	$	4,174,980	$	4,218,805

	For the Six Months Ended
	June 30,
	2007		2005
	(Dollars in thousands)
Average owned finance receivables, carrying value	$	3,906,566	$	3,116,190
Average sold finance receivables		348,810		993,855
Average total managed finance receivables	$	4,255,376	$	4,110,045

29

  Total Managed Net Interest Margin

     Net interest margin for our total managed receivables portfolio are summarized as follows:

	For the Three Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Financing and other interest income	$	175,606		$	184,911
Interest expense		(56,730	)		(52,188	)
Net interest margin	$	118,876		$	132,723

	For the Six Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Financing and other interest income	$	359,145		$	354,581
Interest expense		(115,268	)		(97,905	)
Net interest margin	$	243,877		$	256,676

     Reconciliation of net interest margin as reflected in our consolidated statements of income to total managed net interest margin is summarized as follows:

	For the Three Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Net margin as reflected on the consolidated statements of income	$	102,463		$	89,768
Other interest income		(7,566	)		(8,394	)
Financing revenue on sold receivables		11,853			35,408
Interest expense on sold receivables		(2,044	)		(6,889	)
Gains on interest rate swaps		1,025			3,574
Premium amortization		8,595			14,555
Customer fees		4,550			4,701
Total managed net interest margin	$	118,876		$	132,723

	For the Six Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Net margin as reflected on the consolidated statements of income	$	209,130		$	160,465
Other interest income		(16,900	)		(18,440	)
Financing revenue on sold receivables		28,188			78,591
Interest expense on sold receivables		(4,912	)		(14,693	)
Gains on interest rate swaps		218			5,565
Premium amortization		17,620			35,417
Customer fees		10,533			9,771
Total managed net interest margin	$	243,877		$	256,676

30

     Net interest margin as a percentage of average total managed receivables is summarized as follows:

	For the Three Months
	Ended
	June 30,
	2007			2006
	(Dollars in
	Thousands)
Annualized finance revenue, fee and other income		16.8	%		17.5	%
Annualized interest expense		(5.4	)		(4.9	)
Annualized net interest margin as a percentage of average total managed receivables		11.4	%		12.6	%

	For the Six Months
	Ended
	June 30,
	2007			2006
	(Dollars in
	Thousands)
Annualized finance revenue, fee and other income		16.9	%		17.3	%
Annualized interest expense		(5.4	)		(4.8	)
Annualized net interest margin as a percentage of average total managed receivables		11.5	%		12.5	%

     Annualized net interest margin as a percentage of average total managed receivables decreased to 11.4% and 11.5% for the three and six months ended June 30, 2007 as compared to 12.6% and 12.5% for 2006. This decrease was mainly due to an increase in interest expense, coupled with a greater volume of loans in our direct channel to customers with higher expected credit quality. The increase in interest expense was primarily due to higher interest rates in our 2006 and 2007 securitization transactions. Excluding gain on interest rate swaps, annualized net interest margin as a percentage of average total managed receivables would have been 11.3% and 11.5%, respectively, for the three and six months ended June 30, 2007 and 12.3% and 12.2% for the three and six months ended June 30, 2006, respectively.

  Total Managed Credit Quality

     We have periodically sold receivables in securitization transactions to Trusts and retained an interest in the receivables sold in the form of retained interest in securitized assets. Retained interests in securitized assets are reflected on our balance sheet at fair value, calculated based upon the present value of estimated excess future cash flows from the Trusts using, among other assumptions, probable future cumulative credit losses on the receivables sold. Charge-offs of receivables that have been sold to Trusts decrease the amount of excess future cash flows from the Trusts. If such charge-offs are expected to exceed our original probable cumulative credit losses, the fair value of retained interest in securitized assets could be written down through an impairment charge to earnings.

     Certain data related to our total managed receivables finance receivable portfolio are summarized as follows:

	At June 30, 2007
	Owned		Sold		Total Managed
	(Dollars in thousands)
Owned finance receivables, unpaid principal balance	$	3,903,177	$	—	$	3,903,177
Sold finance receivables		—		269,908		269,908
Total managed finance receivables	$	3,903,177	$	269,908	$	4,173,085
Number of outstanding contracts		268,559		32,895		301,454
Average principal amount of outstanding contracts (in dollars)	$	14,534	$	8,205	$	13,843

31

	At December 31, 2006
	Owned		Sold		Total Managed
	(Dollars in thousands)
Owned finance receivables, unpaid principal balance	$	4,032,551	$	—	$	4,032,551
Sold finance receivables		—		484,818		484,818
Total managed finance receivables	$	4,032,551	$	484,818	$	4,517,369
Number of outstanding contracts		264,559		55,802		320,361
Average principal amount of outstanding contracts (in dollars)	$	15,243	$	8,688	$	14,101

     Receivables that are (1) more than 30 days delinquent, but not yet in repossession, and (2) in repossession are summarized as follows:

	At June 30, 2007
	Owned					Sold					Total Managed
Delinquent contracts:	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
31 to 60 days	$	293,538		7.5	%	$	28,678		10.6	%	$	322,216		7.7	%
Greater than 60 days		129,658		3.3			11,792		4.4			141,450		3.4
		423,196		10.8			40,470		15.0			463,666		11.1
In repossession		15,275		0.4			2,317		0.9			17,592		0.4
	$	438,471		11.2	%	$	42,787		15.9	%	$	481,258		11.5	%

	At December 31, 2006
	Owned					Sold					Total Managed
Delinquent contracts:	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
31 to 60 days	$	269,861		6.7	%	$	51,827		10.7	%	$	321,688		7.1	%
Greater than 60 days		97,332		2.4			17,970		3.7			115,302		2.6
		367,193		9.1			69,797		14.4			436,990		9.7
In repossession		17,072		0.4			4,819		1.0			21,891		0.5
	$	384,265		9.5	%	$	74,616		15.4	%	$	458,881		10.2	%

     Delinquencies in our total managed receivables portfolio may vary from period to period based upon credit quality, the average age or seasoning of the portfolio, seasonality within the calendar year and economic factors. Delinquencies for our total managed portfolio were higher at June 30, 2007 compared to December 31, 2006. Historically, the Company has benefited from improved collection trends during the first half of the year. In April 2007, we observed that these seasonal benefits were not as pronounced as they had been in prior years. The Company has been and continues to investigate possible reasons for this variance, which include macroeconomic factors, servicing practices, and the average age and credit characteristics of the portfolio.

     We at times offer payment extensions, in accordance with our policies and guidelines, to consumers to assist them when temporary financial difficulties interfere with their ability to make scheduled payments. Our policies and guidelines, as well as certain contractual restrictions in our securitization transactions, limit the number and frequency of extensions that may be granted. An account for which all delinquent payments are extended is classified as current at the time the extension is granted. Thereafter, such account is aged based on the timely payment of future installments in the same manner as any other account, resulting in lower delinquencies.

     We evaluate the results of our extension strategies based upon the portfolio performance on accounts that have been extended versus accounts that have not been extended over the same period of time. We believe that payment extensions granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

32

     The following is a summary of payment extensions as a percentage of owned, sold and total managed receivables outstanding:

	At June 30, 2007
	Owned			Sold			Total Managed
Never extended		78.6	%		50.3	%		76.8	%
Extended:
1-2 times		21.0	%		45.7	%		22.6	%
3-4 times		0.4	%		4.0	%		0.6	%
Total extended		21.4	%		49.7	%		23.2	%
Total		100.0	%		100.0	%		100.0	%

	At December 31, 2006
	Owned			Sold			Total Managed
Never extended		83.3	%		53.1	%		80.1	%
Extended:
1-2 times		16.4	%		43.8	%		19.3	%
3-4 times		0.3	%		3.1	%		0.6	%
Total extended		16.7	%		46.9	%		19.9	%
Total		100.0	%		100.0	%		100.0	%

     The increase in payment extensions is due to an increase in the average age, or seasoning, of our portfolio. At June 30, 2007 and December 31, 2006, our sold receivables portfolio was more seasoned than our owned receivables and therefore, had a higher level of extensions. In addition, we adopted a strategy to increase the number of extensions granted on a seasonal basis, as our historical data indicated that contracts extended are more likely than not to result in additional collections over the life of the contract. We continue to monitor our extension strategy, and we believe that the judicious use of payment extensions is an effective portfolio management technique.

     Payment extensions do not have a direct impact on the amount of our finance receivables charged-off and the corresponding credit quality ratios. Payment extensions may, however, impact the timing of these charge-offs in the event a previously extended account is ultimately charged-off. Additionally, the impact of payment extensions is considered in determining the allowance for credit losses and the resulting provision for credit losses.

     Charge-off data with respect to our finance receivables portfolio is summarized as follows:

	For the Three Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Owned:
Repossession charge-offs	$	90,790		$	49,753
Less: Sales proceeds and recoveries		(57,593	)		(31,147	)
Mandatory charge-offs(1)		27,245			11,816
Net charge-offs(2)	$	60,442		$	30,422
Sold:
Charge-offs	$	9,494		$	24,712
Less: Sales proceeds and recoveries		(5,394	)		(14,016	)
Mandatory charge-offs(1)		—			—
Net charge-offs	$	4,100		$	10,696
Total Managed:
Repossession charge-offs	$	100,284		$	74,465
Less: Sales proceeds and recoveries		(62,987	)		(45,163	)
Mandatory charge-offs(1)		27,245			11,816
Net charge-offs	$	64,542		$	41,118
Annualized net charge-offs as a percentage of average total managed receivables outstanding		6.2	%		3.9	%
Sales proceeds and recoveries as a percentage of charge-offs		49.4	%		52.3	%

33

	For the Six Months Ended
	June 30,
	2007			2006
	(Dollars in thousands)
Owned:
Repossession charge-offs	$	181,810		$	100,421
Less: Sales proceeds and recoveries		(116,921	)		(65,910	)
Mandatory charge-offs(1)		60,677			27,400
Net charge-offs(2)	$	125,566		$	61,911
Sold:
Charge-offs	$	23,133		$	61,721
Less: Sales proceeds and recoveries		(12,533	)		(33,490	)
Mandatory charge-offs(1)		—			—
Net charge-offs	$	10,600		$	28,231
Total Managed:
Repossession charge-offs	$	204,943		$	162,142
Less: Sales proceeds and recoveries		(129,454	)		(99,400	)
Mandatory charge-offs(1)		60,677			27,400
Net charge-offs	$	136,166		$	90,142
Annualized net charge-offs as a percentage of average total managed receivables outstanding		6.4	%		4.4	%
Sales proceeds and recoveries as a percentage of charge-offs		48.7	%		52.4	%

(1)	Mandatory charge-offs represent accounts charged-off in full with no recovery amounts realized at time of charge-off.
(2)	Net charge-offs for our owned portfolio include charge-offs from our finance receivables held for investment, our predecessor finance receivables held for investment and our finance receivables repurchased from gain on sale trusts.

     Annualized net charge-offs as a percentage of our average total managed finance receivables outstanding may vary from period to period based upon the credit quality of the portfolio, average age or seasoning of the portfolio and economic factors. The increase in annualized net charge-offs as a percentage of average total managed finance receivables to 6.2% and 6.4% for the three and six months ended June 30, 2007, as compared to 3.9% and 4.4% for 2006 was due to higher charge-offs and a decrease in recoveries as a percentage of charge-offs. The increase in charge-offs was due to an increase in the average age, or seasoning, of our portfolio and higher than expected credit losses on receivables originated after the Acquisition. The decrease in recoveries as a percentage of charge-offs was primarily due to a higher level of mandatory charge-offs.

Liquidity and Capital Resources

  General

     Our primary sources of cash are borrowings on our warehouse and residual loan facilities, securitization notes payable and senior notes payable. Our primary uses of cash are purchases of receivables, operating costs and expenses and funding credit enhancement requirements for securitization transactions and debt service requirements.

     Net cash provided by operating activities was $159.9 million and $109.8 million during the six months ended June 30, 2007 and 2006, respectively. Cash flows from operating activities are affected by net income as adjusted for non-cash items, including depreciation and amortization, provisions for credit losses, accretion of present value discount and deferred income taxes. The $159.9 million of cash flows provided by operating activities for the six months ended June 30, 2007 was primarily due to $17.7 million of net income adjusted by $122.9 million of provision for credit losses. The $109.8 million of cash flows provided by operating activities for the six months ended June 30, 2006 was primarily due to $16.5 million of net income adjusted by $95.0 million of provision for credit losses.

     Net cash provided by (used in) investing activities was $23.2 million and ($1,055.6) million for the six months ended June 30, 2007 and 2006, respectively. Cash flows from investing activities are highly dependent upon purchases of and collections on finance receivables held for investment. During the six months ended June 30, 2007,

34

net cash provided by investing activities included $762.5 million in collections on finance receivables held for investment offset by $669.1 million related to purchases of finance receivables held for investment and $93.7 million related to repurchases from a gain on sale trust. During the six months ended June 30, 2006, net cash used in investing activities included $1,596.5 million in purchases of finance receivables held for investment and $45.6 million in repurchases from a gain on sale trust partially offset by $589.8 million in collections on finance receivables held for investment.

     Net cash (used in) provided by financing activities was $(181.1) million and $948.3 million for the six months ended June 30, 2007 and 2006, respectively. Cash flows from financing activities reflect the net change in amounts required to be borrowed under our various revolving and term borrowing facilities. The $181.1 million of cash used in financing activities for the six months ended June 30, 2007 was due to $697.2 million in payments on securitization notes, $191.6 million in net change in warehouse credit facilities and $30.0 million in redemption of preferred stock partially offset by $775.1 million in issuance of securitization notes. Additionally, we elected to repay $35.0 million on our residual credit facilities during the six months ended June 30, 2007. The $948.3 million of cash provided by financing activities for the six months ended June 30, 2006 was due to $1,737.9 million in proceeds from issuance of securitization notes, partially offset by $491.5 million in payments on securitization notes and $298.6 million in net change in warehouse and residual credit facilities.

     We have two warehouse lending facilities, each with a different lender, and two residual facilities, each with one of the lenders under our warehouse facilities. We used borrowings under these facilities initially to fund a portion of the purchase price of the Acquisition and to repay amounts due to Ford Credit. Today, the warehouse facilities fund most of our ongoing origination and acquisition of contracts, and the residual facilities provide us with working capital. Special purpose subsidiaries are the borrowers under these facilities. The termination dates for the two warehouse facilities are different, as are the termination dates for the two residual facilities. However, for each lender, the warehouse facility and residual facility terminate on the same date.

     Based on our anticipated level of originations, we believe our cash flow from operations, available cash and available borrowings under our warehouse and residual facilities will provide us with sufficient liquidity to fund originations on an interim basis until a sufficient amount of receivables can be pooled together for subsequent securitizations. We plan to continue to access the securitization market on a frequent basis which will provide us with additional liquidity.

  Contractual and Long-Term Debt Obligations

     Contractual and long-term debt obligations are fully described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operations” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and there have been no material changes.

  Securitizations

     We completed eleven auto receivables securitization transactions from August 2002 through June 30, 2007. In these transactions, we securitized approximately $10.2 billion of automobile receivables, issuing $9.3 billion of class A notes. The proceeds from the transactions were primarily used to repay borrowings outstanding under our previous intercompany credit facility with Ford Credit and our existing warehouse facilities.

     We have pursued a strategy of securitizing our receivables to diversify our funding, improve liquidity and obtain a cost-effective source of funds for the purchase of additional automobile finance contracts. In general, we believe that the securitization program provides us with necessary working capital at rates that are much lower than we could obtain through our own unsecured or secured corporate debt obligations.

     At June 30, 2007, none of our securitizations had delinquency or net loss ratios in excess of the targeted levels that would require an increase in credit enhancement and diversion of excess cash flow. Deterioration in the economy could cause one or more of the ratios to exceed the targeted levels, resulting in stress on our liquidity position. If that occurred, we could be required to significantly decrease contract origination activities, and implement other significant expense reductions, if securitization distributions to us are materially decreased for a prolonged period of time.

35

     We believe that we will continue to require the execution of securitization transactions, along with borrowings under our warehouse and residual facilities, in order to fund our future liquidity needs. There can be no assurance that funding will be available to us through these sources or, if available, that it will be on terms acceptable to us. If these sources of funding are unavailable to us on a regular basis, we may be required to significantly decrease contract origination activities and implement significant expense reductions, all of which may have a material adverse affect on our ability to achieve our business and financial objectives.

     During 2005, 2006 and 2007 we completed two, three and one securitizations, respectively. Our last securitization was in May 2007. Subject to market conditions and origination volume, we presently expect to complete periodic securitizations.

Off-Balance Sheet Arrangements

     Prior to our May 2005 securitization transaction, we structured our securitization transactions to meet the criteria for sales of finance receivables. Under this structure, notes issued by our unconsolidated qualified special purpose finance subsidiaries are not recorded as a liability on our consolidated balance sheets. Beginning with the securitization completed in May 2005, our securitization transactions are being structured to meet the criteria for on-balance sheet reporting.

Recent Accounting Pronouncements

     In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of FASB Statement No. 115” (“SFAS 159”) which provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. We are currently evaluating the effect, if any, of the adoption of SFAS 159 on our consolidated financial statements.

     In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” which provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effect, if any, of the adoption of SFAS 157 on our consolidated financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

  General

     Our earnings are affected by changes in interest rates as a result of our dependence upon the issuance of fixed and variable rate securities and the incurrence of variable rate debt to fund the purchase of auto finance contracts. Fluctuations in market interest rates impact the interest payments required under our warehouse and residual facilities, as well as the interest to be paid in future securitization transactions. We may utilize several strategies to minimize the impact of interest rate fluctuations on our net interest income, including the use of derivative financial instruments and the regular securitization of auto finance contracts.

  Warehouse and Residual Facilities

     In our contract origination process, we purchase auto finance contracts and make loans that bear fixed interest rates and are pledged to secure borrowings under our warehouse facilities. Amounts borrowed under our warehouse facilities will bear variable interest rates. We intend to utilize our warehouse facilities to fund receivables until we accumulate a portfolio of sufficient size to securitize. To mitigate the risk of fluctuations in interest rates prior to a

36

securitization, we have and will continue to enter into forward-starting swap agreements on a periodic basis. If interest rates are above the forward-starting swap rate on the pricing date of a securitization, the purchaser of the forward-starting swap agreement will pay us for the increase in interest rates. Likewise, if interest rates are below the locked rate on the pricing date of a securitization, we will pay the purchaser of the forward-starting swap agreement for the decrease in interest rates. Therefore, regardless of whether interest rates increase or decrease between the date auto finance contracts are originated and the date these contracts are securitized, we will have locked in the cost of funds on outstanding notional amounts and the gross interest rate spread of our auto finance contracts. Unlike traditional swaps, a forward-starting swap has only one cash exchange at settlement. We may also utilize a swaption collar strategy. In this strategy, we buy a payer swaption and sell a receiver swaption, thereby limiting our cost of funds to an upper and lower bound, or strike level. We will make payment if interest rates fall below the lower strike rate and receive a payment if interest rates rise above the higher strike rate. If rates remain between the upper and lower strike rates, then no payment is made. Other derivative financial instruments may be utilized if considered advantageous by us in managing the risk of interest rate fluctuations.

     Our residual facilities are indexed to the one-month London Interbank Offered Rate (“LIBOR”) and are secured by residual assets pledged to the facilities. Additionally, the residual facilities bear varying spreads to LIBOR depending upon the amount advanced in the residual facilities and the value of the pledged residual assets. The value of the pledged residual assets will be regularly assessed based on expected future cash flows. Changes in market interest rates could change the discount rate used to value the pledged residual assets and alter the value of the residual assets and cause the agreed upon spread to LIBOR to increase or decrease. We intend to utilize the residual facilities to provide credit enhancements and support our working capital needs and may utilize derivative financial instruments to minimize the risk of interest rate fluctuations if deemed appropriate.

  Securitizations

     We plan to access the securitization market on a frequent basis to provide for long-term funding of our auto finance contracts. The interest rates demanded by investors in our future securitization transactions will depend on prevailing market interest rates for comparable transactions and the general interest rate environment. We may utilize several strategies to minimize the impact of interest rate fluctuations on our net interest income, including the use of derivative financial instruments, the regular securitization of auto finance contracts and pre-funding securitizations.

     In our securitization transactions, we sell fixed rate auto finance contracts to Trusts that then issue either fixed rate or floating rate securities to investors. The fixed rates on securities issued by the Trusts are indexed to market interest rate swap spreads for transactions of similar duration and do not fluctuate during the term of the securitization. The floating rates on securities issued by the Trusts are indexed to LIBOR and fluctuate periodically based on movements in LIBOR. We may be required to utilize derivative financial instruments, such as interest rate swap agreements, to convert variable rate exposures of the Trusts on these floating rate securities to fixed rates, thereby locking in the gross interest rate spread to be earned by the Trusts over the life of each securitization. Derivative financial instruments purchased by us would not impact the amount of cash flows to be received by holders of the asset-backed securities issued by the Trusts. These instruments would serve to offset the impact of increased or decreased interest paid by the Trusts on floating rate asset-backed securities and, therefore, the cash flows to be received by us from the Trusts.

     We may also pre-fund securitizations, thereby allowing us to lock in borrowing costs with respect to auto finance contracts subsequently delivered to the Trusts. To pre-fund a securitization, we will issue more asset-backed securities than necessary to cover auto finance contracts initially sold or pledged to the Trust. The proceeds from the pre-funded portion are held in an escrow account until additional auto finance contracts are delivered to the Trust in amounts up to the pre-funded balance held in the escrow account. We will incur an expense in pre-funded securitizations during the period between the initial securitization and the subsequent delivery of auto finance contracts equal to the difference between the interest earned on the proceeds held in the escrow account and the interest rate paid on the asset-backed securities outstanding.

37

  Interest Rate Swap Agreements

     We periodically enter into interest rate swap agreements whereby we pay a fixed interest rate and receive a variable interest rate. If interest rates increase and are above the starting-swap rate on the settlement date, the market value of the forward-starting swap is positive, and we will receive an amount from the counterparty equal to such market value. Likewise, if the market value is negative on the settlement date, we will pay an amount to the counterparty equal to such market value. These agreements are intended to ensure the economics of future securitization transactions and minimize the risk of interest rate fluctuations on our gross interest rate margin prior to the execution of securitization transactions.

ITEM 4.CONTROLS AND PROCEDURES

     The Company maintains disclosure controls and procedures that are designed to ensure that information to be disclosed in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Such controls include those designed to ensure that information for disclosure is communicated to management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), as appropriate, to allow timely decisions regarding required disclosure.

     The CEO and CFO, with the participation of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2007. Based on their evaluation, they have concluded, that the disclosure controls and procedures were effective.

     No changes were made in the Company’s internal controls over financial reporting during the quarter ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

38

PART II. OTHER INFORMATION

ITEM 1.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, wrongful collection procedures, violations of bankruptcy stay provisions, certificate of title disputes, fraud and breach of contract. Some litigation against us may take the form of class action lawsuits by consumers. As the assignee of finance 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 includes requests for compensatory, statutory and punitive damages.

     We believe that we have taken prudent steps to address the litigation risks associated with our business activities. We are vigorously defending the litigation against us and, while we are unable to estimate a range of possible losses with respect to our pending litigation due to the preliminary stages of most of our proceedings, we do not believe that the outcome of these proceedings, individually or in the aggregate, will have a material effect on our financial condition, results of operations or cash flows.

ITEM 1A.RISK FACTORS

     Risk factors are fully described in Item 1A contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and there have been no material changes.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5.OTHER INFORMATION

     None.

39

ITEM 6.EXHIBITS

EXHIBIT INDEX

EXHIBIT
NO.		DESCRIPTION
	2.1	Stock Purchase Agreement, dated as of December 23, 2004, among Triad Holdings Inc., Triad Acquisition Corp. and Fairlane Credit LLC (incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4/A of Triad Financial Corporation, filed on November 15, 2005 (File No. 333-126538)).
	3.1	Third Amended and Restated Articles of Incorporation of Triad Financial Corporation. (incorporated herein by reference to Exhibit 3.1 on Form 10-Q of Triad Financial Corporation, filed on August 11, 2006 (File No. 333-65107)).
	3.2	Third Amended and Restated Bylaws of Triad Financial Corporation (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.1	Indenture, dated as of April 29, 2005, among Triad Acquisition Corp. and JPMorgan Chase Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.2	Supplemental Indenture, dated as of April 29, 2005, among Triad Financial Corporation and JPMorgan Chase Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.3	Exchange and Registration Rights Agreement, dated as of April 29, 2005, among Triad Acquisition Corp. and Goldman, Sachs & Co., and Citigroup Global Markets Inc., as representatives of the several Purchasers (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.4	Form of Senior Note (attached as exhibit to Exhibit 4.1).
	10.1	Employment Agreement, dated as of April 29, 2005, between the Company and James M. Landy (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).*
	10.2	Employment Agreement, dated as of November 11, 2005, between the Company and Chris A. Goodman (incorporated herein by reference to Exhibit 10.2 on Form 10-K of Triad Financial Corporation, filed on March 31, 2006 (File No. 333-126538)).*
	10.3	Management Agreement, dated as of April 29, 2005, among the Company, Triad Holdings, LLC, Triad Holdings Inc. and Hunter’s Glen/Ford Ltd (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.4	Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse Trust, JPMorgan Chase Bank, as Collection Account Bank and Citigroup Global Markets Realty Corp., as lender (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.5	Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse Trust, JPMorgan Chase Bank, as Collection Account Bank and Goldman Sachs Mortgage Company, as lender (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).

40

EXHIBIT
NO.		DESCRIPTION
	10.6	Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial Residual Special Purpose LLC, JPMorgan Chase Bank, N.A., as Collection Account Bank and Citigroup Global Markets Realty Corp (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.7	Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial Residual Special Purpose LLC, JPMorgan Chase Bank, N.A., as Collection Account Bank and Goldman Sachs Mortgage Company (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.8	Registration Rights Agreement dated as of April 29, 2005 among Triad Holdings Inc. and certain holders of common stock (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.9	Stockholders Agreement, dated as of April 29, 2005, among Triad Holdings Inc., Triad Holdings, LLC and James M. Landy (incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.10	Limited Liability Company Agreement of Triad Holdings, LLC (incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.11	HFI Loan and Security Agreement, dated as of April 29, 2005, between the Company and Ford Motor Credit Company (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.12	Carl B. Webb Compensation Arrangement (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).*
	10.13	Amendment No. 2, dated as of March 15, 2007, to the Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse Trust, The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as Collection Account Bank, and Citigroup Global Markets Realty Corp., as lender (incorporated herein by reference to Exhibit 10.1 on Form 8-K of Triad Financial Corporation, filed on March 20, 2007 (File No. 333-65107)).
	10.14	Amendment No. 1, dated as of March 15, 2007, to the Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial Residual Special Purpose LLC, The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as Collection Account Bank, and Citigroup Global Markets Realty Corp (incorporated herein by reference to Exhibit 10.2 on Form 8-K of Triad Financial Corporation, filed on March 20, 2007 (File No. 333-65107)).
	21.1	Subsidiaries of the Company (incorporated herein by reference to Exhibit 21.1 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	31.1	Certification of Chief Executive Officer (Section 302 Certification).+
	31.2	Certification of Principal Financial Officer (Section 302 Certification).+
	32.	Certification of Periodic Financial Report (Section 906 Certification).+

*	Management contract or compensatory plan or arrangement.
+	Filed herewith

41

SIGNATURES

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

Date: August 14, 2007	/s/ Daniel D. Leonard
	Daniel D. Leonard
	President & Chief Executive Officer
Date: August 14, 2007	/s/ Mike L. Wilhelms
	Mike L. Wilhelms
	Senior Vice President & Chief Financial Officer

42

EXHIBIT INDEX

EXHIBIT
NO.		DESCRIPTION
	2.1	Stock Purchase Agreement, dated as of December 23, 2004, among Triad Holdings Inc., Triad Acquisition Corp. and Fairlane Credit LLC (incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4/A of Triad Financial Corporation, filed on November 15, 2005 (File No. 333-126538)).
	3.1	Third Amended and Restated Articles of Incorporation of Triad Financial Corporation. (incorporated herein by reference to Exhibit 3.1 on Form 10-Q of Triad Financial Corporation, filed on August 11, 2006 (File No. 333-65107)).
	3.2	Third Amended and Restated Bylaws of Triad Financial Corporation (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.1	Indenture, dated as of April 29, 2005, among Triad Acquisition Corp. and JPMorgan Chase Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.2	Supplemental Indenture, dated as of April 29, 2005, among Triad Financial Corporation and JPMorgan Chase Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.3	Exchange and Registration Rights Agreement, dated as of April 29, 2005, among Triad Acquisition Corp. and Goldman, Sachs & Co., and Citigroup Global Markets Inc., as representatives of the several Purchasers (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	4.4	Form of Senior Note (attached as exhibit to Exhibit 4.1).
	10.1	Employment Agreement, dated as of April 29, 2005, between the Company and James M. Landy (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).*
	10.2	Employment Agreement, dated as of November 11, 2005, between the Company and Chris A. Goodman (incorporated herein by reference to Exhibit 10.2 on Form 10-K of Triad Financial Corporation, filed on March 31, 2006 (File No. 333-126538)).*
	10.3	Management Agreement, dated as of April 29, 2005, among the Company, Triad Holdings, LLC, Triad Holdings Inc. and Hunter’s Glen/Ford Ltd (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.4	Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse Trust, JPMorgan Chase Bank, as Collection Account Bank and Citigroup Global Markets Realty Corp., as lender (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.5	Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse Trust, JPMorgan Chase Bank, as Collection Account Bank and Goldman Sachs Mortgage Company, as lender (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).

EXHIBIT
NO.		DESCRIPTION
	10.6	Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial Residual Special Purpose LLC, JPMorgan Chase Bank, N.A., as Collection Account Bank and Citigroup Global Markets Realty Corp (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.7	Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial Residual Special Purpose LLC, JPMorgan Chase Bank, N.A., as Collection Account Bank and Goldman Sachs Mortgage Company (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.8	Registration Rights Agreement dated as of April 29, 2005 among Triad Holdings Inc. and certain holders of common stock (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.9	Stockholders Agreement, dated as of April 29, 2005, among Triad Holdings Inc., Triad Holdings, LLC and James M. Landy (incorporated herein by reference to Exhibit 10.8 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.10	Limited Liability Company Agreement of Triad Holdings, LLC (incorporated herein by reference to Exhibit 10.9 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.11	HFI Loan and Security Agreement, dated as of April 29, 2005, between the Company and Ford Motor Credit Company (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	10.12	Carl B. Webb Compensation Arrangement (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).*
	10.13	Amendment No. 2, dated as of March 15, 2007, to the Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse Trust, The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as Collection Account Bank, and Citigroup Global Markets Realty Corp., as lender (incorporated herein by reference to Exhibit 10.1 on Form 8-K of Triad Financial Corporation, filed on March 20, 2007 (File No. 333-65107)).
	10.14	Amendment No. 1, dated as of March 15, 2007, to the Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial Residual Special Purpose LLC, The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as Collection Account Bank, and Citigroup Global Markets Realty Corp (incorporated herein by reference to Exhibit 10.2 on Form 8-K of Triad Financial Corporation, filed on March 20, 2007 (File No. 333-65107)).
	21.1	Subsidiaries of the Company (incorporated herein by reference to Exhibit 21.1 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).
	31.1	Certification of Chief Executive Officer (Section 302 Certification).+
	31.2	Certification of Principal Financial Officer (Section 302 Certification).+
	32.	Certification of Periodic Financial Report (Section 906 Certification).+

*	Management contract or compensatory plan or arrangement.
+	Filed herewith