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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, 2004
|--- | ------------------------------------------------------------------------------------------------------------------------------------



Commission File Number 000-24051



UNITED PANAM FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|California                                                     |  | 94-3211687                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



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)



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



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



The number of shares outstanding of the Registrants Common Stock as of
August 13, 2004 was 16,166,365 shares.



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UNITED PANAM FINANCIAL CORP.

FORM 10-Q

JUNE 30, 2004



INDEX



|         |  |                                                                                                                                   |  |     
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                                   |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                                                             |  |     
|Item 1.  |  | Financial Statements (unaudited)                                                                                                  |  |     
|         |  | Consolidated Statements of Financial Condition as of June 30, 2004 and December 31, 2003    as restated                           |  | 1   
|         |  | Consolidated Statements of Operations for the three and six months ended June 30, 2003    and June 30, 2003 as restated           |  | 2   
|         |  | Consolidated Statements of Comprehensive Income for the three and six months ended    June 30, 2004 and June 30, 2003 as restated |  | 3   
|         |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and    June 30, 2003 as restated                     |  | 4   
|         |  | Notes to Consolidated Financial Statements                                                                                        |  | 6   
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 11  
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                        |  | 27  
|Item 4.  |  | Controls & Procedures                                                                                                             |  | 27  
|         |  |                                                                                                                                  
|PART II. |  | OTHER INFORMATION                                                                                                                 |  | 29  
|Item 1.  |  | Legal Proceedings                                                                                                                 |  | 29  
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                         |  | 29  
|Item 3.  |  | Defaults Upon Senior Securities                                                                                                   |  | 29  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                               |  | 29  
|Item 5.  |  | Other Information                                                                                                                 |  | 29  
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                  |  | 29  





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FINANCIAL INFORMATION



PART I.



Item 1. Financial Statements.



United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition

(Unaudited)



|                                                                                              |  |                |           |   |                  |   |           |  
|--------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                              |  | June 30,2004   |           |   | December 31,2003 |  
|                                                                                              |  | (In thousands) |          
|                                                                                              |  |               
|Assets                                                                                        |  |                |           |   |                  |   |           |  
|Cash and due from banks                                                                       |  | $              | 7,076     |   |                  | $ | 8,376     |  
|Short term investments                                                                        |  |                | 16,149    |   |                  |   | 5,833     |  
|                                                                                              |  |                |           |   |                  |   |           |  
|Cash and cash equivalents                                                                     |  |                | 23,225    |   |                  |   | 14,209    |  
|Securities available for sale, at fair value                                                  |  |                | 1,120,999 |   |                  |   | 1,202,444 |  
|Loans                                                                                         |  |                | 514,119   |   |                  |   | 440,992   |  
|Less unearned discount                                                                        |  |                | (20,396   | ) |                  |   | (14,368   | )
|Less allowance for loan losses                                                                |  |                | (24,493   | ) |                  |   | (25,253   | )
|                                                                                              |  |                |           |   |                  |   |           |  
|Loans, net                                                                                    |  |                | 469,230   |   |                  |   | 401,371   |  
|Premises and equipment, net                                                                   |  |                | 3,403     |   |                  |   | 3,163     |  
|Federal Home Loan Bank stock, at cost                                                         |  |                | 11,910    |   |                  |   | 11,563    |  
|Accrued interest receivable                                                                   |  |                | 11,593    |   |                  |   | 9,849     |  
|Other assets                                                                                  |  |                | 28,305    |   |                  |   | 25,107    |  
|                                                                                              |  |                |           |   |                  |   |           |  
|Total assets                                                                                  |  | $              | 1,668,665 |   |                  | $ | 1,667,706 |  
|                                                                                              |  |                |           |   |                  |   |           |  
|                                                                                              |  |               
|Liabilities and Shareholders Equity                                                          |  |                |           |   |                  |   |           |  
|Deposits                                                                                      |  | $              | 520,976   |   |                  | $ | 498,389   |  
|Repurchase agreements                                                                         |  |                | 1,020,584 |   |                  |   | 1,052,205 |  
|Accrued expenses and other liabilities                                                        |  |                | 6,590     |   |                  |   | 6,795     |  
|Junior subordinated debentures/Trust preferred securities                                     |  |                | 10,300    |   |                  |   | 10,000    |  
|                                                                                              |  |                |           |   |                  |   |           |  
|Total Liabilities                                                                             |  |                | 1,558,450 |   |                  |   | 1,567,389 |  
|                                                                                              |  |                |           |   |                  |   |           |  
|Common stock (no par value):                                                                  |  |                |           |   |                  |   |           |  
|Authorized, 30,000,000 shares                                                                 |  |                |           |   |                  |   |           |  
|Issued and outstanding 16,164,365 shares at June 30, 2004 and 16,100,204 at December 31, 2003 |  |                | 66,453    |   |                  |   | 66,109    |  
|Retained earnings                                                                             |  |                | 46,079    |   |                  |   | 34,079    |  
|Unrealized (loss) gain on securities available for sale, net                                  |  |                | (2,317    | ) |                  |   | 129       |  
|                                                                                              |  |                |           |   |                  |   |           |  
|Total shareholders equity                                                                    |  |                | 110,215   |   |                  |   | 100,317   |  
|                                                                                              |  |                |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                    |  | $              | 1,668,665 |   |                  | $ | 1,667,706 |  
|                                                                                              |  |                |           |   |                  |   |           |  



See accompanying
notes to consolidated financial statements.



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------------------ |  | ------------------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                       |  | Three Months Ended June 30,           |        | Six Months Ended June 30,
|                                                       |  | 2004                                  |        | 2003                      |   | 2004   |  | 2003
|                                                       |  | (In thousands, except per share data)
|Interest Income                                        |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Loans                                                  |  | $                                     | 29,488 |                           | $ | 19,973 |  | $    | 56,564 |  | $ | 36,776
|Securities                                             |  |                                       | 4,655  |                           |   | 4,116  |  |      | 9,729  |  |   | 7,830 
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Total interest income                                  |  |                                       | 34,143 |                           |   | 24,089 |  |      | 66,293 |  |   | 44,606
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Interest Expense                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Deposits                                               |  |                                       | 3,494  |                           |   | 3,544  |  |      | 7,013  |  |   | 7,236 
|Repurchase agreements                                  |  |                                       | 2,705  |                           |   | 2,261  |  |      | 5,564  |  |   | 3,857 
|Subordinated debenture                                 |  |                                       | 109    |                           |   |       |  |      | 229    |  |   |      
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Total interest expense                                 |  |                                       | 6,308  |                           |   | 5,805  |  |      | 12,806 |  |   | 11,093
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Net interest income                                    |  |                                       | 27,835 |                           |   | 18,284 |  |      | 53,487 |  |   | 33,513
|Provision for loan losses                              |  |                                       | 5,114  |                           |   | 3,176  |  |      | 10,325 |  |   | 5,879 
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Net interest income after provision for loan losses    |  |                                       | 22,721 |                           |   | 15,108 |  |      | 43,162 |  |   | 27,634
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Non-interest Income                                    |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Service charges and fees                               |  |                                       | 218    |                           |   | 217    |  |      | 474    |  |   | 447   
|Loan related charges and fees                          |  |                                       | 78     |                           |   | 69     |  |      | 164    |  |   | 161   
|Gain on sale of securities                             |  |                                       | 98     |                           |   | 315    |  |      | 597    |  |   | 315   
|Other income                                           |  |                                       | 182    |                           |   | 170    |  |      | 620    |  |   | 344   
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Total non-interest income                              |  |                                       | 576    |                           |   | 771    |  |      | 1,855  |  |   | 1,267 
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Non-interest Expense                                   |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Compensation and benefits                              |  |                                       | 7,998  |                           |   | 6,477  |  |      | 15,711 |  |   | 12,488
|Occupancy                                              |  |                                       | 1,297  |                           |   | 1,107  |  |      | 2,540  |  |   | 2,138 
|Other                                                  |  |                                       | 3,425  |                           |   | 2,512  |  |      | 6,631  |  |   | 4,791 
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Total non-interest expense                             |  |                                       | 12,720 |                           |   | 10,096 |  |      | 24,882 |  |   | 19,417
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Income before income taxes and discontinued operations |  |                                       | 10,577 |                           |   | 5,783  |  |      | 20,135 |  |   | 9,484 
|Income taxes                                           |  |                                       | 4,274  |                           |   | 2,324  |  |      | 8,135  |  |   | 3,821 
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Income before discontinued operations                  |  |                                       | 6,303  |                           |   | 3,459  |  |      | 12,000 |  |   | 5,663 
|Discontinued operations                                |  |                                       |       |                           |   |       |  |      |       |  |   | 432   
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Net income                                             |  | $                                     | 6,303  |                           | $ | 3,459  |  | $    | 12,000 |  | $ | 6,095 
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Earnings per share-basic:                              |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Income before discontinued operations                  |  | $                                     | 0.39   |                           | $ | 0.22   |  | $    | 0.74   |  | $ | 0.35  
|Discontinued operations                                |  |                                       |       |                           |   |       |  |      |       |  |   | 0.03  
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Net income                                             |  | $                                     | 0.39   |                           | $ | 0.22   |  | $    | 0.74   |  | $ | 0.38  
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Weighted average shares outstanding                    |  |                                       | 16,151 |                           |   | 15,877 |  |      | 16,135 |  |   | 15,872
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Earnings per share-diluted:                            |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Income before discontinued operations                  |  | $                                     | 0.35   |                           | $ | 0.20   |  | $    | 0.67   |  | $ | 0.33  
|Discontinued operations                                |  |                                       |       |                           |   |       |  |      |       |  |   | 0.02  
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Net income                                             |  | $                                     | 0.35   |                           | $ | 0.20   |  | $    | 0.67   |  | $ | 0.35  
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       
|Weighted average shares outstanding                    |  |                                       | 17,959 |                           |   | 17,351 |  |      | 18,008 |  |   | 17,175
|                                                       |  |                                       |        |                           |   |        |  |      |        |  |   |       

See accompanying notes to consolidated financial statements.



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



|                                                 |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  
|------------------------------------------------ |  | --------------------------- | ------ | - | ------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                                 |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                 |  | 2004                        |        |   | 2003                      |   |       | 2004 |  |   | 2003   |  
|(Dollars in thousands)                           |  |                             |        |   |                           |   |       |      |  |   |        |  
|Net income                                       |  | $                           | 6,303  |   |                           | $ | 3,459 |      |  | $ | 12,000 |   |  | $ | 6,095 |  
|Other comprehensive income, net of tax:          |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  
|Unrealized loss on securities available for sale |  |                             | (2,794 | ) |                           |   | (70   | )    |  |   | (2,446 | ) |  |   | (334  | )
|                                                 |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  
|Comprehensive income                             |  | $                           | 3,509  |   |                           | $ | 3,389 |      |  | $ | 9,554  |   |  | $ | 5,761 |  
|                                                 |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  







See accompanying notes to consolidated financial statements



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                  |  |                           |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Six Months Ended June 30, |         
|                                                                                  |  | 2004                      |          |   | 2003 |  
|(Dollars in thousands)                                                            |  |                           |         
|Cash Flows from Operating Activities                                              |  |                           |          |   |      |   |          |  
|Net income                                                                        |  | $                         | 12,000   |   |      | $ | 6,095    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |      |   |          |  
|Gain on sale of securities                                                        |  |                           | (597     | ) |      |   | (315     | )
|Provision for loan losses                                                         |  |                           | 10,325   |   |      |   | 5,879    |  
|Depreciation and amortization                                                     |  |                           | 638      |   |      |   | 533      |  
|FHLB stock dividend                                                               |  |                           | (347     | ) |      |   | (51      | )
|Decrease (increase) in accrued interest receivable and other assets               |  |                           | (8,594   | ) |      |   | 2,527    |  
|Decrease in accrued expenses and other liabilities                                |  |                           | (205     | ) |      |   | (4,159   | )
|Amortization of premiums on securities                                            |  |                           | 902      |   |      |   | 2,024    |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                           | 14,122   |   |      |   | 12,533   |  
|Cash Flows from Investing Activities                                              |  |                           |          |   |      |   |          |  
|Proceeds from maturities of investment securities                                 |  |                           | 137,318  |   |      |   | 374,579  |  
|Purchase of investment securities                                                 |  |                           | (150,939 | ) |      |   | (700,261 | )
|Proceeds from sales of securities                                                 |  |                           | 90,704   |   |      |   | 10,630   |  
|Originations and purchases, net of repayments, of non-mortgage loans              |  |                           | (72,621  | ) |      |   | (65,046  | )
|Purchase of premises and equipment                                                |  |                           | (878     | ) |      |   | (640     | )
|Proceeds from purchase of FHLB stock, net                                         |  |                           |         |   |      |   | (7,861   | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                               |  |                           | 3,584    |   |      |   | (388,599 | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash Flows from Financing Activities                                              |  |                           |          |   |      |   |          |  
|Issuance of capital stock                                                         |  |                           | 344      |   |      |   | 55       |  
|Net increase in deposits                                                          |  |                           | 22,587   |   |      |   | 349      |  
|(Repayments) proceeds of repurchase agreements                                    |  |                           | (31,621  | ) |      |   | 394,210  |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                               |  |                           | (8,690   | ) |      |   | 394,614  | )
|Net increase in cash and cash equivalents                                         |  |                           | 9,016    |   |      |   | 18,548   |  
|Cash and cash equivalents at beginning of period                                  |  |                           | 14,209   |   |      |   | 13,554   |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                        |  | $                         | 23,225   |   |      | $ | 32,102   |  
|                                                                                  |  |                           |          |   |      |   |          |  





See accompanying notes to consolidated financial statements.



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

(Unaudited)



|                                                  |  |                           |        |      |   |       
|------------------------------------------------- |  | ------------------------- | ------ | ---- | - | ------
|                                                  |  | Six Months Ended June 30,
|                                                  |  | 2004                      |        | 2003
|(Dollars in thousands)                            |  |                           |        |     
|Supplemental Disclosures of Cash Flow Information |  |                           |        |      |   |       
|Cash paid for:                                    |  |                           |        |      |   |       
|Interest                                          |  | $                         | 12,243 |      | $ | 11,367
|                                                  |  |                           |        |      |   |       
|Income Taxes                                      |  | $                         | 9,340  |      | $ | 5,200 
|                                                  |  |                           |        |      |   |       
|Deconsolidation of Trust Preferred Securities     |  | $                         | 300    |      | $ |      
|                                                  |  |                           |        |      |   |       











See accompanying notes to consolidated financial statements



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United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Three and Six Months Ended June 30, 2004 and 2003

(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
that state, 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. Restatements



The Company has restated its Financial Statements for the years ended December 31, 2003 and 2002 to correct errors in the
application of the individual static pool methodology used in the computation of its allowance for loan losses and corresponding provision for loan losses. Overall, this restatement increased the allowance for loan losses and the related deferred
tax asset and decreased retained earnings. These restatements also increased the provision for loan losses and lowered income taxes and net income in 2002.



In addition, the Company also made the following restatements: (a) restated its consolidated financial statements to exclude the gain on sale of residual
interests in securitization in 2003 from income from continuing operations and reporting it, net of taxes, as income from discontinued operations, and (b) restated its consolidated financial statements for the year ended December 31, 2003, 2002 and
2001 to correct errors in the computation of the dilutive effect of outstanding stock options to consider the tax benefit of the Company receives as part of the assumed proceeds under the treasury stock method, which decreased the number
of fully diluted shares outstanding to be utilized in the earnings per share calculations.



The Company has filed a Form 10-K/A for 2003 and a Form 10-Q/A for the quarter ended March 31, 2004. Readers should refer to the Form 10-K/A and Form 10-Q/A for more information relating to
the restatements.



3. Basis of Presentation



The accompanying unaudited consolidated financial statements include the
accounts of United PanAm Financial Corp., Pan American Financial, Inc., Pan American Bank, FSB and United Auto Credit Corporation (UACC). Substantially all of the Companys revenues are derived from the operations of UACC and they represent
substantially all of the Companys consolidated assets and liabilities as of June 30, 2004 and December 31, 2003. 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



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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/A for the year ended December 31, 2003.



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.



4. Earnings Per Share



Basic EPS and diluted EPS are calculated as follows for the three and six months ended June 30, 2004 and 2003:



|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------------------------- |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                            |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                            |  | 2004                        |        | 2003                      |   | 2004   |  | 2003
|(In thousands, except per share amounts)    |  |                             |        |                           |   |        |  |     
|Earnings per sharebasic:                   |  |                             |        |                           |   |        |  |      |        |  |   |       
|Income before discontinued operations       |  | $                           | 6,303  |                           | $ | 3,459  |  | $    | 12,000 |  | $ | 5,663 
|Discontinued operations                     |  |                             |       |                           |   |       |  |      |       |  |   | 432   
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Net Income                                  |  | $                           | 6,303  |                           | $ | 3,459  |  | $    | 12,000 |  | $ | 6,095 
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Average common shares outstanding           |  |                             | 16,151 |                           |   | 15,877 |  |      | 16,134 |  |   | 15,872
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Per share before discontinued operations    |  | $                           | 0.39   |                           | $ | 0.22   |  | $    | 0.74   |  | $ | 0.35  
|Discontinued operations                     |  |                             |       |                           |   |       |  |      |       |  |   | 0.03  
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Earnings per share                          |  | $                           | 0.39   |                           | $ | 0.22   |  | $    | 0.74   |  | $ | 0.38  
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Earnings per sharediluted:                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|Income before discontinued operations       |  | $                           | 6,303  |                           | $ | 3,459  |  | $    | 12,000 |  | $ | 5,663 
|Discontinued operations                     |  |                             |       |                           |   |       |  |      |       |  |   | 432   
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Net Income                                  |  | $                           | 6,303  |                           | $ | 3,459  |  | $    | 12,000 |  | $ | 6,095 
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Average common shares outstanding           |  |                             | 16,151 |                           |   | 15,877 |  |      | 16,134 |  |   | 15,872
|Add: Stock options                          |  |                             | 1,808  |                           |   | 1,474  |  |      | 1,874  |  |   | 1,303 
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Average common shares outstanding  diluted |  |                             | 17,959 |                           |   | 17,351 |  |      | 18,008 |  |   | 17,175
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Per share before discontinued operations    |  | $                           | 0.35   |                           | $ | 0.20   |  | $    | 0.67   |  | $ | 0.33  
|Discontinued operations                     |  |                             |       |                           |   |       |  |      |       |  |   | 0.02  
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       
|Earnings per share                          |  | $                           | 0.35   |                           | $ | 0.20   |  | $    | 0.67   |  | $ | 0.35  
|                                            |  |                             |        |                           |   |        |  |      |        |  |   |       



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5. Stock-Based Compensation



At June 30, 2004 and 2003, the Company has issued stock options to certain of its employees and directors. The Company
accounts for these options under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all
options granted had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation cost for the Companys stock option plan been determined based on the fair value consistent
with the Provisions of SFAS No. 123, Accounting for Stock-Based Compensation, the Companys net income and income per share would have been reduced to the pro forma amounts indicated below for the three months and six months ended June 30, 2004
and 2003:



|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      
|--------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | ------------------------- | - | ----- |  | ---- | ------ |  | - | -----
|                                                                                                                |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                                                                                                |  | 2004                        |       | 2003                      |   | 2004  |  | 2003
|(In thousands, except per share amounts)                                                                        |  |                             |       |                           |   |       |  |     
|Net Income as reported                                                                                          |  | $                           | 6,303 |                           | $ | 3,459 |  | $    | 12,000 |  | $ | 6,095
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards |  | $                           | 518   |                           | $ | 277   |  | $    | 1,021  |  | $ | 537  
|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      
|Net Incomepro forma                                                                                            |  | $                           | 5,785 |                           | $ | 3,182 |  | $    | 10,979 |  | $ | 5,558
|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      
|Net Income per share as reportedbasic                                                                          |  | $                           | 0.39  |                           | $ | 0.22  |  | $    | 0.74   |  | $ | 0.38 
|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      
|Net Income per sharepro formabasic                                                                            |  | $                           | 0.36  |                           | $ | 0.20  |  | $    | 0.68   |  | $ | 0.35 
|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      
|Net Income per share as reported fully diluted                                                                  |  | $                           | 0.35  |                           | $ | 0.20  |  | $    | 0.67   |  | $ | 0.35 
|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      
|Net Income per sharepro formafully diluted                                                                    |  | $                           | 0.32  |                           | $ | 0.18  |  | $    | 0.61   |  | $ | 0.32 
|                                                                                                                |  |                             |       |                           |   |       |  |      |        |  |   |      



6. Allowance for Loan Losses



The total allowance for loan losses was $24.5 million at
June 30, 2004 compared with $25.0 million at June 30, 2003, representing 4.96% of loans at June 30, 2004 and 6.45% at June 30, 2003.



The following is a summary of the changes in the allowance for loan losses on auto loans allocated to loans

purchased before January 1, 2003.



|                          |  |        |        |  
|------------------------- |  | ------ | ------ | -
|                          |  | Amount |       
|Allowance for loan Losses |  |        |        |  
|Balance at March 31, 2004 |  | $      | 10,957 |  
|Provision for loan losses |  |        | 1,323  |  
|Net charge offs           |  |        | (4,116 | )
|                          |  |        |        |  
|Balance at June 30, 2004  |  | $      | 8,164  |  
|                          |  |        |        |  
|Balance at March 31, 2003 |  | $      | 23,130 |  
|Provision for loan losses |  |        | (1,569 | )
|Net charge offs           |  |        | (2,883 | )
|                          |  |        |        |  
|Balance at June 30, 2003  |  | $      | 18,678 |  
|                          |  |        |        |  



7. Recent Accounting Developments



In December 2003, the FASB issued FASB Interpretation No.
46 (revised December 2003), Consolidation of Variable Interest Entities,which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. We are required to apply FIN 46R to variable interests in variable interest
entities created after December 31, 2003. For variable interest in variable interest entities created before January



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1, 2004 the Interpretation is applied beginning January 1, 2005. For any variable interest entities that must be consolidated under FIN 46R that were created
before January 1, 2004, the assets, liabilities and noncontrolling interest of the variable interest entity initially are measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously
recognized interest being recognized as the cumulative effect of an account change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and
noncontrolling interest of the variable interest entity. The Company has evaluated the impact of applying FIN 46R to existing variable interest entities in which it has variable interests. The adoption of FIN 46R did not have a material impact on
the Companys financial statements.



In December 2003, the
Accounting Standards Executive Committee of the American Institute of Certified Public Accounts issued Statement of Position 03-03. Accounting for Certain Loans or Debt Securities Acquired in a Transfer, or SOP 03-03. This SOP addresses accounting
for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to
credit quality. It includes such loans acquired in purchase business combinations and applies to all nongovernmental entities, including not-for-profit organizations. This SOP does not apply to loans originated by an entity. This SOP limits the
yield that may be accreted (accretable yield) to the excess of the investors estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investors initial
investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP
prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of loans yield
over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment. This SOP prohibits carrying over or creation of valuation allowances in the initial accounting of all loans acquired in a
transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is
effective for loans acquired in fiscal years beginning after December 15, 2004. Management has not completed its evaluation of the impact this pronouncement may have on our consolidated financial position and results of operations.



In March 2004, the FASB issued Emerging Issues Task Force Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This EITF describes a model that involves three steps: (1) determine whether an investment is impaired, (2) determine whether the impairment is
other-than-temporary, and (3) to recognize the impairment loss in earnings. The EITF also requires several additional disclosures for cost-method investments. The EITFs impairment accounting guidance is effective for reporting periods
beginning after June 15, 2004. The Company expects that the adoption of this EITF will not have a material impact on its consolidated financial statements.



8. Operating Segments



The Company has three reportable segments: automobile finance, insurance premium finance and banking. The automobile 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 underwrites and finances automobile and commercial insurance
premiums in California. The banking segment operates a three-branch federal savings bank and is the principal funding source for the Companys automobile and insurance premium finance segments. The Company is in the process of implementing a
strategic plan to no longer use insured deposits of the Bank as a funding source and, instead, to fund the automobile and insurance premium finance segments through securitizations and warehouse lines of credit.



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).



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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, 2004
|                               |  | Auto Finance                               |         | Insurance PremiumFinance |   |        | Banking |  | Total
|(In thousands)                 |  |                                            |         |                          |   |        |         |  |      
|Net interest income            |  | $                                          | 24,420  |                          | $ | 575    |         |  | $     | 2,840     |  | $ | 27,835   
|Provision for loan losses      |  |                                            | 5,106   |                          |   | 8      |         |  |       |          |  |   | 5,114    
|Non-interest income            |  |                                            | 124     |                          |   | 144    |         |  |       | 308       |  |   | 576      
|Non-interest expense           |  |                                            | 10,671  |                          |   | 40     |         |  |       | 2,009     |  |   | 12,720   
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Segment profit, pre-tax        |  | $                                          | 8,767   |                          | $ | 671    |         |  | $     | 1,139     |  | $ | 10,577   
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Total assets                   |  | $                                          | 445,488 |                          | $ | 38,682 |         |  | $     | 1,184,495 |  | $ | 1,668,665
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|                               | 
|                               |  | At or For Three Months Ended June 30, 2003
|                               |  | Auto Finance                               |         | Insurance PremiumFinance |   |        | Banking |  | Total
|(In thousands)                 |  |                                            |         |                          |   |        |         |  |      
|Net interest income            |  | $                                          | 16,013  |                          | $ | 598    |         |  | $     | 1,673     |  | $ | 18,284   
|Provision for loan losses      |  |                                            | 3,113   |                          |   | 63     |         |  |       |          |  |   | 3,176    
|Non-interest income            |  |                                            | 105     |                          |   | 129    |         |  |       | 537       |  |   | 771      
|Non-interest expense           |  |                                            | 8,331   |                          |   | 57     |         |  |       | 1,708     |  |   | 10,096   
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Segment profit (loss), pre-tax |  | $                                          | 4,674   |                          | $ | 607    |         |  | $     | 502       |  | $ | 5,783    
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Total assets                   |  | $                                          | 330,232 |                          | $ | 39,716 |         |  | $     | 974,543   |  | $ | 1,344,491
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|                               | 
|                               |  | At or For Six Months Ended June 30, 2004  
|                               |  | Auto Finance                               |         | Insurance PremiumFinance |   |        | Banking |  | Total
|(In thousands)                 |  |                                            |         |                          |   |        |         |  |      
|Net interest income            |  | $                                          | 46,757  |                          | $ | 1,195  |         |  | $     | 5,535     |  | $ | 53,487   
|Provision for loan losses      |  |                                            | 10,303  |                          |   | 22     |         |  |       |          |  |   | 10,325   
|Non-interest income            |  |                                            | 252     |                          |   | 296    |         |  |       | 1,307     |  |   | 1,855    
|Non-interest expense           |  |                                            | 20,709  |                          |   | 78     |         |  |       | 4,095     |  |   | 24,882   
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Segment profit, pre-tax        |  | $                                          | 15,997  |                          | $ | 1,391  |         |  | $     | 2,747     |  | $ | 20,135   
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Total assets                   |  | $                                          | 445,488 |                          | $ | 38,682 |         |  | $     | 1,184,495 |  | $ | 1,668,665
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|                               | 
|                               |  | At or For Six Months Ended June 30, 2003  
|                               |  | Auto Finance                               |         | Insurance PremiumFinance |   |        | Banking |  | Total
|(In thousands)                 |  |                                            |         |                          |   |        |         |  |      
|Net interest income            |  | $                                          | 29,265  |                          | $ | 1,220  |         |  | $     | 3,028     |  | $ | 33,513   
|Provision for loan losses      |  |                                            | 6,018   |                          |   | (139   | )       |  |       |          |  |   | 5,879    
|Non-interest income            |  |                                            | 227     |                          |   | 255    |         |  |       | 785       |  |   | 1,267    
|Non-interest expense           |  |                                            | 15,962  |                          |   | 111    |         |  |       | 3,344     |  |   | 19,417   
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Segment profit (loss), pre-tax |  | $                                          | 7,512   |                          | $ | 1,503  |         |  | $     | 469       |  | $ | 9,484    
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          
|Total assets                   |  | $                                          | 330,232 |                          | $ | 39,716 |         |  | $     | 974,543   |  | $ | 1,344,491
|                               |  |                                            |         |                          |   |        |         |  |       |           |  |   |          



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



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9. Subsequent Events



The Bank has entered into definitive agreements to sell all its deposits liabilities, which includes the sale of all three branches, its wholesale
deposits and Internet deposits, to various parties. All of the definitive agreements are subject to regulatory approval and satisfaction of other conditions to the closing as set forth in the agreements. These agreements are expected to be
consummated during the third and fourth quarter of 2004.



UPFC
has engaged Deutsche Bank Securities Inc. and/or one its affiliates to arrange for up to a $250 million warehouse financing facility and to act as financial advisor, underwriter and placement agent in connection with a term securitization of up to
$500 million for its portfolio of automobile loan receivables. These transactions are expected to be consummated during the third quarter.



Item 2. Mangements Discussion and Analysis of Finanacial Condition and Results of Operations.



Certain statements in this Quarterly Report on Form 10-Q, including statements regarding United PanAm Financial Corp.s (UPFC)
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: loans we made to credit-impaired borrowers; our need for additional sources of financing; concentration of our banking 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; 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



Company



We are a specialty finance company engaged primarily in non-prime automobile
finance and insurance premium finance. We provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources.



Our automobile finance business is conducted through United Auto Credit
Corporation, or UACC. UACC purchases and holds for investment nonprime automobile installment sales contracts, or automobile contracts, originated by independent and franchised dealers of used automobiles. Our insurance premium finance business is
conducted through an agreement with BPN Corporation, or BPN. Under this agreement, we finance automobile and small business insurance premiums. BPN markets this financing primarily to independent insurance agents in California.



We have historically funded our automobile finance and our insurance premium
finance businesses mainly with retail and wholesale bank deposits held by our wholly-owned subsidiary, Pan American Bank, FSB, a federally chartered savings association, or the Bank. While we currently use bank deposits to fund in part our
automobile finance and insurance premium finance businesses, we are in the process of shifting the funding source of these businesses and have implemented a plan to exit the Banks federal thrift charter because of the increasing regulatory
requirements associated with financing our non-prime automobile finance business mainly with insured deposits. Non-prime lending has been and continues to be an area of lending which has been the subject of extraordinary regulatory concern and
scrutiny among all of the federal banking regulatory authorities, including the Office of Thrift Supervision, or OTS, which supervises the Bank.



As part of our strategic plan, we have retained financial advisors to assist with structuring and executing our plan. Our plan is to exit the federal
thrift charter and concurrently receive cash proceeds from third parties to finance the automobile and insurance premium receivables. To execute a key element of the plan, we and the Bank have entered into definitive agreements to sell the remaining
three branches of the Bank and certain of the



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Banks brokered certificates of deposits. Additionally, as part of our strategic plan, we expect that the Bank will distribute all non-cash assets and
excess capital to us before it exits the thrift charter, including the automobile finance and insurance premium finance businesses. Until our strategic plan is completed, we are continuing with our planned expansion of the automobile finance branch
network and may, from time to time, sell automobile receivables in order to control the amount of non-prime automobile loans in our portfolio and reduce our reliance on insured deposits of the Bank. For more information see Liquidity and
Capital Resources  Strategic Plan Relating to Shift In Funding Sources.



Automobile Finance Business



We entered the nonprime automobile finance business in February 1996 by establishing UACC as a subsidiary of the Bank. UACC purchases automobile contracts primarily from dealers in used automobiles.



We provide financing to borrowers who typically have limited or impaired
credit histories that restrict their ability to obtain loans through traditional sources. Financing arms of automobile manufacturers generally do not make these loans to non-prime borrowers, nor do many other traditional automotive lenders. Nonprime
borrowers generally pay higher interest rates and loan fees than do prime borrowers.



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



Insurance Premium Finance Business



We entered the insurance premium finance business in May 1995 through an agreement with BPN. Under this ongoing agreement,
we underwrite and finance consumer automobile and small business, or commercial, insurance premiums. BPN markets this financing primarily to independent insurance agents in California and services such insurance premium loans.



BPN markets the automobile insurance financing to drivers who are classified
by insurance companies as non-standard or high risk for a variety of reasons, including age, driving record, a lapse in insurance coverage or ownership of high performance automobiles. We also provide commercial insurance financing to small
businesses for property/casualty and specialty classes of insurance. Our collateral for both consumer and commercial loans is the unearned insurance premium held by the insurance provider. We do not sell or have the risk of underwriting the
underlying insurance policy.



The Bank



The Bank is a federally chartered stock savings bank, which was formed in
1994 and has three retail branch offices in California and $521.0 million in deposits at June 30, 2004. During 2003, the Bank sold one of its retail bank branches in a transaction that closed on February 7, 2004. The deposits sold were approximately
$34 million. As described in more detail below, as part of our strategic plan to shift the funding source of our business, the Bank has recently entered into definitive agreements to sell its remaining three branches and certain of its brokered
certificates of deposit, which amount to approximately $404 million. The Bank has focused its branch marketing efforts on building a middle-income customer base, including some efforts targeted at local Hispanic communities.



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Under federal regulatory requirements, the Bank must maintain at least 60% of its assets in
mortgage-related securities. The Bank has chosen to meet this requirement by investing solely in AAA-rated, United States Government Agency securities. The mortgage-related securities we purchase are typically adjustable-rate investments, which we
finance through similarly indexed adjustable rate repurchase agreements. As of June 30, 2004, we had approximately $1.3 billion in available repurchase contracts, typically one year committed lines, with staggered maturities to reduce our risk of
liquidity shortfalls. We manage our investment securities portfolio with an emphasis on preserving capital by locking in a net spread between our asset yields and our cost of funds.



We have historically funded our automobile finance and our insurance premium finance businesses mainly with retail and
wholesale bank deposits held by the Bank. However, we have implemented a strategic plan to shift the funding source of our automobile finance and insurance premium finance business to a source outside of the federal thrift charter. Our plan is to
exit the federal thrift charter and concurrently receive cash proceeds from third parties to finance the automobile and insurance premium receivables. To execute a key element of the plan, we and the Bank have entered into definitive agreements to
sell the remaining three branches of the Bank and the Banks brokered certificates of deposit. Additionally, as part of our strategic plan, we expect that the Bank will distribute all non-cash assets and excess capital to us before it exits the
thrift charter, including the automobile finance and insurance premium finance businesses (which currently operate as subsidiaries of the Bank) and United States Government Agency Securities. For more information see Liquidity and Capital
Resources  Strategic Plan Relating to Shift In Funding Sources.



Critical Accounting Policies



We have
established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our accounting policies are integral to understanding
the results reported. Accounting policies are described in detail in Note 3 to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS presented in our 2003 Annual Report on Form 10-K/A.



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



As discussed above, the Company has restated its financial condition and results operations for the years ended December 31, 2003 and 2002 and the
three-months ended March 31, 2004 and 2003 to reflect the following: 1) a correction of an error in the application of the individual static pool methodology utilized in estimating the appropriate amount of the allowance for loan losses and the
related provision for loan losses for 2003 and 2002, 2) a reclassification of a gain on sale of residual interests in 2003 as discontinued operations, and 3) a correction in the computation of earnings per share to consider the tax benefit that the
Company will receive as part of the assumed proceeds under the treasury stock method. For more information see Note 2. Restatements to the accompanying notes to the consolidated financial statements in this Form 10-Q.



Allowance for Loan Losses



Our loan loss allowances are monitored by management based on a variety of
factors including an assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of nonperforming loans, current and prospective economic conditions and other factors. Management also undertakes a review of
various quantitative and qualitative analyses. Quantitative analyses include the review of charge-off trends by loan type, analysis of cumulative losses by static pool and evaluation of credit loss



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experienced by credit tier and geographic location. Other quantitative analyses include the concentration of any credit tier, the level of nonperformance and
the percentage of delinquency. Qualitative analysis includes trends in charge-offs over various time periods and at various statistical midpoints and high points, the severity of depreciated values of repossession and trends in the economy generally
or in specific geographic locations.



We established our
allowance for loan losses for auto contracts purchased after January 1, 2003 by using the Expected 12 month Charge Off Method which establishes allowances based on an analysis that sums the expected charge-offs for the next 12 months in
each static loss pool.



For automobile contracts purchased
prior to January 1, 2003 the Company accounts for such contracts by static pool, stratified into six-month buckets, so that the credit risk in each individual static pool can be evaluated independently, on a periodic basis, in order to estimate the
future losses within each static pool. Additional provisions for credit losses are recognized immediately for pools whereby the remaining amount of the initial discount set aside was determined to be insufficient to cover losses expected to be
incurred based on an analysis of projected losses.



Commencing
January 1, 2003, the Bank began to allocate the purchase price entirely to automobile contracts and unearned income at the date of purchase. The unearned income is accreted as an adjustment to yield over the life of the contract. An allowance for
credit losses is now established through provisions for losses record in income as necessary to provide for estimated contract losses (net of remaining unearned income) at each reporting date. Management expects that future results will reflect
higher yields and provisions for credit losses being recorded from purchased automobile contracts.



Despite these analyses, we recognize that establishing an allowance is an estimate, which is inherently uncertain and depends on the outcome of further
events. Our operating results and financial conditions are sensitive to changes in our estimate for loan losses and the estimates underlying assumptions. Our operating results and financial condition are immediately impacted as changes in
estimates for calculating loan loss reserves immediately pass through our income statement as an additional provision expense. Management updates our loan loss estimates quarterly to reflect current charge-offs.



Factors Affecting Future Results of Operations



In addition to the factors detailed in our Annual Report on Form 10-K/A
under Item 1. BusinessFactors that May Affect Future Results of Operations and other risks we may be subject to, we are subject to the following:



We may not meet the continued listing criteria for The NASDAQ National Market, which could materially adversely affect
the price and liquidity of our stock, our business and our financial condition.



For continued listing of our common stock on The NASDAQ National Market, we are required to, among other things, file in a timely manner our annual and quarterly reports. As a result of the delayed filing of this
quarterly report, we received a Nasdaq Staff Determination on August 26, 2004 indicating that we have failed to supply The Nasdaq Stock Market with our quarterly report for the period ended June 30, 2004 as required by Marketplace Rule 4310(c)(14)
and we have, therefore, failed to comply with requirements for continued listing. Accordingly, our securities are subject to delisting from the Nasdaq National Market. We have requested a hearing before a Nasdaq Listing Qualifications Panel to
review the Nasdaq Staff Determination, although no assurance although that the Panel will grant our request for continued listing.



If we are unable to continue to list our common stock for trading on The NASDAQ National Market, there may be an adverse impact on the market price and
liquidity of our common stock. Delisting of our common stock from The Nasdaq National Market could also materially affect our business, including, among other things, our ability to raise additional financing to fund our operations, and our ability
to attract and retain personnel, including management personnel. In addition, if we were unable to list our common stock for trading on



14



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##### Table of Contents

NASDAQ, many institutional investors would no longer be able to retain their interests in and/or make further investments in our common stock because of
their internal rules and protocols.



Average Balance Sheets



The following table sets forth information relating to the Company for
the three and six-month periods ended June 30, 2004 and 2003. The yields and costs are derived by dividing annualized 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, |          
|                                                                |  | 2004                        |           |          | 2003 |                    
|                                                                |  | Average Balance (1)         |           | Interest |      | Average Yield/ Cost |  |        | Average Balance (1) |  | Interest |           | Average Yield/ Cost |  
|(Dollars in thousands)                                          |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |  
|Assets                                                          |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Interest earning assets                                         |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Securities                                                      |  | $                           | 1,136,341 |          | $    | 4,653               |  | 1.64   | %                   |  | $        | 876,248   |                     | $ | 4,116  |  | 1.88   | %
|IPF loans, net (2)                                              |  |                             | 38,183    |          |      | 1,036               |  | 10.88  | %                   |  |          | 37,027    |                     |   | 1,050  |  | 11.37  | %
|Automobile installment contracts,net (3)                        |  |                             | 414,786   |          |      | 28,454              |  | 27.52  | %                   |  |          | 307,175   |                     |   | 18,923 |  | 24.98  | %
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Total interest earning assets                                   |  |                             | 1,589,310 |          |      | 34,143              |  | 8.62   | %                   |  |          | 1,220,450 |                     |   | 24,089 |  | 8.00   | %
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Non-interest earning assets                                     |  |                             | 47,196    |          |      |                     |  |        |                     |  |          | 44,014    |                     |   |        |  |        |  
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Total assets                                                    |  | $                           | 1,636,506 |          |      |                     |  |        |                     |  | $        | 1,264,464 |                     |   |        |  |        |  
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Liabilities and Equity                                          |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Interest bearing liabilities                                    |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Deposits                                                        |  | $                           | 523,260   |          | $    | 3,494               |  | 2.68   | %                   |  | $        | 469,659   |                     | $ | 3,544  |  | 3.03   | %
|Subordinated debenture                                          |  |                             | 10,300    |          |      | 109                 |  | 4.24   | %                   |  |          |          |                     |   |       |  |       | %
|Repurchase Agreements                                           |  |                             | 988,853   |          |      | 2,705               |  | 1.10   | %                   |  |          | 698,170   |                     |   | 2,261  |  | 1.30   | %
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Total interest bearing liabilities                              |  |                             | 1,522,413 |          |      | 6,308               |  | 1.66   | %                   |  |          | 1,167,829 |                     |   | 5,805  |  | 1.99   | %
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Non-interest bearing liabilities                                |  |                             | 5,706     |          |      |                     |  |        |                     |  |          | 5,890     |                     |   |        |  |        |  
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Total liabilities                                               |  |                             | 1,528,119 |          |      |                     |  |        |                     |  |          | 1,173,719 |                     |   |        |  |        |  
|Equity                                                          |  |                             | 108,387   |          |      |                     |  |        |                     |  |          | 90,745    |                     |   |        |  |        |  
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Total liabilities and equity                                    |  | $                           | 1,636,506 |          |      |                     |  |        |                     |  | $        | 1,264,464 |                     |   |        |  |        |  
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Net interest income before provisionfor loan losses             |  |                             |           |          | $    | 27,835              |  |        |                     |  |          |           |                     | $ | 18,284 |  |        |  
|                                                                |  |                             |           |          |      |                     |  |        |                     |  |          |           |                     |   |        |  |        |  
|Net interest rate spread (4)                                    |  |                             |           |          |      |                     |  | 6.96   | %                   |  |          |           |                     |   |        |  | 6.01   | %
|Net interest margin (5)                                         |  |                             |           |          |      |                     |  | 7.02   | %                   |  |          |           |                     |   |        |  | 6.08   | %
|Ratio of interest earning assets tointerest bearing liabilities |  |                             |           |          |      |                     |  | 104.00 | %                   |  |          |           |                     |   |        |  | 103.98 | %

---

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

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

|(3) | Net of unearned finance charges, unearned discounts and allowance for loan losses; includes non-performing loans.
|--- | -----------------------------------------------------------------------------------------------------------------

|(4) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------



15



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##### Table of Contents

|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|---------------------------------------------------------------- |  | ------------------------- | --------- | -------- | - | ------------------- |  | ------------------- |  | -------- | --------- | ------------------- | - | ------ |  | -------
|                                                                 |  | Six Months Ended June 30,
|                                                                 |  | 2004                      |           | 2003    
|                                                                 |  | Average Balance (1)       |           | Interest |   | Average Yield/ Cost |  | Average Balance (1) |  | Interest |           | Average Yield/ Cost
|(Dollars in thousands)                                           |  |                           |           |          |   |                     |  |                     |  |          |           |                    
|Assets                                                           |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Interest earning assets                                          |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Securities                                                       |  | $                         | 1,160,050 |          | $ | 9,727               |  | 1.69%               |  | $        | 784,560   |                     | $ | 7,830  |  | 2.01%  
|IPF loans, net (2)                                               |  |                           | 38,534    |          |   | 2,125               |  | 11.12%              |  |          | 35,738    |                     |   | 2,091  |  | 11.80% 
|Automobile installment contracts, net (3)                        |  |                           | 398,865   |          |   | 54,441              |  | 27.52%              |  |          | 292,945   |                     |   | 34,685 |  | 24.01% 
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Total interest earning assets                                    |  |                           | 1,597,449 |          |   | 66,293              |  | 8.37%               |  |          | 1,113,243 |                     |   | 44,606 |  | 8.13%  
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Non-interest earning assets                                      |  |                           | 52,762    |          |   |                     |  |                     |  |          | 42,472    |                     |   |        |  |        
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Total assets                                                     |  | $                         | 1,650,211 |          |   |                     |  |                     |  | $        | 1,155,715 |                     |   |        |  |        
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Liabilities and Equity                                           |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Interest bearing liabilities                                     |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Deposits                                                         |  | $                         | 522,863   |          | $ | 7,013               |  | 2.70%               |  | $        | 470,277   |                     | $ | 7,236  |  | 3.12%  
|Subordinated debentures                                          |  |                           | 10,300    |          |   | 229                 |  | 4.48%               |  |          |          |                     |   |       |  |   %   
|Repurchase agreements                                            |  |                           | 1,005,584 |          |   | 5,564               |  | 1.12%               |  |          | 588,798   |                     |   | 3,857  |  | 1.32%  
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Total interest bearing liabilities                               |  |                           | 1,538,747 |          |   | 12,806              |  | 1.68%               |  |          | 1,059,075 |                     |   | 11,093 |  | 2.11%  
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Non-interest bearing liabilities                                 |  |                           | 5,551     |          |   |                     |  |                     |  |          | 7,348     |                     |   |        |  |        
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Total liabilities                                                |  |                           | 1,544,298 |          |   |                     |  |                     |  |          | 1,066,423 |                     |   |        |  |        
|Equity                                                           |  |                           | 105,913   |          |   |                     |  |                     |  |          | 89,292    |                     |   |        |  |        
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Total liabilities and equity                                     |  | $                         | 1,650,211 |          |   |                     |  |                     |  | $        | 1,155,715 |                     |   |        |  |        
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Net interest income before provision for loan losses             |  |                           |           |          | $ | 53,487              |  |                     |  |          |           |                     | $ | 33,513 |  |        
|                                                                 |  |                           |           |          |   |                     |  |                     |  |          |           |                     |   |        |  |        
|Net interest rate spread (4)                                     |  |                           |           |          |   |                     |  | 6.69%               |  |          |           |                     |   |        |  | 6.02%  
|Net interest margin (5)                                          |  |                           |           |          |   |                     |  | 6.75%               |  |          |           |                     |   |        |  | 6.10%  
|Ratio of interest earning assets to interest bearing liabilities |  |                           |           |          |   |                     |  | 103.44%             |  |          |           |                     |   |        |  | 104.39%

---

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

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

|(3) | Net of unearned finance charges unearned discounts and allowance for loan losses; includes non-performing loans.
|--- | ----------------------------------------------------------------------------------------------------------------

|(4) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------



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##### Table of Contents

Comparison of Operating Results for the Three Months Ended June 30, 2004 and June 30, 2003



General



For the three months ended June 30, 2004, the Company reported income of
$6.3 million or $0.35 per diluted share; an increase of $2.8 million from $3.5 million or $0.20 per diluted share for the three months ended June 30, 2003.



The increase in net income was due primarily to a $9.6 million increase in net interest income to $27.8 million from $18.3 million in the second quarter
of 2003, partially offset by a $1.9 million increase in the provision for loan losses. 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 $29.1
million to $145.8 million from $116.7 million for the three months ended June 30, 2003, as a result of our planned growth in the auto finance business. Insurance premium finance originations decreased $1.6 million to $28.7 million from $30.3 million
for the three months ended June 30, 2003.



Interest Income



Interest income increased to $34.1 million from $24.1
million for the three months ended June 30, 2003, due primarily to a $369.0 million increase in average interest earning assets and a 0.62% increase in yield on earning assets. The largest growth components in average interest earning assets were in
investment securities, which increased by $260.1 million and automobile installment contracts, which increased by $107.6 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.



Interest Expense



Interest expense increased to $6.3 million for the three months ended June
30, 2004 from $5.8 million for the three months ended June 30, 2003, due to a $354.6 million increase in average interest bearing liabilities. The largest components of average interest bearing liabilities were deposits of $523.3 million and
repurchase agreements of $988.9 million. Average repurchase agreements increased to $988.9 million from $698.2 million for the three months ended of June 30, 2003 as a result of a corresponding increase in investment securities. The average cost of
liabilities decreased to 1.66% for the three months ended June 30, 2004 from 1.99% for the comparable period in 2003, generally as a result of a decrease in market interest rates.



Provision and Allowance for Loan Losses



Provision for loan losses was $5.1 million for the three months ended June 30, 2004 compared to $3.2 million for the three
months ending June 30, 2003. The provision for 2004 reflects a provision expense of $8,000 in our insurance premium finance business and $5.1 million in UACC.



The total allowance for loan losses was $24.5 million at June 30, 2004 compared with $25.0 million at June 30, 2003, representing 4.96% of loans at
June 30, 2004 and 6.45% at June 30, 2003. Additionally, unearned discounts on loans totaled $20.4 million at June 30, 2004 compared with $8.5 million at June 30, 2003, representing 3.97% of loans at June 30, 2004 and 2.14% at June 30, 2003.



Annualized net charge-offs to average loans were 4.60% for the
three months ended June 30, 2004 compared with 5.10% for the three months ended June 30, 2003.



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##### Table of Contents

Non-interest Income



Non-interest income decreased to $576,000 from $771,000 for the three months ended June 30, 2004 primarily as a result of a
$217,000 decline in gain on the sale of investment securities.



Non-interest Expense



Non-interest expense
increased $2.6 million to $12.7 million from $10.1 million for the three months ended June 30, 2003. 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 year, the Company expanded its automobile finance operations, resulting in an increase to 564 employees in 78 offices, as of June 30, 2004 from 417 employees in 62 offices, as
of June 30, 2003.



Income Taxes



Income taxes increased $2.0 million to $4.3 million for the three months
ended June 30, 2004 from $2.3 million for the three months ended June 30, 2003. This increase occurred as a result of a $4.8 million increase in income before income taxes between the two periods. The effective tax rate did not change appreciably.



Comparison of Operating Results for the Six Months Ended June 30, 2004 and
June 30, 2003



General



For the six months ended June 30, 2004, the Company reported income of $12.0
million or $0.67 per diluted share. This compares with income of $6.1 million or $0.35 per diluted share, for the comparable period a year ago.



The increase in net income was due primarily to a $20.0 million increase in net interest income, which increased to $53.5 million in the first six months
of 2004 from $33.5 million during the same period of 2003. 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 $73.2
million to $296.1 million for the six months ended June 30, 2004 from $222.9 million for the six months ended June 30, 2003, as a result of our planned growth in the auto finance business, while insurance premium finance originations increased $1.3
million to $56.0 million for the six months ended June 30, 2004 from $54.7 million for the six months ended June 30, 2004.



Interest Income



Interest income increased to $66.3 million from $44.6 million for the six months ended June 30, 2004, due primarily to a $484.2 million increase in
average interest earning assets and a 0.65% increase in net interest margin. The largest growth components in average interest earning assets were in investment securities, which increased by $375.5 million and automobile installment contracts,
which increased by $105.9 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.



Interest Expense



Interest expense increased to $12.8 million from $11.1 million for the six months ended June 30, 2003 due to a $479.7 million increase in average interest bearing liabilities, partially offset by a 0.43% decline in average cost of
liabilities. The largest components of average interest bearing liabilities are Bank deposits, which increased to $522.9 million from an average balance of $470.3 million during the six months ended June 30, 2003, and repurchase agreements, which
increased to $1,005.6 million from $588.8 million for the six months



18



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##### Table of Contents

ended June 30, 2003. The average cost of liabilities decreased to 1.68% for the six months ended June 30, 2004 from 2.11% for the comparable period in 2003,
generally as a result of a decrease in market interest rates.



Provision and Allowance for Loan Losses



Provision for loan losses was $10.3 million for the six months ended June 30, 2004 compared to $5.9 for the six months ending June 30, 2003. The provision for 2004 reflects a provision expense of $22,000 in our insurance premium finance
business and $10.3 million in UACC.



The total allowance for
loan losses was $24.5 million at June 30, 2004 compared with $25.0 million at June 30, 2003, representing 4.96% of loans at June 30, 2004 and 6.45% at June 30, 2003. Additionally, unearned discounts on loans totaled $20.4 million at June 30, 2004
compared with $8.5 million at June 30, 2003, representing 3.97% of loans at June 30, 2004 and 2.14% at June 30, 2003.



Annualized net charge-offs to average loans were 4.93% for the six months ended June 30, 2004 compared with 6.19% for the six months ended June 30, 2003.
This rate was favorably impacted in 2003 by the recovery of $520,000 from the State of California for refund of sales taxes on repossessed autos.



Non-interest Income



Non-interest income increased to $ 1.9 million from $1.3 million for the six months ended June 30, 2004, primarily due to a $282,000 increase in gain on
sale of securities. The increase in other income is primarily related to income on Bank owned life insurance.



Non-interest Expense



Non-interest expense increased $5.5 million to $24.9 million from $19.4 million for the six months ended June 30, 2003. 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 year, the Company expanded its automobile finance operations,
resulting in an increase to 564 employees in 78 offices, as of June 30, 2004, from 417 employees in 62 offices, as of June 30, 2003.



Income Taxes



Income taxes increased $4.0 million to $8.1 million for the six months ended June 30, 2004 from $4.1 million for the six-month period ended June 30, 2003.
This increase occurred as a result of a $9.9 million increase in income before income taxes between the two periods. The effective tax rate did not change appreciably.



Comparison of Financial Condition at June 30, 2004 and December 31, 2003



Total assets were at $1.7 billion at June 30, 2004. Major asset changes
included a $67.8 million increase in loans to $469.2 million at June 30, 2004 from $401.4 million at December 31, 2003 and an $81.4 million decrease in the securities to $1.1 billion at June 30, 2004 from $1.2 billion at December 31, 2003.



Deposits increased $22.6 million to $521.0 million at June 30,
2004 from $498.4 million at December 31, 2003. Retail deposits decreased $27.3 million to $316.7 million at June 30, 2004 from $344.0 million at December 31, 2003. Brokered deposits increased $49.9 million to $204.3 million at June 30, 2004 from
$154.4 million at December 31, 2003. We allowed retail deposits to decline because of current rate environment and replaced with brokered deposits.



19



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##### Table of Contents

Repurchase agreements decreased $31.6 million to $1,020.6 million at June 30, 2004 from $1,052.2 million
at December 31, 2003. $1,039.8 million of the Companys available for sale securities were pledged as collateral for the repurchase agreements at June 30, 2004.



Shareholders equity increased to $110.2 million at June 30, 2004 from $100.3 million at December 31, 2003, primarily
as a result of net income of $12.0 million during the six months ended June 30, 2004 partially offset by a $2.3 million unrealized loss on securities available for sale.



Management of Interest Rate Risk



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



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



As discussed below under Liquidity and Capital Resources 
Strategic Plan Relating to Shift in Funding Sources we are in the process of shifting the funding source of our automobile finance and insurance premium finance businesses to warehouse credit lines and securitizations so we will no longer rely
on insured deposits of the Bank as a funding source. When this shift in funding sources occurs, we will continue to manage our interest rate risk as described herein.



Our interest rate sensitivity is monitored by our board of directors and management through the use of a model, which
estimates the change in our 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. We utilize a market value model based on quarterly financial information.



At March 31, 2004 the Banks sensitivity measure resulting from a 100 basis point decrease in interest rates was +24 basis points and would result in
a $4.8 million increase in the NPV of the Bank and a 200 basis point increase in interest rates was -48 basis points and would result in a $9.5 million decrease in the NPV of the Bank.



Although the NPV measurement provides an indication of our 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 our net interest income and will differ from actual results. Management monitors the results of this modeling, which are
presented to our board of directors on a quarterly basis.



20



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##### Table of Contents

The following table shows the NPV and projected change in the NPV of the Bank at March 31, 2004 assuming
an instantaneous and sustained change in market interest rates of 100, 200 and 300 basis points (bp).



Interest Rate Sensitivity of Net Portfolio Value



|                |  |                        |         |          |                                       |         |          |  |      |           |  |       |          |  |       
|--------------- |  | ---------------------- | ------- | -------- | ------------------------------------- | ------- | -------- |  | ---- | --------- |  | ----- | -------- |  | ------
|                |  | Net Portfolio Value    |         |          | NPV as % of Portfolio Value of Assets
|Change in Rates |  | $ Amount               |         | $ Change |                                       |         | % Change |  |      | NPV Ratio |  |       | % Change
|                |  | (Dollars in thousands)
|+300 bp         |  | $                      | 146,861 |          | $                                     | (14,291 | )        |  | -8.9 | %         |  | 8.71  | %        |  | -73 bp
|+200 bp         |  |                        | 151,635 |          |                                       | (9,516  | )        |  | -5.9 | %         |  | 8.96  | %        |  | -48 bp
|+100 bp         |  |                        | 156,398 |          |                                       | (4,754  | )        |  | -3.0 | %         |  | 9.20  | %        |  | -24 bp
|0 bp            |  |                        | 161,152 |          |                                       |        |          |  |     |           |  | 9.44  | %        |  |      
|-100 bp         |  |                        | 165,904 |          |                                       | 4,753   |          |  | 3.0  | %         |  | 9.68  | %        |  | 24 bp 
|-200 bp         |  |                        | 170,320 |          |                                       | 9,168   |          |  | 5.7  | %         |  | 9.89  | %        |  | 45bp  
|-300 bp         |  |                        | 174,835 |          |                                       | 13,684  |          |  | 8.5  | %         |  | 10.12 | %        |  | 68bp  



Liquidity and Capital Resources



Overview



We require substantial capital resources and cash to support our business.
Currently, our primary source of funds are deposits at the Bank and commercial repurchase agreements, and, to a lesser extent, FHLB advances, interest payments on short-term investments and proceeds from the maturation of securities. However, we are
implementing a strategic plan to shift the funding source of our automobile finance and insurance premium finance businesses to warehouse credit lines and securitizations so we will no longer rely on insured deposits of the Bank or FHLB advances as
a funding source.



Strategic Plan Relating to Shift In
Funding Sources



We are in the process of shifting the
funding source of our automobile finance and insurance premium finance businesses. We currently fund our automobile finance and our insurance premium finance businesses primarily with retail and wholesale bank deposits held by the Bank. However, we
have implemented a plan to exit the Banks federal thrift charter because of the increasing regulatory requirements associated with financing our non-prime automobile finance business with insured deposits.



As part of our strategic plan, we have retained financial advisors to assist
with structuring and executing our plan. Our plan is to exit the federal thrift charter and concurrently receive cash proceeds from third parties to finance the automobile and insurance premium receivables. We plan to receive the cash proceeds
through warehouse credit lines, securitizations and the sale of whole loans from time to time. To execute a key element of the plan, we and the Bank have entered into definitive agreements to sell the remaining three branches of the Bank and the
Banks brokered certificates of deposits and internet deposits. Additionally, as part of our strategic plan, we expect the Bank will distribute all non-cash assets and excess capital to us before it exits the federal thrift charter, including
the automobile finance and insurance premium finance businesses and United States Government Agency Securities. We plan to coordinate timing so we exit the federal thrift charter at or about the same time we receive cash proceeds through warehouse
credit lines and securitizations. Accordingly, we will not have an interim period where we phase out reliance on insured deposits over time.



As we implement strategies to reduce our reliance on insured deposits of the Bank as a major source of funds, management intends to continue to use the
most cost-effective source of funds whenever possible. Implementing our strategic plan, however, could increase our all-in cost of funds as our proposed alternative sources of financing are more susceptible to changes in interest rates. The pricing
of warehouse lines and



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##### Table of Contents

securitizations will depend on current market interest rates. Deposits of the Bank are generally less sensitive to changes in interest rates because the Bank
has access to long-term deposits (such as certificates of deposit) that mature over time. As a result of the shift in funding sources, deposits will no longer be shown as a liability on our balance sheet; instead, we expect that securitizations and
warehouse lines will appear as liabilities.



We will continue
to maintain an allowance for loan losses, monitor interest rate risk and service the automobile finance and insurance premium finance contracts.



Principal Sources of Cash



Currently, our primary sources of funds are deposits at the Bank and commercial repurchase agreements, and, to a lesser extent, interest payments on
short-term investments and proceeds from the maturation of securities. Once we exit the federal thrift charter, our primary source of funds will no longer be deposits at the Bank or FHLB advances, but will instead be securitizations and warehouse
lines of credit.



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. We have continued to maintain adequate levels of liquid assets to fund our
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.



Deposits



The Bank obtains deposits through its 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. At June 30, 2004, such retail deposits were $316.7 million or 60.8% of
total deposits.



The Bank uses broker-originated deposits to
supplement its retail deposits and, at June 30, 2004, these deposits totaled $204.3 million or 39.2% of total deposits. Broker deposits are originated through major dealers specializing in such products. We use several major dealers to originate
these deposits so if deposits are not renewed at the end of their term, we will negotiate obtaining deposits from another dealer.



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



|                        |  |                        |         |                      |              |   |         |      |                     |  |      |         |  |                     |         |  |      |  
|----------------------- |  | ---------------------- | ------- | -------------------- | ------------ | - | ------- | ---- | ------------------- |  | ---- | ------- |  | ------------------- | ------- |  | ---- | -
|                        |  | June 30,               |         |                      | December 31, |  
|                        |  | 2004                   |         |                      | 2003         |   |         | 2002 |                    
|                        |  | Balance                |         | WeightedAverage Rate |              |   | Balance |      | WeightedAverageRate |  |      | Balance |  | WeightedAverageRate |        
|                        |  | (Dollars in thousands) |        
|Passbook accounts       |  | $                      | 57,894  |                      | 1.28         | % |         | $    | 72,990              |  | 1.45 | %       |  | $                   | 52,911  |  | 1.72 | %
|Checking accounts       |  |                        | 18,134  |                      | 0.71         | % |         |      | 19,331              |  | 0.71 | %       |  |                     | 16,854  |  | 1.00 | %
|Certificates of deposit |  |                        |         |                      |              |   |         |      |                     |  |      |         |  |                     |         |  |      |  
|Under $100,000          |  |                        | 348,747 |                      | 2.81         | % |         |      | 310,535             |  | 3.00 | %       |  |                     | 314,130 |  | 3.63 | %
|$100,000 and over       |  |                        | 96,201  |                      | 2.54         | % |         |      | 95,533              |  | 2.53 | %       |  |                     | 84,563  |  | 3.13 | %
|                        |  |                        |         |                      |              |   |         |      |                     |  |      |         |  |                     |         |  |      |  
|Total                   |  | $                      | 520,976 |                      | 2.52         | % |         | $    | 498,389             |  | 2.59 | %       |  | $                   | 468,458 |  | 3.23 | %
|                        |  |                        |         |                      |              |   |         |      |                     |  |      |         |  |                     |         |  |      |  



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The following table sets forth the time remaining until maturity for all CDs for the dates
indicated.



|                              |  |                        |         |                   |   |                   |  |   |        
|----------------------------- |  | ---------------------- | ------- | ----------------- | - | ----------------- |  | - | -------
|                              |  | June 30, 2004          |         | December 31, 2003 |   | December 31, 2002
|                              |  | (Dollars in thousands)
|Maturity within one year      |  | $                      | 234,510 |                   | $ | 184,292           |  | $ | 185,295
|Maturity within two years     |  |                        | 82,040  |                   |   | 86,812            |  |   | 58,852 
|Maturity within three years   |  |                        | 86,024  |                   |   | 79,332            |  |   | 41,628 
|Maturity over three years     |  |                        | 42,374  |                   |   | 55,632            |  |   | 112,918
|                              |  |                        |         |                   |   |                   |  |   |        
|Total certificates of deposit |  | $                      | 444,948 |                   | $ | 406,068           |  | $ | 398,693
|                              |  |                        |         |                   |   |                   |  |   |        



Capital
Requirements



At June 30, 2004, the Bank exceeded all of
its regulatory capital requirements with tangible capital of $120.4 million, or 7.15% of total adjusted assets, which is above the required level of $25.3 million, or 1.5%; the Bank had core capital of $120.4 million, or 7.15% of total adjusted
assets, which is above the required level of $84.2 million, or 5.0%; and the Bank had risk-based capital of $129.1 million, or 18.60% of risk-weighted assets, which is above the required level of $69.4 million, or 10.0% for a well-capitalized
institution.



As used herein, leverage or core ratio means the
ratio of core capital to adjusted total 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 at June 30, 2004.



Through the Bank, we can obtain advances from the FHLB, collateralized by 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, 2004, the Banks total borrowing capacity under this credit facility was $500.6 million, of which $140.5 million was utilized
to fund repurchase agreements and $360.1 million was available. When we exit the thrift charter, we will no longer have access to FHLB and will utilize commercial repurchase agreements as needed.



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



|                                                             |  |                                |           |   |              |      |           |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------ | --------- | - | ------------ | ---- | --------- | - |  | - | ------- | -
|                                                             |  | Six Months ended June 30, 2004 |           |   | December 31, |     
|                                                             |  |                                | 2003      |   |              | 2002 |          
|                                                             |  | (Dollars in thousands)         |          
|FHLB advances                                                |  |                                |           |   |              |      |           |   |  |   |         |  
|Maximum month-end balance                                    |  | $                              |          |   |              | $    |          |   |  | $ | 130,000 |  
|Balance at end of period                                     |  |                                |          |   |              |      |          |   |  |   |        |  
|Average balance for period                                   |  |                                |          |   |              |      |          |   |  |   | 38,974  |  
|Weighted average interest rate on balance at end of period   |  |                                |          | % |              |      |          | % |  |   |        | %
|Weighted average interest rate on average balance for period |  |                                |          | % |              |      |          | % |  |   | 2.11    | %
|Repurchase agreements                                        |  |                                |           |   |              |      |           |   |  |   |         |  
|Maximum month end balance                                    |  | $                              | 1,082,061 |   |              | $    | 1,052,205 |   |  |   | 410,234 |  
|Balance at end of period                                     |  |                                | 1,020,584 |   |              |      | 1,052,205 |   |  |   | 388,624 |  
|Average balance for period                                   |  |                                | 1,005,584 |   |              |      | 755,755   |   |  |   | 260,139 |  
|Weighted average interest rate on balance at end of period   |  |                                | 1.26      | % |              |      | 1.14      | % |  |   | 1.40    | %
|Weighted average interest rate on average balance for period |  |                                | 1.12      | % |              |      | 1.20      | % |  |   | 1.79    | %



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##### Table of Contents

Aggregate Contractual Obligations



The following table provides the amounts due under specified obligations for the periods indicated as of June 30, 2004.



|                               |  |                        |           |                   |   |                    |  |                  |        |       |   |        |  |   |          
|------------------------------ |  | ---------------------- | --------- | ----------------- | - | ------------------ |  | ---------------- | ------ | ----- | - | ------ |  | - | ---------
|                               |  | Less than 1 Years      |           | 1 Year to 3 Years |   | 4 Years to 5 Years |  | More Than5 Years |        | Total
|                               |  | (Dollars in thousands)
|Deposits                       |  | $                      | 310,538   |                   | $ | 168,064            |  | $                | 42,374 |       | $ |       |  | $ | 520,976  
|Repurchase agreements          |  |                        | 1,020,584 |                   |   |                   |  |                  |       |       |   |       |  |   | 1,020,584
|Operating lease obligations    |  |                        | 3,452     |                   |   | 5,161              |  |                  | 1,926  |       |   |       |  |   | 10,539   
|Junior subordinated debentures |  |                        |          |                   |   |                   |  |                  |       |       |   | 10,300 |  |   | 10,300   
|                               |  |                        |           |                   |   |                    |  |                  |        |       |   |        |  |   |          
|Total                          |  | $                      | 1,334,574 |                   | $ | 173,225            |  | $                | 44,300 |       | $ | 10,300 |  | $ | 1,562,399
|                               |  |                        |           |                   |   |                    |  |                  |        |       |   |        |  |   |          



The obligations are
categorized by their contractual due dates. Certain deposit accounts have no stated maturity but have been presented here as maturing in less than one year therefore; the total commitments do not necessarily represent future cash requirements. We
may, at our option, prepay the junior subordinated debentures prior to their maturity date. Furthermore, the actual payment of certain current liabilities may be deferred into future periods.



Lending Activities



Summary of Loan Portfolio.



At June 30, 2004, the Companys net loan portfolio constituted of $469.2 million, or 28.1% of the Companys total assets.



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



|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|-------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|(Dollars in thousands)           |  | June 30, 2004 |         |   | December 31, 2003 |   |         | December 31, 2002 | 
|Consumer Loans                   |  |               |         |   |                   |   |         |                   |  |   |         |  
|Automobile installment contracts |  | $             | 479,905 |   |                   | $ | 405,085 |                   |  | $ | 293,440 |  
|Insurance premium finance        |  |               | 9,272   |   |                   |   | 12,984  |                   |  |   | 17,922  |  
|Other consumer loans             |  |               | 123     |   |                   |   | 49      |                   |  |   | 80      |  
|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|Total consumer loans             |  |               | 489,300 |   |                   |   | 418,118 |                   |  |   | 311,442 |  
|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|Commercial Loans                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|Insurance premium finance        |  |               | 29,410  |   |                   |   | 28,259  |                   |  |   | 18,400  |  
|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|Total commercial loans           |  |               | 29,410  |   |                   |   | 28,259  |                   |  |   | 18,400  |  
|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|Total loans                      |  |               | 518,710 |   |                   |   | 446,377 |                   |  |   | 329,842 |  
|Unearned discounts               |  |               | (20,396 | ) |                   |   | (14,368 | )                 |  |   |        |  
|Unearned finance charges         |  |               | (4,591  | ) |                   |   | (5,385  | )                 |  |   | (3.490  | )
|Allowance for loan losses        |  |               | (24,493 | ) |                   |   | (25,253 | )                 |  |   | (28,048 | )
|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  
|Total loans, net                 |  | $             | 469,230 |   |                   | $ | 401,371 |                   |  | $ | 298,304 |  
|                                 |  |               |         |   |                   |   |         |                   |  |   |         |  



24



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##### Table of Contents

Loan Maturities.



The following table sets forth the dollar amount of loans maturing in our loan portfolio at June 30, 2004 based on scheduled
contractual amortization. Loan balances are reflected before unearned discounts and premiums, unearned finance charges and allowance for loan losses. All loans maturing over one year are fixed rate loans.



|                 |  |                 |        |                            |   |                             |  |                              |         |            |   |       |  |   |        
|---------------- |  | --------------- | ------ | -------------------------- | - | --------------------------- |  | ---------------------------- | ------- | ---------- | - | ----- |  | - | -------
|                 |  | June 30, 2004  
|                 |  | One Yearor Less |        | More Than1 Year to 3 Years |   | More Than3 Years to 5 Years |  | More Than5 Years to 10 Years |         | TotalLoans
|Commercial loans |  | $               | 29,354 |                            | $ | 56                          |  | $                            |        |            | $ |      |  | $ | 29,410 
|Consumer loans   |  |                 | 19,833 |                            |   | 155,398                     |  |                              | 312,522 |            |   | 1,547 |  |   | 489,300
|                 |  |                 |        |                            |   |                             |  |                              |         |            |   |       |  |   |        
|Total            |  | $               | 49,187 |                            | $ | 155,454                     |  | $                            | 312,522 |            | $ | 1,547 |  | $ | 518,710
|                 |  |                 |        |                            |   |                             |  |                              |         |            |   |       |  |   |        



Classified Assets and Allowance for
Loan Losses



Our policy is to maintain an allowance for
loan losses to absorb inherent losses, which may be realized on our loan portfolio. These allowances are general valuation allowances for estimates for probable losses not specifically identified. The total allowance for loan losses was $24.5
million at June 30, 2004 compared with $25.3 million at December 31, 2003 representing 4.96% of loans at June 30, 2004 and 5.92% at December 31, 2003. Additionally, unearned discounts on loans totaled $20.4 million at June 30, 2004 compared with
$14.4 million at December 31, 2003, representing 3.97% of loans at June 30, 2004 and 3.26% at December 31, 2003. Of the total allowance for loan losses related to automobile contracts of $24.2 million at June 30, 2004, $16.1 million and $8.1 million
related to contracts acquired subsequent to January 1, 2003 and contracts acquired prior to January 1, 2003, respectively.



The Company has made the following restatements: (a) restated its consolidated financial statements to exclude the gain on sale of residual interests in
securitization in 2003 from income from continuing operations and reporting it, net of taxes, as income from discontinued operations, and (b) restated its consolidated financial statements for the year ended December 31, 2003 and 2002 to correct
errors in the computation of the dilutive effect of outstanding stock options to consider the tax benefit of the Company receives as part of the assumed proceeds under the treasury stock method, which decreased the number of fully
diluted shares outstanding to be utilized in the earnings per share calculations.



For the insurance premium finance business loans, management established a level of allowance for loan losses based on recent trends in delinquencies and historical charge offs, currently 0.65% 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.



For a discussion about our allowance for loan losses see Critical Accounting Policies, Allowance for Loan
Losses.



The following table sets forth the remaining
balances of all loans that were more than 30 days delinquent at June 30, 2004, December 31, 2003 and 2002.



|                   |  |                        |       |                 |     |   |                   |   |                 |  |     |                   |  |                  |       |  |     |  
|------------------ |  | ---------------------- | ----- | --------------- | --- | - | ----------------- | - | --------------- |  | --- | ----------------- |  | ---------------- | ----- |  | --- | -
|Loan Delinquencies |  | June 30, 2004          |       | % of TotalLoans |     |   | December 31, 2003 |   | % of TotalLoans |  |     | December 31, 2002 |  | % of Total Loans |      
|                   |  | (Dollars in thousands) |      
|30 to 59 days      |  | $                      | 2,523 |                 | 0.5 | % |                   | $ | 2,548           |  | 0.6 | %                 |  | $                | 1,778 |  | 0.5 | %
|60 to 89 days      |  |                        | 805   |                 | 0.2 | % |                   |   | 942             |  | 0.2 | %                 |  |                  | 808   |  | 0.3 | %
|90+ days           |  |                        | 382   |                 | 0.1 | % |                   |   | 603             |  | 0.1 | %                 |  |                  | 480   |  | 0.1 | %
|                   |  |                        |       |                 |     |   |                   |   |                 |  |     |                   |  |                  |       |  |     |  
|Total              |  | $                      | 3,710 |                 | 0.8 | % |                   | $ | 4,093           |  | 0.9 | %                 |  | $                | 3,066 |  | 0.9 | %
|                   |  |                        |       |                 |     |   |                   |   |                 |  |     |                   |  |                  |       |  |     |  



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##### Table of Contents

Nonaccrual and Past Due Loans.



Interest income is accrued as it is earned. The Companys policy is to charge-off loans delinquent 120 days or more.
Interest income deemed uncollectible is reversed. Income is subsequently recognized only to the extent cash payments are received, until in managements judgment, 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.



The following table sets forth the aggregate amount of nonaccrual loans (net of unearned discounts, premiums and unearned finance charges) at June 30, 2004, December 31, 2003 and 2002.



|                                                |  |                        |      |   |              |      |      |   |  |   |      |  
|----------------------------------------------- |  | ---------------------- | ---- | - | ------------ | ---- | ---- | - |  | - | ---- | -
|                                                |  | June 30, 2004          |      |   | December 31, |     
|                                                |  |                        | 2003 |   |              | 2002 |     
|                                                |  | (Dollars in thousands) |     
|Nonaccrual loans                                |  |                        |      |   |              |      |      |   |  |   |      |  
|                                                |  |                        |      |   |              |      |      |   |  |   |      |  
|Total                                           |  | $                      | 103  |   |              | $    | 139  |   |  | $ | 172  |  
|                                                |  |                        |      |   |              |      |      |   |  |   |      |  
|Nonaccrual loans as a percentage of total loans |  |                        | 0.02 | % |              |      | 0.03 | % |  |   | 0.05 | %



Allowance for Loan
Losses.



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



|                                                  |  |                                             |         |   |                                      |      |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------------------------------- | ------- | - | ------------------------------------ | ---- | ------- | - |  | - | ------- | -
|                                                  |  | At or For theSix Months Ended June 30, 2004 |         |   | At or For the Year Ended December 31 |     
|                                                  |  |                                             | 2003    |   |                                      | 2002 |        
|                                                  |  | (Dollars in thousands)                      |        
|Allowance for Loan Losses                         |  |                                             |         |   |                                      |      |         |   |  |   |         |  
|Balance at beginning of period                    |  | $                                           | 25,253  |   |                                      | $    | 28,048  |   |  | $ | 17,460  |  
|Provision for loan losses                         |  |                                             | 10,325  |   |                                      |      | 17,737  |   |  |   | 5,508   |  
|Charge-offs                                       |  |                                             | (11,875 | ) |                                      |      | (22,320 | ) |  |   | (18,411 | )
|Recoveries                                        |  |                                             | 790     |   |                                      |      | 1,788   |   |  |   | 1,078   |  
|                                                  |  |                                             |         |   |                                      |      |         |   |  |   |         |  
|Net charge-offs                                   |  |                                             | (11,085 | ) |                                      |      | (20,532 | ) |  |   | (17,333 | )
|Acquisition discounts allocated to loss allowance |  |                                             |        |   |                                      |      |        |   |  |   | 22,414  |  
|                                                  |  |                                             |         |   |                                      |      |         |   |  |   |         |  
|Balance at end of period                          |  | $                                           | 24,493  |   |                                      | $    | 25,253  |   |  | $ | 28,048  |  
|                                                  |  |                                             |         |   |                                      |      |         |   |  |   |         |  
|Annualized net charge-offs to average loans       |  |                                             | 4.93    | % |                                      |      | 5.69    | % |  |   | 6.37    | %
|Ending allowance to period end loans              |  |                                             | 4.96    | % |                                      |      | 5.92    | % |  |   | 8.59    | %



Cash Equivalents and Securities
Portfolio



Our short-term investments and securities
portfolios are used primarily for liquidity purposes and secondarily for investment income. Cash equivalents and securities satisfy regulatory requirements for liquidity that are imposed on the Bank.



26



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##### Table of Contents

The following is a summary of our cash equivalents and securities portfolios as of the dates indicated.



|                                           |  |                        |            |   |              |      |            |   |  |   |            |  
|------------------------------------------ |  | ---------------------- | ---------- | - | ------------ | ---- | ---------- | - |  | - | ---------- | -
|                                           |  | June 30, 2004          |            |   | December 31, |     
|                                           |  |                        | 2003       |   |              | 2002 |           
|                                           |  | (Dollars in thousands) |           
|Balance at end of period                   |  |                        |            |   |              |      |            |   |  |   |            |  
|Overnight deposits                         |  | $                      | 16,149     |   |              | $    | 5,833      |   |  | $ | 3,590      |  
|U.S. agency securities                     |  |                        | 67,251     |   |              |      | 105,277    |   |  |   | 288,193    |  
|U. S. mortgage backed securities           |  |                        | 1,053,748  |   |              |      | 1,097,167  |   |  |   | 315,075    |  
|                                           |  |                        |            |   |              |      |            |   |  |   |            |  
|Total                                      |  | $                      | 1,137,148  |   |              | $    | 1,208,277  |   |  | $ | 606,858    |  
|                                           |  |                        |            |   |              |      |            |   |  |   |            |  
|Weighted average yield at end of period    |  |                        |            |   |              |      |            |   |  |   |            |  
|Overnight deposits                         |  |                        | 0.95       | % |              |      | 0.55       | % |  |   | 0.69       | %
|U.S. agency securities                     |  |                        | 1.64       | % |              |      | 1.29       | % |  |   | 2.10       | %
|U.S. mortgage backed securities            |  |                        | 1.81       | % |              |      | 1.66       | % |  |   | 2.43       | %
|Weighted average maturity at end of period |  |                        |            |   |              |      |            |   |  |   |            |  
|Overnight deposits                         |  |                        | 1 day      |   |              |      | 1 day      |   |  |   | 1 day      |  
|U.S. agency securities                     |  |                        | 42 months  |   |              |      | 36 months  |   |  |   | 55 months  |  
|U.S. mortgage backed securities            |  |                        | 323 months |   |              |      | 313 months |   |  |   | 286 months |  



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



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



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



(a) Evaluation of Disclosure Controls and Procedures



As of the quarter ended June 30, 2003, UPFC evaluated the effectiveness of the design and operation of its disclosure controls and procedures. This
evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer.



Disclosure controls and procedures are defined in SEC rules as controls and other procedures designed to ensure that information required to be disclosed
in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.



Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.



Subsequent to the quarter ended June 30, 2004 and in
connection with the preparation and review of our consolidated financial statements for the quarter ended June 30, 2004, management corrected an error in the application of the individual static pool methodology for determining the adequacy of our
allowance for loan losses and the related provision for loan losses. The identified errors on the computation of our allowance for loan losses and corresponding provision for loan losses led to a decision to restate our financial statements for the
years ended December 31, 2003 and 2002 and subsequent quarterly periods. Management also determined to correct the computation of earnings per share and made a reclassification of a gain on the sale of residual interests as discontinued operations.
The restatements are further discussed in Note 2. Restatements.



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Subsequent to managements identification of the errors in our financial statements and after
discussing the errors with our independent registered public accounting firm, KPMG, we have identified certain material weaknesses in our internal controls over financial reporting. These material weaknesses include inadequate independent monitoring
over financial accounting standards that have been implemented and inadequate controls to appropriately interpret and implement financial accounting standards in accordance with generally acceptable accounting principles.



In connection with restating our consolidated financial statements as
provided in this report, our Chief Executive Officer and Chief Financial Officer supervised and participated with other management in re-evaluating the effectiveness of our disclosure controls and procedures for the quarter ended June 30, 2004 and
based on the re-evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the quarter ended June 30, 2004 there were material weaknesses in our disclosure controls and procedures, which has resulted in the conclusion
that the disclosure controls were ineffective.



As a result of
the findings described above, we have implemented the following actions:



| |  | We sought to thoroughly understand the nature of the issues through discussions with KPMG and our audit committee,
| | - | ------------------------------------------------------------------------------------------------------------------



| |  | As part of both of our disclosure control procedures and internal control procedures, we have enhanced documentation relating to our critical accounting policies, including the
methodology for calculating our allowance for loan losses, and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have begun to establish and continue to establish internal controls to allow independent monitoring of financial accounting standards and improve our skill sets and expertise in
accounting policy and accounting operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
believe that our disclosure controls and procedures have improved due to the scrutiny of such matters by our management and Audit Committee. However, we note that a control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.



The Company, as of September 3, 2004, has re-evaluated the effectiveness of the design of the Companys disclosure controls and procedures (as defined in Rule 13a-14(c) or 15d-14(c) under the Exchange Act). Based
on that evaluation, the Companys management, including the CEO and the CFO, has concluded that the design of our disclosure controls and procedures is effective in ensuring that information required to be disclosed in the reports we file under
the Exchange Act is recorded, processed summarized and reported within time periods specified in SEC rules and forms. The Company has not yet evaluated (tested) the operating effectiveness of such controls.



(b) Changes in Internal Controls



During the quarter ended June 30, 2004, there have been no changes in our
internal controls over financial reporting that has materially affected, or are reasonably likely to materially affect, these controls. Subsequent to the quarter ended June 30, 2004, however, we revised the methodology for determining the adequacy
of our allowance for loan losses and the related provisions for loan losses. We also began implementing changes described above. These actions have materially affected, or are reasonably likely to materially affect our internal controls over
financial reporting. When fully implemented, we will test the operating effectiveness of such controls, as performed, in the normal course of business.



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OTHER INFORMATION

PART II.



|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 22, 2004 the shareholders considered the following proposals:



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



Proposal II. The ratification of
the selection of KPMG LLP as the Companys independent auditors for 2004



Proposal I Messrs. Mitchell Lynn and Ron Duncanson were elected as directors of the Company with terms expiring in 2006. These directors were elected with the following share voting: Mitchell Lynn 14,359,471 authority
given; 996,735 authority withheld, Ron Duncanson 14,359,471 authority given, 996,735 authority withheld. Other directors continuing on the Board with terms expiring in 2005 were Messrs. Guillermo Bron, Luis Maizel and Ray Thousand. There is
currently a vacancy on the Board of Directors as Mr. Larry Grill resigned from the Board for personal reasons. Our Nominating Committee is currently undertaking a search to identify a potential new director who is independent as defined
by the National Association of Securities Dealers listing standards.



Proposal II Ratification of KPMG LLP as the Companys independent auditors was approved by shareholders with voting at 14,254,495 for 1,101,211 against and 500 withheld.



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



Not applicable



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



(a) List of Exhibits



31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.



31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.



32 Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer.



(b) Reports on Form 8-K



Filed April 23, 2004  Issued a press release
setting forth results for its first quarter 2004 earnings.



Filed May 20, 2004  Issued a press release reporting the engagement of Deutsch Bank to arrange a $250 million warehouse facility and Sandler ONeill and Partners LLP to sell the thrift charter and deposits.



Filed June 28, 2004  Filed an
application to withdraw its Registration Statement on Form-S-3 (File No. 333-110478) and all exhibits thereto filed with the Securities and Exchange Commission (SEC) on November 13, 2003.



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SIGNATURES



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



|                       |  |  |  |                              |  |                                                                                                                   |  | 
|---------------------- |  |  |  | ---------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | 
|                       |  |  |  | United PanAm Financial Corp.
|                       |  | 
|Date:September 3, 2004 |  |  |  | /S/    RAY
THOUSAND         
|                       |  |  |  |                              |  | Ray Thousand President and Chief Executive Officer (Principal Executive Officer)                                 
|                       |  | 
|September 3, 2004      |  |  |  | /S/    GARLAND
KOCH         
|                       |  |  |  |                              |  | Garland W. Koch Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)



30