---




UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-Q





---




(Mark one)





x


QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2002





OR





 ̈


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from
 to





Commission File Number 000-24051





---




UNITED PANAM FINANCIAL CORP.


(Exact name of Registrant as specified in its charter)





California

94-3211687(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification Number)





3990 Westerly Place, Suite 200


Newport Beach, CA 92660


(Address of principal executive offices) (Zip Code)





(949) 224-1917


(Registrants telephone number, including area code)





Not applicable


(Former name, former address and former fiscal year, if changed since last report)





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





The number of shares outstanding of the Registrants Common Stock as of August 2, 2002 was 15,571,400.





---



---

UNITED PANAM FINANCIAL CORP.





FORM 10-Q





June 30, 2002





INDEX





PagePART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements (unaudited)Consolidated Statements of Financial Condition as of June 30, 2002 and December 31, 2001

1Consolidated Statements of Operations for the three and six months ended June 30, 2002 andJune 30, 2001

2Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2002 and June 30, 2001

3Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and June 30, 2001

4Notes to Consolidated Financial Statements

6Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

9Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings

24Item 2.

Changes in Securities and Use of Proceeds

24Item 3.

Defaults Upon Senior Securities

24Item 4.

Submission of Matters to a Vote of Security Holders

24Item 5.

Other Information

24Item 6.

Exhibits and Reports on Form 8-K

24







---

PART I. FINANCIAL INFORMATION





Item 1. Financial Statements.





UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Unaudited)





ASSETS

June 30, 2002


December 31, 2001(In thousands, except share and per share data)Cash and due from banks

$
14,928


$
5,428Short term investments


29,449



135,267Cash and cash equivalents


44,377



140,695Securities available for sale, at fair value


456,996



284,837Loans


296,285



252,858Less allowance for loan losses


(20,473
)


(16,410
)Loans, net


275,812



236,448Loans held for sale


119



194Premises and equipment, net


2,349



2,124Federal Home Loan Bank stock, at cost


5,980



6,500Accrued interest receivable


1,525



4,029Other assets


9,949



14,746Total assets

$
797,107


$
689,573LIABILITIES AND SHAREHOLDERS EQUITYDeposits

$
351,235


$
357,350Federal Home Loan Bank advances


30,000



130,000Repurchase agreements


326,889



114,776Accrued expenses and other liabilities


7,935



11,781Total liabilities


716,059



613,907Common stock (no par value):Authorized, 30,000,000 sharesIssued and outstanding, 15,571,400 shares atJune 30, 2002 and December 31, 2001


63,630



63,630Retained earnings


16,977



11,287Unrealized gain on securities available for sale, net


441



749Total shareholders equity


81,048



75,666Total liabilities and shareholders equity

$
797,107


$
689,573





See accompanying notes to consolidated financial statements.




1




---




UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS





(Unaudited)





Three Months Ended June
30,

Six Months Ended June
30,2002

2001

2002

2001(In thousands, except per share data)Interest IncomeLoans

$
14,081

$
11,057

$
27,115

$
21,346Securities


3,124


3,468


5,782


7,108Total interest income


17,205


14,525


32,897


28,454Interest ExpenseDeposits


3,115


4,811


6,348


9,831Federal Home Loan Bank advances


215


393


784


907Repurchase agreements


1,107


32


1,300


32Total interest expense


4,437


5,236


8,432


10,770Net interest income


12,768


9,289


24,465


17,684Provision for loan losses


99


124


183


168Net interest income after provision for loan losses


12,669


9,165


24,282


17,516Non-interest IncomeNet gain on sale of securities








61


Net gain on sale of loans





1250





1,607Service charges and fees


197


168


388


333Loan related charges and fees


71


66


156


141Other income


32


34


61


67Total non-interest income


300


1,518


666


2,148Non-interest ExpenseCompensation and benefits


4,971


5,152


9,780


8,861Occupancy


895


753


1,770


1,517Other


2,126


1,726


4,322


3,705Total non-interest expense


7,992


7,631


15,872


14,083Income before income taxes and cumulative effect of change in accounting principle


4,977


3,052


9,076


5,581Income taxes


1,953


1,190


3,492


2,175Income before cumulative effect of change in accounting principle


3,024


1,862


5,584


3,406Cumulative effect of change in accounting principle net of tax








106


Net income

$
3,024

$
1,862


5,690

$
3,406Earnings per sharebasic:Income before cumulative effect of change in accounting principle

$
0.19

$
0.12

$
0.36

$
0.21Cumulative effect of change in accounting principle

$


$


$
0.01

$
Net income

$
0.19

$
0.12

$
0.37

$
0.21Weighted average shares outstanding


15,571


16,169


15,571


16,161Earnings per share-diluted:Income before cumulative effect of change in accounting principle

$
0.17

$
0.11

$
0.32

$
0.21Cumulative effect of change in accounting principle

$


$


$
0.01

$
Net income

$
0.17

$
0.11

$
0.33

$
0.21Weighted average shares outstanding


17,626


17,380


17,500


16,613





See accompanying notes to consolidated financial statements




2




---

UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





(Unaudited)





Three Months Ended June
30,

Six Months Ended June
30,2002

2001

2002


2001(Dollars in thousands)Net income

$
3,024

$
1,862

$
5,690


$
3,406Other comprehensive income, net of tax:Unrealized gain (loss) on securities available for sale


254


141


(308
)


286Comprehensive income

$
3,278

$
2,003

$
5,382


$
3,692





See accompanying notes to consolidated financial statements




3




---




UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS





(Unaudited)





Six Months Ended June
30,2002


2001(Dollars in thousands)Cash Flows from Operating ActivitiesNet income

$
5,690


$
3,406Adjustments to reconcile net income to net cash provided by operating activities:Compensation expense for converting option plan






1,369Sale of loans held for sale






16,194Gain on sale of securities


(61
)


Provision for loan losses


183



168Gain on sale of mortgage loans






(1,609
)Depreciation and amortization


425



443FHLB stock dividend


(81
)


(100
)Decrease in residual interest in securitizations






8,861Decrease (increase) in accrued interest receivable and other assets


2,504



(2,285
)Decrease in deferred taxes


4,994



1,486Decrease in accrued expenses and other liabilities


(3,846
)


(3,115
)Amortization of premiums (discounts) on securities


2,598



(270
)Other net






(41
)Net cash provided by operating activities


12,406



24,507Cash Flows from Investing ActivitiesProceeds from maturities of investment securities


188,844



220,398Purchase of investment securities


(394,052
)


(206,141
)Proceeds from sales of securities


30,007



Repayments of mortgage loans


74



849Originations and purchases, net of repayments, of non-mortgage loans


(39,546
)


(30,852
)Purchase of premises and equipment


(650
)


(675
)Proceeds from sale (purchase) of FHLB stock, net


601



(500
)Proceeds from sales of real estate owned






860Other, net






(233
)Net cash used in investing activities


(214,722
)


(16,294
)Cash Flows from Financing ActivitiesIssuance of capital stock






24Net (decrease) increase in deposits


(6,115
)


34,879Repayment, net of proceeds, from FHLB advances


(100,000
)


(3,000
)Proceeds, net of repayments, from repurchase agreements


212,113



74,183Net cash provided by financing activities


105,998



106,086Net (decrease) increase in cash and cash equivalents


(96,318
)


114,299Cash and cash equivalents at beginning of period


140,695



42,592Cash and cash equivalents at end of period

$
44,377


$
156,891





See accompanying notes to consolidated financial statements




4




---




UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED





(Unaudited)





Six Months Ended June
30,2002

2001(Dollars in thousands)Supplemental Disclosures of Cash Flow InformationCash paid for:Interest

$
8,682

$
10,642Taxes

$
798

$
1,046Supplemental Schedule of Non-cash Investing and Financing ActivitiesAcquisition of real estate owned through foreclosure of related mortgage loans

$


$
36Loans transferred to be held for sale

$


$
14,187














See accompanying notes to consolidated financial statements







5




---




UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Three and Six Months Ended June 30, 2002 and 2001


(Unaudited)





1. Organization





United PanAm Financial Corp. (the Company) was incorporated in California on April 9, 1998 for
the purpose of reincorporating its business in California, through the merger of United PanAm Financial Corp., a Delaware corporation (the Predecessor), into the Company. Unless the context indicates otherwise, all references herein to
the Company include the Predecessor. The Company was originally organized as a holding company for Pan American Financial, Inc. (PAFI) and Pan American Bank, FSB (the Bank) to purchase certain assets and assume
certain liabilities of Pan American Federal Savings Bank from the Resolution Trust Corporation (the RTC) on April 29, 1994. The Company, PAFI and the Bank are considered to be Hispanic owned. PAFI is a wholly owned subsidiary of the
Company, and the Bank is a wholly owned subsidiary of PAFI.





2. Basis of Presentation





The accompanying unaudited consolidated financial statements include the accounts of United PanAm Financial Corp., Pan American Financial,
Inc. and Pan American Bank, FSB. Substantially all of the Companys revenues are derived from the operations of the Bank and they represent substantially all of the Companys consolidated assets and liabilities as of June 30, 2002 and
December 31, 2001. Significant inter-company accounts and transactions have been eliminated in consolidation.





These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Companys financial condition and results of operations for the interim periods presented in this Form 10-Q have been included. Operating results for the interim periods are not necessarily
indicative of financial results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2001.





The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.




6




---




3. Earnings Per Share From Continuing Operations





Basic EPS and diluted EPS are calculated as follows for the three and six months ended June 30, 2002 and 2001:





Three Months Ended June
30,

Six Months Ended June
30,2002

2001

2002

2001(In thousands, except per share amounts)Earnings per sharebasic:Income before cumulative effect of change in accounting principle

$
3,024

$
1,862

$
5,584

$
3,406Net Income

$
3,024

$
1,862

$
5,690

$
3,406Average common shares outstanding


15,571


16,169


15,571


16,161Per share before cumulative effect of change in accounting principle

$
0.19

$
0.12

$
0.36

$
0.21Earnings per share

$
0.19

$
0.12

$
0.37

$
0.21Earnings per sharediluted:Income before cumulative effect of change in accounting principle

$
3,024

$
1,862

$
5,584

$
3,406Net Income

$
3,024

$
1,862

$
5.690

$
3,406Average common shares outstanding


15.571


16,169


15,157


16,161Add: Stock options


2,055


1,211


1,929


452Average common shares outstandingdiluted


17,626


17,380


17,500


16,613Per share before cumulative effect of change in accounting principle

$
0.17

$
0.11

$
0.32

$
0.21Earnings per share

$
0.17

$
0.11

$
0.33

$
0.21





4. Accounting Pronouncements





In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair valued can be made. The associated asset retirement costs would be capitalized as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or
loss on settlement. The provisions of SFAS No. 143 are effective for fiscal years beginning after June 15, 2002. Management does not expect the adoption of SFAS No 143 to have any material impact on the Companys financial statements.





In August 2001, FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144), which supersedes both FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS No. 121) and the accounting and reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (Opinion 30), for the disposal of a segment of a business (as previously defined in
that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. For example, SFAS No. 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held
for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of Opinion 30 on how to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a business).





The Company adopted SFAS
No. 144 on January 1, 2002. Management does not expect the adoption of SFAS No. 144 for long-lived assets held for use to have any material impact on the Companys financial statements because the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121.




7




---




In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). SFAS No. 145 will rescind SFAS No. 4 which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result of SFAS No. 145, the criteria in APB Opinion No. 30, Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactionswill now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded. The adoption of FASB 145 did not have any
effect on the Companys financial statements.





Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), requires the Company to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment
to an exit or disposal plan. SFAS 146 replaces Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The provisions of SFAS 146 are to be applied prospectively to exit or disposal activities initiated after December 31, 2002.





5. Operating Segments





The Company has three reportable segments: auto finance, insurance
premium finance and banking. The auto finance segment acquires, holds for investment and services nonprime retail automobile installment sales contracts generated by franchised and independent dealers of used automobiles. The insurance premium
finance segment, through a contractual agreement, underwrites and finances automobile and commercial insurance premiums in California. The banking segment operates a four-branch federal savings bank and is the principal funding source for the
Companys auto and insurance premium finance segments.





The accounting policies of the segments are the same
as those of the Companys except for funds provided by the banking segment to the other operating segments which are accounted for at a predetermined transfer price (including certain overhead costs).





The Companys reportable segments are strategic business units that offer different products and services. They are managed and
reported upon separately within the Company.





At or For Three Months Ended June 30, 2002Auto Finance

Insurance Premium
Finance

Banking


Total(In thousands)Net interest income

$
9,579

$
603

$
2,586


$
12,768Provision for loan losses





99






99Non-interest income


88


139


73



300Non-interest expense


6,381


55


1,556



7,992Segment profit, pre-tax

$
3,286

$
588

$
1,103


$
4,977Total assets

$
239,521

$
41,906

$
515,680


$
797,107At or For Three Months Ended June 30, 2001Auto Finance

Insurance Premium
Finance

Banking


Total(In thousands)Net interest income

$
7,361

$
568

$
1,360


$
9,289Provision for loan losses





124






124Non-interest income


76


149


1,293



1,518Non-interest expense


4,558


54


3,019



7,631Segment profit (loss), pre-tax

$
2,879

$
539

$
(366
)

$
3,052Total assets

$
175,891

$
35,152

$
386,752


$
597,795




8




---




At or For Six Months Ended June 30, 2002Auto Finance

Insurance Premium
Finance

Banking


Total(In thousands)Net interest income

$
18,510

$
1,143

$
4,812


$
24,465Provision for loan losses





183






183Non-interest income


183


271


212



666Non-interest expense


12,316


105


3,451



15,872Segment profit, pre-tax

$
6,377

$
1,126

$
1,573


$
9,076Total assets

$
239,521

$
41,906

$
515,680


$
797,107At or For Six Months Ended June 30, 2001Auto Finance

Insurance Premium
Finance

Banking


Total(In thousands)Net interest income

$
13,903

$
1,284

$
2,497


$
17,684Provision for loan losses





168






168Non-interest income


156


254


1,738



2,148Non-interest expense


8,679


229


5,175



14,083Segment profit (loss), pre-tax

$
5,380

$
1,141

$
(940
)

$
5,581Total assets

$
175,891

$
35,152

$
386,752


$
597,795





For the reportable segment information presented, substantially all
expenses are recorded directly to each industry segment.





Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations.





Certain statements in this Annual Report on Form 10-Q, including statements regarding United PanAm Financial Corp.s (theCompany) strategies, plans, objectives, expectations and intentions, may include
forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: our limited operating history; loans we
made to credit-impaired borrowers; our need for additional sources of financing; concentration of our business in California; reliance on operational systems and controls and key employees; competitive pressure we face in the banking industry;
changes in the interest rate environment; rapid growth of our businesses; general economic conditions; impact of inflation and changing prices; and other risks, some of which may be identified from time to time in our filings with the Securities and
Exchange Commission (the SEC).





General





The Company





The Company is a
specialty finance company engaged primarily in originating and acquiring retail automobile installment sales contracts and insurance premium finance contracts financed by retail bank deposits. The Company markets to customers who generally cannot
obtain financing from traditional lenders. These customers usually pay higher interest rates than those charged by traditional lenders to gain access to consumer financing. The Company has funded its operations to date principally through retail
deposits, brokered deposits, Federal Home Loan Bank (FHLB) advances, and commercial repurchase agreements. The Company is a holding company for Pan American Bank, FSB, a federally chartered savings association (theBank).





The Company commenced operations in 1994 by purchasing from the Resolution Trust Corporation (RTC) certain assets
and assuming certain liabilities of the Banks predecessor, Pan American Federal Savings Bank. The Company has used the Bank as a base for expansion into its current specialty finance businesses. In




9




---

1995, the Company commenced its insurance premium finance business through an agreement with BPN Corporation (BPN) and in 1996, the
Company commenced its automobile finance business.





Automobile Finance





In 1996, the Bank commenced its automobile finance business through its subsidiary, United Auto Credit Corporation (UACC).
UACC acquires, holds for investment and services nonprime retail automobile installment sales contracts (auto contracts) generated by franchised and independent dealers of used automobiles. UACCs customers are considered
nonprime because they typically have limited credit histories or credit histories that preclude them from obtaining loans through traditional sources. As UACC provides all marketing, origination, underwriting and servicing activities for
its loans, income is generated from a combination of spread and non-interest income and is used to cover all operating costs, including compensation, occupancy and systems expense.





Insurance Premium Finance





In May
1995, the Bank entered into an agreement with BPN under the name ClassicPlan (such business, IPF). Under this agreement, which commenced operations in September 1995, the Bank underwrites and finances private passenger
automobile and small business insurance premiums in California and BPN markets the financing program and services the loans for the Bank. The Bank lends to individuals or small businesses for the purchase of single premium insurance policies and the
Banks collateral is the unearned insurance premium held by the insurance company. The unearned portion of the insurance premium is refundable to IPF in the event the underlying insurance policy is canceled. The Company does not sell or have
the risk of underwriting the underlying insurance policy.





As a result of BPN performing substantially all
marketing and servicing activities, the Companys role is primarily that of an underwriter and funder of loans. Therefore, IPFs income is generated primarily on a spread basis, supplemented by non-interest income generated from late
payment and returned check fees. The Bank uses this income to cover the costs of underwriting and loan administration, including compensation, occupancy and data processing expenses.





The Bank





The Company currently
funds its operations primarily through the Banks deposits; FHLB advances and repurchase agreements. As of June 30, 2002, the Bank was a four-branch federal savings bank with $351.2 million in deposits. The Bank generates spread income not only
from loans originated or purchased by each of the Companys principal businesses, but also from its securities portfolio and consumer loans originated by its retail branches. This income is supplemented by non-interest income from its branch
banking activities (e.g., deposit service charges, safe deposit box fees) and is used to cover operating costs and other expenses.




10




---




Average Balance Sheets





The following table sets forth information relating to the Company for the three and six-month periods ended June 30, 2002 and 2001. The yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities allocated to continuing operations, respectively, for the periods shown. The yields and costs include fees, which are considered adjustments to yields.





Three Months Ended June 30,2002


2001Average Balance(1)

Interest

Average Yield/ Cost


Average Balance(1)

Interest

Average Yield/ Cost(Dollars in thousands)AssetsInterest earning assetsSecurities

$
427,289

$
3,123

2.93
%

$
254,309

$
3,468

5.51
%Mortgage loans, net(2)


132








2,079


46

8.85
%IPF loans, net(3)


41,170


1,433

13.97
%


33,986


1,333

15.69
%Automobile installment contracts, net(4)


224,656


12,649

22.58
%


165,793


9,678

23.27
%Total interest earning assets


693,247


17,205

9.96
%


456,167


14,525

12.74
%Non-interest earning assets


37,168








28,419Total assets

$
730,415







$
484,586Liabilities and EquityInterest bearing liabilitiesDeposits

$
363,164

$
3,114

3.44
%

$
366,189

$
4,811

5.26
%FHLB advances


40,198


215

2.14
%


31,970


393

4.92
%Repurchase Agreements


235,279


1,108

1.89
%


2,317


32

5.35
%Total interest bearing liabilities


638,641


4,437

2.79
%


400,476


5,236

5.23
%Non-interest bearing liabilities


12,488








11,906Total liabilities


651,129








412,382Equity


79,286








72,204Total liabilities and equity

$
730,415







$
484,586Net interest income before provision for loan losses




$
12,768







$
9,289Net interest rate spread(5)







7.17
%







7.51
%Net interest margin(6)







7.39
%







8.15
%Ratio of interest earning assets to interest bearing liabilities







109
%







114
%


---

|(1) | Average balances are computed on a monthly basis.
|--- | -------------------------------------------------

|(2) | Net of allowance for loan losses; includes non-performing loans.
|--- | ----------------------------------------------------------------

|(3) | Net of allowance for loan losses; includes non-performing loans.
|--- | ----------------------------------------------------------------

|(4) | Net of unearned finance charges and allowance for loan losses; includes non-performing loans.
|--- | ---------------------------------------------------------------------------------------------

|(5) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------



11




---




Six Months Ended June 30,2002


2001(Dollars in thousands)

Average Balance(1)

Interest

Average Yield/ Cost


Average Balance(1)

Interest

Average Yield/ CostAssetsInterest earning assetsSecurities

$
375,636

$
5,782

3.10
%

$
248,264

$
7,108

5.75
%Mortgage loans, net(2)


147


3

3.55
%


7,627


423

11.10
%IPF loans, net(3)


40,243


2,762

13.86
%


33,992


2,655

15.62
%Automobile installment contracts, net(4)


215,051


24,350

22.83
%


158,888


18,268

22.95
%Total interest earning assets


631,077


32,897

10.51
%


448,771


28,454

12.68
%Non-interest earning assets


35,923








26,057Total assets

$
667,000







$
474,828Liabilities and EquityInterest bearing liabilitiesDeposits

$
364,445

$
6,348

3.51
%

$
358,195

$
9,831

5.49
%FHLB advances


74,450


784

2.13
%


32,503


907

5.58
%Repurchase agreements


137,465


1,300

1.91
%


1,158


32

5.35
%Total interest bearing liabilities


576,360


8,432

2.95
%


391,856


10,770

5.50
%Non-interest bearing liabilities


12,568








11,820Total liabilities


588,928








403,676Equity


78,072








71,152Total liabilities and equity

$
667,000







$
474,828Net interest income before provision for loan losses




$
24,465







$
17,684Net interest rate spread(5)







7.56
%







7.18
%Net interest margin(6)







7.82
%







7.88
%Ratio of interest earning assets to interest bearing liabilities







109
%







115
%


---

|(1) | Average balances are computed on a monthly basis.
|--- | -------------------------------------------------

|(2) | Net of allowance for loan losses; includes non-performing loans.
|--- | ----------------------------------------------------------------

|(3) | Net of allowance for loan losses; includes non-performing loans.
|--- | ----------------------------------------------------------------

|(4) | Net of unearned finance charges and allowance for loan losses; includes non-performing loans.
|--- | ---------------------------------------------------------------------------------------------

|(5) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------




Comparison of Operating Results for the Three Months Ended June 30, 2002 and June 30, 2001





General





For the three
months ended June 30, 2002, the Company reported income of $3.0 million or $.17 per diluted share; an increase of $1.1 million from $1.9 million or $.11 per diluted share for the comparable period a year ago.





The increase in net income was due primarily to a $3.5 million increase in net interest income to $12.8 million from $9.3 million in the
second quarter of 2001, partially offset by a $1.2 million decrease in non-interest income. Net interest income was favorably impacted by the continued expansion and growth of the Companys automobile finance business.





Auto contracts purchased, including unearned finance charges, increased $17.7 million to $77.2 million from $59.5 million for the three
months ended June 30, 2001, as a result of our planned growth in the auto finance business. Insurance premium finance originations increased $5.4 million to $30.1 million from $24.7 million for the three months ended June 30, 2001.





Interest Income





Interest income increased to $17.2 million from $14.5 million for the three months ended June 30, 2001, due primarily to a $237 million increase in average interest earning assets, partially offset by
a .76% decrease in net interest margin. The largest growth components in average interest earning assets were in




12




---

investment securities, which increased by $173 million and automobile installment contracts, which increased by $59.5 million. The increase in
investment securities reflects the need to increase assets to meet the 30% qualified thrift lender requirement of the Office of Thrift Supervision (OTS) while the increase in auto contracts resulted from the purchase of additional dealer
contracts in existing and new markets consistent with planned growth.





The decline in net interest margin was due
primarily to an increased concentration of lower yielding securities in the three months ended June 30, 2002 compared to the three months ended June 30, 2001. The yield on the average balance of short term investments and investment securities
decreased from 5.5% to 2.9% for the 3 month periods ending June 30, 2001 and 2002, respectively.





Interest
Expense





Interest expense decreased from $5.2 million for the three months ended June 30, 2001 to $4.4 million
for the three months ended June 30, 2002, due to a general decline in market interest rates, partially offset by a $238 million increase in average interest bearing liabilities. The largest components of average interest bearing liabilities were
deposits of $363 million, repurchase agreements of $235 million and FHLB advances of $40 million. Repurchase agreements increased to $235 million from $2 million as of June 30, 2001 as a result of a corresponding increase in investment securities.
The average cost of liabilities decreased from 5.23% for the three months ended June 30, 2001 to 2.79% for the comparable period in 2002, generally as a result of a decrease in market interest rates.





Provision for Loan Losses





Provision for loan losses was $99,000 for the three months ended June 30, 2002 compared to $124,000 for the three months ended June 30, 2001. The provision for loan losses reflects estimated losses
associated with the Companys insurance premium finance business.





In addition to its provision for losses,
the Companys allowance for loan losses is also increased by its allocation of acquisition discounts related to the purchase of automobile installment contracts. The Company allocates the estimated amount of its acquisition discounts
attributable to credit risk to the allowance for loan losses. At June 30, 2002, the Company was allocating 10.5% of acquisition discounts to allowance for loan losses.





The total allowance for loan losses was $20.5 million at June 30, 2002 compared with $16.4 million at June 30, 2001, representing 6.91% of loans at June 30, 2002 and 7.28%
at June 30, 2001. Annualized net charge-offs to average loans were 5.5% for the three months ended June 30, 2002 compared with 3.9% for the three months ended June 30, 2001.





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





Non-interest Income





Non-interest income decreased to $300,000 from $1.5 million for the three months ended June 30, 2001 primarily as a result of a $1.3
million gain on the sale of substantially all of the remaining mortgage loan portfolio during 2001, partially offset by an increase in service charges and fee income.




13




---




Non-interest expense increased $400,000 to $8.0 million from $7.6 million for the
three months ended June 30, 2001. During 2001, the Company recognized a one-time non-cash charge of $1.4 million for compensation expense as a result of converting the option plan in UACC to options in the Company. Without considering this item,
non-interest expense increased by $1.7 million. The increase in non-interest expense was driven primarily by an increase in salaries, employee benefit costs and occupancy expenses associated with the planned growth of the auto finance business
segment. During the last 12 months, the Company expanded its automobile finance operations, resulting in an increase from 225 employees in 32 offices, as of June 30, 2001, to 310 employees in 46 offices, as of June 30, 2002.





Income Taxes





Income taxes increased $800,000 from $1.2 million for the three months ended June 30, 2001 to $2.0 million for the three months ended June 30, 2002. This increase occurred as a result of a $1.9 million increase in income
before income taxes between the two periods.





Comparison of Operating Results for the Six Months Ended June
30, 2002 and June 30, 2001





General





For the six months ended June 30, 2002, the Company reported income of $5.7 million or $0.33 per diluted share. This compares with income of $3.4 million or $0.21 per
diluted share, for the comparable period a year ago.





In 2002, net interest income increased $6.8 million as a
result of the planned increase in the auto finance unit receivables. In 2001, the Company recognized a gain of $1.3 million as a result of the sale of substantially all of the remaining mortgage loan portfolio, and incurred a $1.4 million one-time
non-cash charge in compensation expense as a result of the conversion of an option plan in UACC, its auto lending unit, to options in the Company. These items were not repeated in 2002.





Purchased auto contracts increased to $149.1 million from $117.3 million for the six months ended June 30, 2001, while insurance premium finance originations increased to
$58.3 million from $49.0 million for the six months ended June 30, 2001.





Interest Income





Interest income increased to $32.9 million from $28.5 million for the six months ended June 30, 2001, due primarily to a $182
million increase in average interest earning assets, partially offset by a .06% decrease in net interest margin. The largest growth components in average interest earning assets were in investment securities, which increased by $127 million and
automobile installment contracts, which increased by $56 million. The increase in investment securities reflects the need to increase assets to meet the 30% qualified thrift lender requirement of the OTS, while the increase in auto contracts
resulted from the purchase of additional dealer contracts in existing and new markets consistent with planned growth.





The decline in net interest margin was due primarily to an increased concentration of lower yielding securities in the six months ended June 30, 2002 compared to the six months end June 30, 2001. The yield on the average balance of
short term investments and investment securities decreased from 5.8% to 3.1% for the six month periods ending June 30, 2001 and 2002, respectively.




14




---




Interest Expense





Interest expense decreased to $8.4 million from $10.8 million for the six months ended June 30, 2001 due to a general decline in market interest rates, partially
offset by a $184.5 million increase in average interest bearing liabilities. The largest components of average interest bearing liabilities are Bank deposits, which increased to $364.4 million from an average balance of $358.2 million during the six
months ended June 30, 2001, repurchase agreements, which increased to $137.5 million from $1.2 million for the six months ended June 30, 2001 and FHLB advances which increased to $74.4 million from $32.5 million for the six months ended June 30,
2001. The average cost of liabilities decreased from 5.50% for the six months ended June 30, 2001 to 2.95% for the comparable period in 2002 generally as a result of a decrease in market interest rates.





Provision for Loan Losses





Provision for loan losses was $183,000 for the six months ended June 30, 2002 compared to $168,000 for the six months ending June 30, 2001. The provision for loan losses reflects estimated losses
associated with the Companys insurance premium finance business.





In addition to its provision for losses,
the Companys allowance for loan losses is also increased by its allocation of acquisition discounts related to the purchase of automobile installment contracts. The Company allocates the estimated amount of its acquisition discounts
attributable to credit risk to the allowance for loan losses. At June 30, 2002, the Company was allocating 10.5% of the net loan amount of all new loans to allowance for loan losses.





The total allowance for loan losses was $20.5 million at June 30, 2002 compared with $16.4 million at June 30, 2001, representing 6.91% of loans at June 30, 2002 and 7.28%
at June 30, 2001. Annualized net charge-offs to average loans were 6.15% for the six months ended June 30, 2002 compared with 4.17% for the six months ended June 30, 2001 and 6.77% for the three months ended December 31, 2001.





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





Non-interest Income





Non-interest income decreased to $666,000 from $2.1 million for the
six months ended June 30, 2001 as a result of a $1.3 million gain on the sale of substantially all of the remaining mortgage loan portfolio in 2001, partially offset by a $61,000 gain on the sale of securities and an increase in service charges and
fee income.





Non-interest Expense





Non-interest expense increased $1.8 million to $15.9 million from $14.1 million for the six months ended June 30, 2001. During 2001, the Company recognized a one-time
non-cash charge of $1.4 million for compensation expense as a result of converting the option plan in UACC, its auto lending unit, to options in the Company. Without considering this item, non-interest expense increased $3.2 million. The increase in
non-interest expense was driven primarily by an increase in salaries, employee benefit costs and occupancy expenses associated with the planned growth of the auto finance business. During the last 12 months, the Company expanded its automobile
finance operations, resulting in an increase from 225 employees in 32 offices, as of June 30, 2001, to 310 employees in 46 offices, as of June 30, 2002.




15




---




Income Taxes





Income taxes increased $1.3 million; from $2.2 million for the six months ended June 30, 2001 to $3.5 million for the six month period ended June 30, 2002. This increase
occurred as a result of a $3.5 million increase in income before income taxes between the two periods.





Comparison of Financial
Condition at June 30, 2002 and December 31, 2001





Total assets increased $107.5 million to $797.1 million,
from $689.6 million at December 31, 2001. This increase occurred primarily as a result of a $39.4 million increase in loans to $275.8 million from $236.4 million at December 31, 2001 and a $75.8 million increase in the combined balance of cash and
cash equivalents and securities available for sale to $501.4 million, from $425.5 million at December 31, 2001.





Cash and cash equivalents decreased to $44.4 million from $140.7 million at December 31, 2001. Securities available for sale increased to $457.0 million from $284.8 million at December 31, 2001. These net increases reflected the
reinvestment of the proceeds received from expanded usage of repurchase agreements in investment securities to meet the 30% qualified thrift lender requirement of the OTS.





Deposits decreased $6.1 million to $351.2 million from $357.3 million at December 31, 2001 while retail deposits increased $44 million to $322.3 million from $278.0 million
at December 31, 2001 as a result of the expanded use of the Internet in originating deposits. Brokered deposits decreased $50.5 million to $28.9 million from $79.4 million at December 31, 2001.





Other interest bearing liabilities include commercial repurchase agreements and Federal Home Loan Bank advances. Outstanding Federal Home Loan Bank advances were $30.0
million compared to $130.0 million at December 31, 2001. Commercial repurchase agreements were $326.9 million compared with 114.8 million at December 31, 2001. The increase in repurchase agreements resulted from a decline in borrowings from FHLB and
the purchase of investment securities to increase assets to comply with the 30% QTL test of the OTS.





Shareholders equity increased to $81.0 million from $75.7 million at December 31, 2001, primarily as a result of net income of $5.7 million during the six months ended June 30, 2002.





Management of Interest Rate Risk





The principal objective of the Companys interest rate risk management program is to evaluate the interest rate risk inherent in the Companys business activities, determine the level of appropriate risk given the
Companys operating environment, capital and liquidity requirements and performance objectives and manage the risk consistent with guidelines approved by the Board of Directors. Through such management, the Company seeks to reduce the exposure
of its operations to changes in interest rates. The Board of Directors reviews on a quarterly basis the asset/liability position of the Company, including simulation of the effect on capital of various interest rate scenarios.





The Companys profits depend, in part, on the difference, or spread, between the effective rate of interest
received on the loans it originates and the interest rates paid on deposits and other financing facilities, which can be adversely affected by movements in interest rates.





The Banks interest rate sensitivity is monitored by the Board of Directors and management through the use of a model, which estimates the change in the Banks
net portfolio value (NPV) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets and liabilities, and NPV Ratio is defined as the NPV in that scenario divided by the market value
of assets in the same scenario. The Company reviews a market value model (the OTS NPV model) prepared quarterly by the Office of Thrift Supervision (the OTS), based on the Banks quarterly Thrift Financial Reports filed
with the OTS. The OTS NPV model measures the Banks interest rate risk by approximating the Banks NPV under various




16




---

scenarios which range from a 300 basis point increase to a 300 basis point decrease in market interest rates. The OTS has incorporated an
interest rate risk component into its regulatory capital rule for thrifts. Under the rule, an institution whose sensitivity measure, as defined by the OTS, in the event of a 200 basis point increase or decrease in interest rates exceeds 20% would be
required to deduct an interest rate risk component in calculating its total capital for purposes of the risk-based capital requirement.





At March 31, 2002, the most recent date for which the relevant OTS NPV model is available, the Banks sensitivity measure resulting from a 100 basis point decrease in interest rates was -21 basis points and would result
in a $1.4 million decrease in the NPV of the Bank, and from a 200 basis point increase in interest rates was -30 basis points and would result in a $4.1 million decrease in the NPV of the Bank. At March 31, 2002, the Banks sensitivity measure
was below the threshold at which the Bank could be required to hold additional risk-based capital under OTS regulations.





Although the NPV measurement provides an indication of the Banks interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in
market interest rates on the Banks net interest income and will differ from actual results. Management monitors the results of this modeling, which are presented to the Board of Directors on a quarterly basis.





The following table shows the NPV and projected change in the NPV of the Bank at March 31, 2002 assuming an instantaneous and sustained
change in market interest rates of 100, 200 and 300 basis points (bp). This table is based on data prepared by the OTS. The table does not include data for 200 and 300 basis points because these changes would infer negative
interest rates and are therefore irrelevant.





Interest Rate Sensitivity of Net Portfolio Value





Net Portfolio Value

NPV as % of Portfolio Value of AssetsChange in Rates

$ Amount

$ Change

% Change

NPV Ratio

% Change(Dollars in thousands)+300 bp

$120,057

$(9,636)

-7%

15.39%

-82 bp+200 bp

125.550

(4,143)

-3%

15.91%

-30 bp+100 bp

128,847

(846)

-1%

16.19%

-2 bp0 bp

129,693





16.21%

-100 bp

128,321

(1,372)

-1%

16.00%

-21 bp-200 bp









-300 bp














17




---




Liquidity and Capital Resources





General





The Companys primary
sources of funds are deposits at the Bank, FHLB advances, commercial repurchase agreements, and, to a lesser extent, interest payments on short-term investments and proceeds from the maturation of securities. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. However, the Company has continued to maintain adequate levels of
liquid assets to fund its operations. Management, through its Asset and Liability Committee, monitors rates and terms of competing sources of funds to use the most cost-effective source of funds wherever possible.





The major source of funds consists of deposits obtained through the Banks four retail branches in California. The Bank offers
checking accounts, various money market accounts, regular passbook accounts, fixed interest rate certificates with varying maturities and retirement accounts. Deposit account terms vary by interest rate, minimum balance requirements and the duration
of the account. Interest rates paid, maturity terms, service fees and withdrawal penalties are established by the Bank periodically based on liquidity and financing requirements, rates paid by competitors, growth goals and federal regulations. The
Bank also solicits deposits by posting its interest rates on a national on-line service which advertises the banks products to investors. At June 30, 2002, retail deposits were $322.3 million or 91.8% of total deposits.





The Bank also uses broker-originated deposits to supplement its retail deposits and, at June 30, 2002, brokered deposits
totaled $28.9 million or 8.2% of total deposits. Brokered deposits are originated through major dealers specializing in such products.





The following table sets forth the balances and rates paid on each category of deposits for the dates indicated.





June 30,


December 31,2002


2001


2000Balance

Weighted Average Rate


Balance

Weighted Average Rate


Balance

Weighted Average Rate(Dollars in thousands)Passbook accounts

$
58,887

2.21
%

$
47,931

2.31
%

$
38,730

4.32
%Checking accounts


16,441

1.08
%


13,795

1.06
%


15,250

2.25
%Certificates of depositUnder $100,000


191,772

3.65
%


212,981

4.43
%


211,427

6.40
%$100,000 and over


84,135

3.38
%


82,643

4.33
%


82,823

6.57
%Total

$
351,235

3.22
%

$
357,350

3.99
%

$
348,230

6.03
%





The following table sets forth the time remaining until maturity
for all CDs at June 30, 2002, December 31, 2001 and 2000.





June 30, 2002

December 31, 2001

December 31, 2000(Dollars in thousands)Maturity within one year

$201,718

$237,683

$257,710Maturity within two years

39,873

46,170

36,440Maturity within three years

19,748

7,657

100Maturity over three years

14,568

4,114

Total certificates of deposit

$275,907

$295,624

$294,250





Although the Bank has a significant amount of deposits maturing in
less than one year, the Company believes the Banks current pricing strategy will enable it to retain a significant portion of these accounts at




18




---

maturity and that it will continue to have access to sufficient amounts of CDs which, together with other funding sources, will provide the
necessary level of liquidity to finance its lending businesses. However, as a result of these shorter-term deposits, the rates on these accounts may be more sensitive to movements in market interest rates, which may result in a higher cost of funds.





At June 30, 2002, the Bank exceeded all of its regulatory capital requirements with tangible capital of $71.6
million, or 8.99% of total adjusted assets, which is above the required level of $11.9 million, or 1.5%; core capital of $71.6 million, or 8.99% of total adjusted assets, which is above the required level of $23.9 million, or 3.0%; and risk-based
capital of $76.3 million, or 21.19% of risk-weighted assets, which is above the required level of $28.8 million, or 8.0%.





As used herein, leverage ratio means the ratio of core capital to adjusted total assets, Tier 1 risk-based capital ratio means the ratio of core capital to risk-weighted assets, and total risk-based capital ratio means the ratio of
total capital to risk-weighted assets, in each case as calculated in accordance with current OTS capital regulations. Under the Federal Deposit Insurance Corporation Act of 1991 (FDICIA), the Bank is deemed to be well
capitalized as of June 30, 2002.





The Company has other sources of liquidity, including FHLB advances,
repurchase agreements and its liquidity and securities portfolio. Through the Bank, the Company can obtain advances from the FHLB, collateralized by its securities and enter into repurchase agreements utilizing its securities. The FHLB functions as
a central reserve bank providing credit for thrifts and certain other member financial institutions. Advances are made pursuant to several programs, each of which has its own interest rate and range of maturities. Limitations on the amount of
advances are based generally on a fixed percentage of total assets or on the FHLBs assessment of an institutions credit-worthiness. As of June 30, 2002, the Banks total borrowing capacity under this credit facility was $199.3
million of which $169.3 million was unused and available for borrowing.





The following table sets forth certain
information regarding the Companys short-term borrowed funds (consisting of FHLB advances and reverse repurchase agreements) at or for the periods ended on the dates indicated.





Six Months ended June 30, 2002


December 31,2001


2000(Dollars in thousands)FHLB advancesMaximum month-end balance

$
130,000


$
130,000


$
60,000Balance at end of period


30,000



130,000



60,000Average balance for period


74,450



38,830



22,877Weighted average interest rate on balance at end of period


2.07
%


1.97
%


6.81
%Weighted average interest rate on average balance for period


2.13
%


4.04
%


6.58
%Warehouse lines of creditMaximum month-end balance

$



$



$
26,623Balance at end of period










Average balance for period










1,796Weighted average interest rate on balance at end of period



%



%



%Weighted average interest rate on average balance for period



%



%


6.27
%Repurchase agreementsMaximum month end balance

$
326,889


$
114,776


$
Balance at end of period


326,889



114,776



Average balance for period


137,466



4,503



Weighted average interest rate on balance at end of period


1.84
%


2.37
%



%Weighted average interest rate on average balance for period


1.91
%


3.46
%



%





The Company had no material contractual obligations or commitments
for capital expenditures at June 30, 2002.








Lending Activities










19




---







Summary of Loan Portfolio. At June
30, 2002, the Companys net loan portfolio constituted of $275.9 million, or 34.6% of the Companys total assets.





The following table sets forth the composition of the Companys loan portfolio at the dates indicated.





June 31, 2002


December 31, 2001


December 31, 2000(Dollars in thousands)Consumer LoansAutomobile installment contracts

$
266,794


$
232,902


$
176,255Insurance premium finance


28,380



28,710



25,843Other consumer loans


47



98



577Total consumer loans


295,221



261,710



202,675Mortgage LoansMortgage loans










16,784Subprime mortgage loans


278



352



1,845Total mortgage loans


278



352



18,629Commercial LoansInsurance premium finance


13,526



10,921



8,342Other commercial loans










55Total commercial loans


13,526



10,921



8,397Total loans


309,025



272,983



229,701Unearned discounts and premium










(728
)Unearned finance charges


(12,621
)


(18,881
)


(20,737
)Allowance for loan losses


(20,473
)


(17,460
)


(15,156
)Total loans, net

$
275,931


$
236,642


$
193,080





Loan Maturities. The following table sets forth the dollar
amount of loans maturing in the Companys loan portfolio at June 30, 2002 based on final maturity. Loan balances are reflected before unearned discounts and premiums, unearned finance charges and allowance for loan losses.





June 30, 2002One Year or Less

More Than 1 Year to 3
Years

More Than 3 Years to 5
Years

More Than 5 Years to 10 Years

More Than 10 Years to 20 Years

More Than 20 Years

Total Loans(Dollars in thousands)Mortgage loans

$


$


$


$


$
278



$
278Commercial loans


13,526
















13,526Consumer loans


35,972


105,760


153,129


360







295,221Total

$
49,498

$
105,760

$
153,129

$
360

$
278



$
309,025





Classified Assets and Allowance for Loan Losses





The Companys policy is to maintain an allowance for loan losses to absorb inherent losses, which may be realized on its loan
portfolio. The allowance includes a specific allowance for identifiable impairments of individual loans and a general valuation allowance for estimates for probable losses not specifically identified. In addition, the Companys allowance for
loan losses is increased by a percentage of each new auto loan, currently 10.5% of the net contract amount. For IPF loans, management established a level of allowance for loan losses based on recent trends in delinquencies and historical charge
offs, currently 1.25% of loans, that it feels adequate for the risk in the portfolio. Each month an amount necessary to reach that level is charged against current earnings and added to allowance for loan losses.




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Periodically, management reviews the level of allowance for loan losses to
determine adequacy. The determination of the adequacy of the allowance for loan losses is based on a variety of factors including an assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of
non-performing loans, current and prospective economic conditions and other factors.





The Companys
management uses its best judgment in providing for possible loan losses and establishing allowances for loan losses. However, the allowance is an estimate, which is inherently uncertain and depends on the outcome of future events. In addition,
regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses. Such agencies may require the Bank to increase the allowance based upon their judgment of the information available
to them at the time of their examination. The Banks most recent examination by its regulatory agencies was completed in May 2002 and no adjustment to the Banks allowance for loan losses was required.





The following table sets forth the remaining balances of all loans (before specific allowances for losses) that were more than 30 days
delinquent at June 30, 2002, December 31, 2001 and 2000.





Loan Delinquencies

June 30, 2002

% of Total Loans

December 31, 2001

% of Total Loans

December 31, 2000

% of Total Loans(Dollars in thousands)30 to 59 days

$1,324

.4%

$   953

0.5%

$  3,071

1.0%60 to 89 days

591

.2%

494

0.3%

2,443

0.8%90+ days

743

.3%

2,374

1.2%

13,307

4.6%Total

$2,658

.9%

$3,821

2.0%

$18,821

6.4%





Nonaccrual and Past Due Loans. A non-mortgage loan is placed
on nonaccrual status when it is delinquent for 120 days or more. When a loan is reclassified from accrual to nonaccrual status, all previously accrued interest is reversed. Interest income on nonaccrual loans is subsequently recognized only to the
extent that cash payments are received or the borrowers ability to make periodic interest and principal payments is in accordance with the loan terms, at which time the loan is returned to accrual status. Accounts, which are deemed fully or
partially uncollectible by management, are generally fully reserved or charged off for the amount that exceeds the estimated fair value (net of selling costs) of the underlying collateral.





The following table sets forth the aggregate amount of nonaccrual loans (net of unearned discounts, premiums and unearned finance charges) at June 30, 2002, December 31,
2001 and 2000.





June 30, 2002


December 31,2001


2000(Dollars in thousands)Nonaccrual loansSingle-family residential

$278


$
2,281


$
15,825Multi-family residential and commercial









100Consumer and other loans

471



1,323



1,060Total

$749


$
3,604


$
16,985Nonaccrual loans as a percentage ofTotal loans held for investment

0.27
%


1.87
%


10.73
%Total assets

0.09
%


0.74
%


3.88
%Allowance for loan losses as a percentage of total loans

6.91
%


7.28
%


4.58
%





Allowance for Loan Losses. The following is a summary of the
changes in the consolidated allowance for loan losses of the Company for the period indicated.




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At or For the Six Months Ended June 30, 2002


At or For the Year
Ended December 31,2001


2000(Dollars in thousands)Allowance for Loan LossesBalance at beginning of period

$17,460


$
15,156


$
14,139Provision for loan losses

183



615



201Provision for loan losses  discontinued operations









2,396Charge-offsMortgage loans

(10
)


(1,713
)


(6,402
)Consumer loans

(8,386
)


(9,173
)


(6,025
)(8,396
)


(10,886
)


(12,427
)RecoveriesMortgage loans





140



327Consumer loans

539



266



286539



406



613Net charge-offs

(7,857
)


(10,480
)


(11,814
)Acquisition discounts allocated to loss allowance

10,686



12,169



10,234Balance at end of period

$20,473


$
17,460


$
15,156Annualized net charge-offs to average loans

6.15
%


4.94
%


5.03
%Ending allowance to period end loans

6.91
%


7.28
%


4.58
%





The Companys policy is to maintain an allowance for loan
losses to absorb future losses, which may be realized on its loan portfolio. The Companys allowance for loan losses is also increased by its allocation of acquisition discounts related to the purchase of automobile installment contracts. The
Company currently allocates 10.5% from acquisition discounts to allowance for loan losses.





The determination of
the adequacy of the allowance for loan losses is based on a variety of factors, including an assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of non-performing loans, the concentration of credit,
current and prospective economic conditions and other factors.





Cash Equivalents and Securities Portfolio





The Companys cash equivalents and securities portfolios are used primarily for liquidity and investment income purposes. Cash
equivalents and securities satisfy regulatory requirements for liquidity.




22




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The following is a summary of the Companys short term investments and
securities portfolios as of the dates indicated.





June 30, 2002


December 31,2001


2000(Dollars in thousands)Balance at end of periodOvernight deposits

$  29,449


$135,267


$  36,477U.S. agency securities

250,525


229,660


166,838U. S. mortgage backed securities

186,309


35,015


46,376Mutual funds

20,162


20,162


10,051Total

$486,445


$420,104


$259,742Weighted average yield at end of periodOvernight deposits

1.31
%

1.23
%

5.69
%U.S. agency securities

2.62
%

3.35
%

6.27
%U.S. mortgage backed securities

3.03
%

6.60
%

7.35
%Mutual funds (mortgage backed securities)

3.23
%

3.59
%

6.59
%Weighted average maturity at end of periodOvernight deposits

1 day


1 day


1 dayU.S. agency securities

60 months


85 months


5 monthsU.S. mortgage backed securities

306 months


254 months


267 monthsMutual funds (mortgage backed securities)

1 day


1 day


1 day





Item 3.
Quantitative and Qualitative Disclosures About Market Risk





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




23




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PART II. OTHER INFORMATION





Item 1.
Legal Proceedings.





Not applicable





Item 2.
Changes in Securities and Use of Proceeds.





Not applicable





Item 3.
Defaults Upon Senior Securities.





Not applicable





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





At the Annual Meeting of the
Companys shareholders held on June 25, 2002 the shareholders considered the following proposals:





Proposal I. The election of three directors to serve terms of two years





Proposal
II. The approval of an amendment to the Companys Stock Incentive Plan to increase the number of shares of common stock reserved for issuance.





Proposal III. The ratification of the selection of KPMG LLP as the Companys independent auditors for 2002 Proposal I Messrs. Lawrence Grill, Ron
Duncanson and Mitchell Lynn were elected as directors of the Company with terms expiring in 2004. These directors were elected with the following share voting: Lawrence Grill 15,309,718 authority given; 23,500 authority waived, Ron Duncanson
15,327,968 authority given, 5,250 authority waived; Mitchell Lynn 15,327,968 authority given, 5,250 authority waived.





Proposal II. The amendment to the stock option plan was approved by shareholders with voting of 12,039,538 for, 722,326 against and 1,750 abstained.





Proposal III. Ratification of KPMG LLP as the Companys independent auditors was approved by shareholders with voting at 15,330,218 for, 2,500 against
and 0 abstained.





Item 5.
Other Information.





Not applicable





Item 6.
Exhibits and Reports on Form 8-K.





(a) List of Exhibits


Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act.





(b) Reports on Form 8-K





None




24




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





UNITED PANAM FINANCIAL CORP.





By:

/S/    GUILLERMO
BRONGuillermo Bron Chairman and Chief Executive Officer (Principal Executive Officer)


Date: August 9, 2002





By:

/S/    GARLAND W.
KOCHGarlanld W. Koch Sr. Vice
President and Chief Financial Officer (Principal Financial
and Accounting Officer)


August 9, 2002
















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