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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 September 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 ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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 November 8, 2004 was 16,291,612.



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UNITED PANAM FINANCIAL CORP.

FORM 10-Q

EXPLANATORY NOTE



Within this document are results that include a restatement of our
consolidated financial condition, results of operations and cash flows. The restatements were necessary to conform with accounting principles generally accepted in the United States of America (GAAP) and reflect the following:



| |  | The correction of the impact of unreversed accrued interest of certain charged off accounts. As part of our analysis of internal controls over financial reporting, management
discovered that due to a 1998 programming error in our computer-based accounting system, the system has failed to properly reverse accrued interest on certain charged off accounts since 1998. Consequently, we are restating our consolidated financial
statements for the years ended December 31, 2001, 2002 and 2003 and subsequent interim periods to correct the impact of unreversed accrued interest of these charged off accounts. Management has subsequently corrected the programming error and has
verified that the system will properly account for interest accruals on charged-off loans going forward. The impact of correcting this unreversed accrued interest will be a reduction in net income after tax for each of the periods of $398,000 for
the year ended December 31, 2001, $700,000 for the year ended December 31, 2002, $1,084,000 for the year ended December 31, 2003, $336,000 for the three months ended March 31, 2004 and $312,000 for the three months ended June 30, 2004. The impact
for the years prior to 2001 will be an aggregate reduction in retained earnings of $262,000.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The correction of our accounting for the change in value of our derivative instruments used to limit interest rate risk. Upon review, we now believe that the documentation of our
cash flow hedge accounting relationships was deficient as to the specificity of the underlying hedged transaction in order to assess hedge effectiveness and measurement of hedge ineffectiveness as required by the stringent applicable accounting
standards. As such, we made the determination that our derivative instruments did not qualify for hedge accounting. Consequently, we are restating our consolidated financial statements as of June 30, 2004 and the three and six month then ended
resulting in a total after tax reduction of income of $177,000 for derivative valuations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The correction of the amortization of our capitalized asset against interest income. Upon review, we have reduced the amount of this asset that was amortized against interest income
in 2004 to more closely reflect the proper level yield amortization method. Consequently, we are restating our consolidated financial statements as of June 30, 2004 and the three and six months then ended and as of March 31, 2004 and the three
months then ended resulting in a total after tax increase of income of $201,000 for increased interest income. Management has implement procedures for the quarterly verification of proper amortization going forward.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This quarterly report on Form 10-Q for the quarter ended September 30, 2004
reflects corrections and restatements of the following financial statements:



(a) consolidated statements of financial condition as of June 30, 2004, March 31, 2004 and December 31, 2003, 2002 and 2001;



(b) consolidated statements of operations for the three and six months ended June 30, 2004 and 2003, for the three month ended March 31, 2004 and 2003,
for the three and nine months ended September 30, 2003 and for the years ended December 31, 2003, 2002 and 2001;



(c) comprehensive income for the three and six months ended June 30, 2004 and 2003, for the three month ended March 31, 2004 and 2003, for the three and
nine months ended September 30, 2003 and for the years ended December 31, 2003, 2002 and 2001 and



(d) consolidated statements of cash flows for the six months ended June 30, 2004 and 2003, for the three months ended March 31, 2004 and 2003, for the
nine months ended September 30, 2003 and for the years ended December 31, 2003, 2002 and 2001.



For a more detailed description of the statements and reclassification, see Note 2. Restatements to the accompanying notes to the consolidated financial statements in this Form 10-Q.





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This quarterly report on Form10-Q restates certain financial information for the year ended December 31,
2003 and for the three and nine months ended September 30, 2004 set forth in Item 1. Consolidated Financial Statements and Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations, of
Part I. We will file, as soon as practicable, an amended Annual Report on Form 10-K/A for the year ended December 31, 2003, which will contain restated financial statements for the years ended December 31, 2003, 2002 and 2001 and the relevant
quarterly periods and Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2004 and June 30, 2004 which will contain restated financial statements for March 31, 2004 and 2003 and June 30, 2004 and 2003. It is possible that as the
Company continues its ongoing review and analysis of internal controls over financial reporting for Sarbanes-Oxley compliance, additional weaknesses in internal controls may be discovered. It should be noted that no matter how well designed and
operated, a control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. We will not amend any other Annual Reports on Form 10-K for fiscal years prior to December 31, 2003 or Quarterly
Reports on Form 10-Q for quarterly periods prior to the three months ended March 31, 2004.





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UNITED PANAM FINANCIAL
CORP.

FORM 10-Q

SEPTEMBER 30, 2004



INDEX



|         |  |                                                                                                                               |  |     
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                               |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                                                         |  |     
|         |  |                                                                                                                              
|Item 1.  |  | Financial Statements                                                                                                          |  |     
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Financial Condition as of September 30, 2004 and December 31, 2003                                 |  | 1   
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and September 30, 2003           |  | 2   
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2004 and September 30, 2003 |  | 3   
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and September 30, 2003                     |  | 4   
|         |  |                                                                                                                              
|         |  | Notes to Consolidated Financial Statements                                                                                    |  | 6   
|         |  |                                                                                                                              
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 19  
|         |  |                                                                                                                              
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 46  
|         |  |                                                                                                                              
|Item 4.  |  | Controls & Procedures                                                                                                         |  | 46  
|         |  |                                                                                                                              
|PART II. |  | OTHER INFORMATION                                                                                                             |  | 49  
|         |  |                                                                                                                              
|Item 1.  |  | Legal Proceedings                                                                                                             |  | 49  
|         |  |                                                                                                                              
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                     |  | 49  
|         |  |                                                                                                                              
|Item 3.  |  | Defaults Upon Senior Securities                                                                                               |  | 49  
|         |  |                                                                                                                              
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 49  
|         |  |                                                                                                                              
|Item 5.  |  | Other Information                                                                                                             |  | 49  
|         |  |                                                                                                                              
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                              |  | 49  





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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------



United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition

(Unaudited)



|                                                                                                                           |  |                    |           |   |                   |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|(Dollars in thousands)                                                                                                     |  | September 30, 2004 |           |   | December 31, 2003 |  
|                                                                                                                           |  |                    |           |   | (As Restated)     |  
|Assets                                                                                                                     |  |                    |           |   |                   |   |           |  
|Cash and due from banks                                                                                                    |  | $                  | 12,467    |   |                   | $ | 8,376     |  
|Short term investments                                                                                                     |  |                    | 18,527    |   |                   |   | 5,833     |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                  |  |                    | 30,994    |   |                   |   | 14,209    |  
|Restricted cash                                                                                                            |  |                    | 9,333     |   |                   |   |          |  
|Securities available for sale, at fair value                                                                               |  |                    | 953,930   |   |                   |   | 1,202,444 |  
|Loans                                                                                                                      |  |                    | 503,396   |   |                   |   | 399,749   |  
|Less unearned discount                                                                                                     |  |                    | (22,179   | ) |                   |   | (14,368   | )
|Less allowance for loan losses                                                                                             |  |                    | (25,188   | ) |                   |   | (24,982   | )
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Loans, net                                                                                                                 |  |                    | 456,029   |   |                   |   | 360,399   |  
|Premises and equipment, net                                                                                                |  |                    | 3,307     |   |                   |   | 3,163     |  
|Accrued interest receivable                                                                                                |  |                    | 6,772     |   |                   |   | 5,893     |  
|Other assets                                                                                                               |  |                    | 44,627    |   |                   |   | 26,621    |  
|Assets of discontinued operations                                                                                          |  |                    | 51,344    |   |                   |   | 52,535    |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total assets                                                                                                               |  | $                  | 1,556,336 |   |                   | $ | 1,665,264 |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Liabilities and Shareholders Equity                                                                                       |  |                    |           |   |                   |   |           |  
|Warehouse line of credit                                                                                                   |  | $                  | 24,247    |   |                   | $ |          |  
|Securities notes payable                                                                                                   |  |                    | 420,000   |   |                   |   |          |  
|Repurchase agreements                                                                                                      |  |                    | 893,252   |   |                   |   | 1,052,205 |  
|Accrued expenses and other liabilities                                                                                     |  |                    | 8,504     |   |                   |   | 6,795     |  
|Subordinated debenture                                                                                                     |  |                    | 10,310    |   |                   |   | 10,000    |  
|Liabilities of discontinued operations  deposits held for sale                                                            |  |                    | 84,269    |   |                   |   | 498,389   |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                                                          |  |                    | 1,440,582 |   |                   |   | 1,567,389 |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Common stock (no par value):                                                                                               |  |                    |           |   |                   |   |           |  
|Authorized, 30,000,000 shares Issued and outstanding, 16,174,565 at September 30, 2004 and 16,100,204 at December 31, 2003 |  |                    | 66,768    |   |                   |   | 66,109    |  
|Retained earnings                                                                                                          |  |                    | 50,035    |   |                   |   | 31,637    |  
|Accumulated other comprehensive income, net of tax                                                                         |  |                    | (1,049    | ) |                   |   | 129       |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total shareholders equity                                                                                                 |  |                    | 115,754   |   |                   |   | 97,875    |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total liabilities and shareholders equity                                                                                 |  | $                  | 1,556,336 |   |                   | $ | 1,665,264 |  
|                                                                                                                           |  |                    |           |   |                   |   |           |  



See accompanying
notes to consolidated financial statements



1



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|------------------------------------------------------ |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ------------- | ------ |  | - | ------
|                                                       |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|(In thousands, except per share data)                  |  | 2004                             |        | 2003                            |   | 2004   |  | 2003         
|                                                       |  |                                  |        | (As Restated)                   |   |        |  | (As Restated)
|Interest Income                                        |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Loans                                                  |  | $                                | 29,641 |                                 | $ | 21,106 |  | $             | 84,400 |  | $ | 55,029
|Short term investments                                 |  |                                  | 6,358  |                                 |   | 4,009  |  |               | 15,042 |  |   | 11,839
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Total interest income                                  |  |                                  | 35,999 |                                 |   | 25,115 |  |               | 99,442 |  |   | 66,868
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Interest Expense                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Deposits                                               |  |                                  | 2,895  |                                 |   | 3,095  |  |               | 9,304  |  |   | 9,779 
|Interest expense-securitization/warehouse credit line  |  |                                  | 291    |                                 |   |       |  |               | 291    |  |   |      
|Repurchase agreements                                  |  |                                  | 3,644  |                                 |   | 2,409  |  |               | 9,294  |  |   | 6,266 
|Subordinated debenture                                 |  |                                  | 123    |                                 |   |       |  |               | 352    |  |   |      
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Total interest expense                                 |  |                                  | 6,953  |                                 |   | 5,504  |  |               | 19,241 |  |   | 16,045
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net interest income                                    |  |                                  | 29,046 |                                 |   | 19,611 |  |               | 80,201 |  |   | 50,823
|Provision for loan losses                              |  |                                  | 7,383  |                                 |   | 6,373  |  |               | 17,686 |  |   | 12,391
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net interest income after provision for loan losses    |  |                                  | 21,663 |                                 |   | 13,238 |  |               | 62,515 |  |   | 38,432
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Non-interest Income                                    |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Service charges and fees                               |  |                                  | 96     |                                 |   | 73     |  |               | 339    |  |   | 16    
|Loan related charges and fees                          |  |                                  | 78     |                                 |   | 70     |  |               | 693    |  |   | 651   
|Gain on sale of securities                             |  |                                  | 160    |                                 |   | 87     |  |               | 241    |  |   | 231   
|Other income                                           |  |                                  | 69     |                                 |   | 196    |  |               | 690    |  |   | 540   
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Total non-interest income                              |  |                                  | 403    |                                 |   | 426    |  |               | 1,963  |  |   | 1,438 
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Non-interest Expense                                   |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Compensation and benefits                              |  |                                  | 8,547  |                                 |   | 6,647  |  |               | 24,016 |  |   | 18,913
|Occupancy                                              |  |                                  | 1,368  |                                 |   | 1,122  |  |               | 3,897  |  |   | 3,250 
|Market loss-derivative instruments                     |  |                                  | 2,071  |                                 |   |       |  |               | 2,368  |  |   |      
|Other                                                  |  |                                  | 3,665  |                                 |   | 2,631  |  |               | 10,087 |  |   | 7,264 
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Total non-interest expense                             |  |                                  | 15,651 |                                 |   | 10,400 |  |               | 40,368 |  |   | 29,427
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Income before income taxes and discontinued operations |  |                                  | 6,415  |                                 |   | 3,264  |  |               | 24,110 |  |   | 10,443
|Income taxes on continuing operations                  |  |                                  | 2,654  |                                 |   | 1,337  |  |               | 9,800  |  |   | 4,227 
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net income before discontinued operations              |  |                                  | 3,761  |                                 |   | 1,927  |  |               | 14,310 |  |   | 6,216 
|Income from discontinued operations, net of taxes      |  |                                  | 3,260  |                                 |   | 402    |  |               | 4,088  |  |   | 1,730 
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net Income                                             |  | $                                | 7,021  |                                 | $ | 2,329  |  | $             | 18,398 |  | $ | 7,946 
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Earnings per share-basic:                              |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net income before discontinued operations              |  | $                                | 0.23   |                                 | $ | 0.12   |  | $             | 0.89   |  | $ | 0.39  
|Discontinued operations                                |  | $                                | 0.20   |                                 | $ | 0.03   |  | $             | 0.25   |  | $ | 0.11  
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net Income                                             |  | $                                | 0.43   |                                 | $ | 0.15   |  | $             | 1.14   |  | $ | 0.50  
|Weighted average shares outstanding                    |  |                                  | 16,168 |                                 |   | 15,892 |  |               | 16,146 |  |   | 15,879
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Earnings per share-diluted:                            |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net income before discontinued operations              |  | $                                | 0.21   |                                 | $ | 0.11   |  | $             | 0.80   |  | $ | 0.36  
|Discontinued operations                                |  | $                                | 0.18   |                                 | $ | 0.02   |  | $             | 0.22   |  | $ | 0.10  
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Net Income                                             |  | $                                | 0.39   |                                 | $ | 0.13   |  | $             | 1.02   |  | $ | 0.46  
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       
|Number of shares used in fully diluted calculations    |  |                                  | 18,022 |                                 |   | 17,936 |  |               | 18,012 |  |   | 17,420
|                                                       |  |                                  |        |                                 |   |        |  |               |        |  |   |       



See accompanying
notes to consolidated financial statements



2



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##### Table of Contents



United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



|                                                        |  |                                  |       |               |                                 |       |      |  |   |               |   |  |   |       |  
|------------------------------------------------------- |  | -------------------------------- | ----- | ------------- | ------------------------------- | ----- | ---- |  | - | ------------- | - |  | - | ----- | -
|                                                        |  | Three Months Ended September 30, |       |               | Nine Months Ended September 30, |      
|(Dollars in thousands)                                  |  | 2004                             |       | 2003          |                                 |       | 2004 |  |   | 2003          |  
|                                                        |  |                                  |       | (As Restated) |                                 |       |      |  |   | (As Restated) |  
|Net income                                              |  | $                                | 7,021 |               | $                               | 2,329 |      |  | $ | 18,398        |   |  | $ | 7,946 |  
|Other comprehensive income, net of tax:                 |  |                                  |       |               |                                 |       |      |  |   |               |   |  |   |       |  
|Unrealized gain (loss) on securities available for sale |  |                                  | 1,568 |               |                                 | (253  | )    |  |   | (878          | ) |  |   | (597  | )
|                                                        |  |                                  |       |               |                                 |       |      |  |   |               |   |  |   |       |  
|Comprehensive income                                    |  | $                                | 8,589 |               | $                               | 2,076 |      |  | $ | 17,520        |   |  | $ | 7,349 |  
|                                                        |  |                                  |       |               |                                 |       |      |  |   |               |   |  |   |       |  



See accompanying
notes to consolidated financial statements



3



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                           |  |                                |          |   |               |   |            |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ------------- | - | ---------- | -
|                                                                                                           |  | Nine MonthsEnded September 30, |         
|(Dollars in thousands)                                                                                     |  | 2004                           |          |   | 2003          |  
|                                                                                                           |  |                                |          |   | (As Restated) |  
|Cash Flows from Operating Activities                                                                       |  |                                |          |   |               |   |            |  
|Net income                                                                                                 |  | $                              | 14,310   |   |               | $ | 6,216      |  
|Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: |  |                                |          |   |               |   |            |  
|Gain on sale of securities                                                                                 |  |                                | (241     | ) |               |   | (402       | )
|Provision for loan losses                                                                                  |  |                                | 17,686   |   |               |   | 12,304     |  
|Depreciation and amortization                                                                              |  |                                | 1,012    |   |               |   | 815        |  
|FHLB stock dividend                                                                                        |  |                                | (485     | ) |               |   |           |  
|Loans held for sale                                                                                        |  |                                | 1,676    |   |               |   | (5,113     | )
|Accretion of discounts on loans                                                                            |  |                                | (9,157   | ) |               |   |           |  
|Decrease (increase) in accrued interest receivable and other assets                                        |  |                                | (17,712  | ) |               |   | 1,659      |  
|Decrease in deferred tax asset                                                                             |  |                                |         |   |               |   | 2,774      |  
|Increase (decrease) in accrued expenses and other liabilities                                              |  |                                | 1,409    |   |               |   | (7,146     | )
|Amortization of premiums (discounts) on securities                                                         |  |                                | 1,271    |   |               |   | (100       | )
|                                                                                                           |  |                                |          |   |               |   |            |  
|Net cash provided by operating activities of continuing operations                                         |  |                                | 9,769    |   |               |   | 11,007     |  
|Net income from discontinued operations                                                                    |  |                                | 4,088    |   |               |   | 1,730      |  
|                                                                                                           |  |                                |          |   |               |   |            |  
|Net cash provided by operating activities                                                                  |  |                                | 13,857   |   |               |   | 12,737     |  
|                                                                                                           |  |                                |          |   |               |   |            |  
|Cash Flows from Investing Activities                                                                       |  |                                |          |   |               |   |            |  
|Proceeds from maturities of investment securities                                                          |  |                                | 275,067  |   |               |   | 545,608    |  
|Purchase of investment securities                                                                          |  |                                | (452,617 | ) |               |   | (1,039,924 | )
|Proceeds from sales of securities                                                                          |  |                                | 423,510  |   |               |   | 46,162     |  
|Originations and purchases, net of repayments, of non-mortgage loans                                       |  |                                | (104,159 | ) |               |   | (91,041    | )
|Purchase of premises and equipment                                                                         |  |                                | (1,156   | ) |               |   | (1,099     | )
|Proceeds from sale (purchase) of FHLB stock, net                                                           |  |                                |         |   |               |   | (9,781     | )
|Proceeds from warehouse credit line                                                                        |  |                                | 24,247   |   |               |   |           |  
|Proceeds from securities payable note                                                                      |  |                                | 420,000  |   |               |   |           |  
|Other                                                                                                      |  |                                | (9,333   | ) |               |   |           |  
|                                                                                                           |  |                                |          |   |               |   |            |  
|Net cash provided by (used in) investing activities                                                        |  |                                | 575,559  |   |               |   | (550,075   | )
|                                                                                                           |  |                                |          |   |               |   |            |  
|Cash Flows from Financing Activities                                                                       |  |                                |          |   |               |   |            |  
|Issuance of common stock                                                                                   |  |                                | 132      |   |               |   | 171        |  
|Net (decrease) increase in deposits                                                                        |  |                                | (414,120 | ) |               |   | 8,508      |  
|Issuance of trust preferred stock                                                                          |  |                                | 310      |   |               |   | 10,000     |  
|Proceeds, net of repayments, from repurchase agreements                                                    |  |                                | (158,953 | ) |               |   | 539,061    |  
|                                                                                                           |  |                                |          |   |               |   |            |  
|Net cash provided by (used in) financing activities                                                        |  |                                | (572,631 | ) |               |   | 557,740    |  
|                                                                                                           |  |                                |          |   |               |   |            |  
|Net increase in cash and cash equivalents                                                                  |  |                                | 16,785   |   |               |   | 20,202     |  
|Cash and cash equivalents at beginning of period                                                           |  |                                | 14,209   |   |               |   | 13,554     |  
|                                                                                                           |  |                                |          |   |               |   |            |  
|Cash and cash equivalents at end of period                                                                 |  | $                              | 30,994   |   |               | $ | 33,756     |  
|                                                                                                           |  |                                |          |   |               |   |            |  



See accompanying
notes to consolidated financial statements



4



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

(Unaudited)



|                                                                      |  |                                |        |      |   |       
|--------------------------------------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------
|                                                                      |  | Nine MonthsEnded September 30,
|(Dollars in thousands)                                                |  | 2004                           |        | 2003
|Supplemental Disclosures of Cash Flow Information                     |  |                                |        |      |   |       
|Cash paid for:                                                        |  |                                |        |      |   |       
|Interest                                                              |  | $                              | 20,824 |      | $ | 17,602
|                                                                      |  |                                |        |      |   |       
|Income Taxes                                                          |  | $                              | 15,122 |      | $ | 8,765 
|                                                                      |  |                                |        |      |   |       
|Supplemental schedule of non-cash investing and financing activities: |  |                                |        |      |   |       
|Loans transferred to held for sale                                    |  | $                              | 39,296 |      | $ | 40,972
|                                                                      |  |                                |        |      |   |       



See accompanying
notes to consolidated financial statements



5



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Three and Nine Months Ended September 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
California, through the merger of United PanAm Financial Corp., a Delaware corporation (the Predecessor), into the Company. Unless the context indicates otherwise, all references herein to the Company include the Predecessor.
The Company was originally organized as a holding company for PAFI, 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
|-- | ------------



We will file, as soon as practicable, a consolidated Annual Report on Form 10-K/A for the year ended December 31, 2003, which will contain restated
consolidated financial statements for the years ended December, 31, 2003, 2002 and 2001 and the relevant quarterly periods and Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2004 and 2003 and June 30, 2004 and 2003. The
restatements were necessary to conform with accounting principles generally accepted in the United States of America (GAAP) and reflect the following:



| |  | The correction of the impact of unreversed accrued interest of certain charged off accounts. As part of our analysis of internal controls over financial reporting, management
discovered that due to a 1998 programming error in our computer-based accounting system, the system has failed to properly reverse accrued interest on certain charged off accounts since 1998. Consequently, we are restating our consolidated financial
statements for the years ended December 31, 2001, 2002 and 2003 and subsequent interim periods to correct the impact of unreversed accrued interest of these charged off accounts. Management has subsequently corrected the programming error and has
verified that the system will properly account for interest accruals on charged-off loans going forward. The impact of correcting this unreversed accrued interest will be a reduction in net income after tax for each of the periods of $398,000 for
the year ended December 31, 2001, $700,000 for the year ended December 31, 2002, $1,084,000 for the year ended December 31, 2003, $336,000 for the three months ended March 31, 2004 and $312,000 for the three months ended June 30, 2004. The impact
for the years prior to 2001 will be an aggregate reduction in retained earnings of $262,000.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The correction of our accounting for the change in value of our derivative instruments used to limit interest rate risk. Upon review, we now believe that the documentation of our
cash flow hedge accounting relationships was deficient as to the specificity of the underlying hedged transaction in order to assess hedge effectiveness and measurement of hedge ineffectiveness as required by the stringent applicable accounting
standards. As such, we made the determination that our derivative instruments did not qualify for hedge accounting. Consequently, we are restating our consolidated financial statements as of June 30, 2004 and the three and six month then ended
resulting in a total after tax reduction of income of $177,000 for derivative valuations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The correction of the amortization of our capitalized asset against interest income. Upon review, we have reduced the amount of this asset that was amortized against interest income
in 2004 to more closely reflect the proper level yield amortization method. Consequently, we are restating our consolidated financial statements as of June 30, 2004 and the three and six months then ended and as of March 31, 2004 and the three
months then ended resulting in a total after tax increase of income of $201,000 for increased interest income. Management has implement procedures for the quarterly verification of proper amortization going forward.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



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##### Table of Contents

Contained in this quarterly report on Form 10Q for the quarter ended September 30, 2004 reflects
corrections and restatements of the following statements:



(a)
consolidated financial statements of financial condition as of June 30, 2004, March 31, 2004 and December 31, 2003, 2002 and 2001;



(b) consolidated statements of operations for the three and six months ended June 30, 2004 and 2003, for the three months ended March 31, 2004 and 2003,
for the three and nine months ended September 30, 2003 and for the years ended December 31, 2003, 2002 and 2001;



(c) comprehensive income for the three and six months ended June 30, 2004 and 2003, for the three month ended March 31, 2004 and 2003, for the three and
nine months ended September 30, 2003 and for the years ended December 31, 2003, 2002 and 2001 and



(d) consolidated statements of cash flows for the six months ended June 30, 2004 and 2003, for the three months ended March 31, 2004 and 2003, for the
nine months ended September 30, 2003 and for the years ended December 31, 2003, 2002 and 2001.



Changes to Consolidated Statements of Financial Condition



(Dollars in thousands, except per share data)



|                                           |  |                      |           |                      |   |          
|------------------------------------------ |  | -------------------- | --------- | -------------------- | - | ---------
|                                           |  | As of March 31, 2004
|                                           |  | UnauditedAs Reported |           | UnauditedAs Restated
|Loans                                      |  | $                    | 478,574   |                      | $ | 478,701  
|Loans, net                                 |  | $                    | 436,004   |                      | $ | 436,131  
|Accrued interest receivable                |  | $                    | 10,732    |                      | $ | 6,211    
|Other assets                               |  | $                    | 22,500    |                      | $ | 24,193   
|Total Assets                               |  | $                    | 1,652,662 |                      | $ | 1,649,961
|Retained earnings                          |  | $                    | 39,776    |                      | $ | 37,075   
|Total Shareholders Equity                 |  | $                    | 106,559   |                      | $ | 103,858  
|Total Liabilities and Shareholders Equity |  | $                    | 1,652,662 |                      | $ | 1,649,961



Changes to Consolidated Statements
of Operations



|                                                                                  |  |                                   |        |                      |   |       
|--------------------------------------------------------------------------------- |  | --------------------------------- | ------ | -------------------- | - | ------
|                                                                                  |  | Three Months Ended March 31, 2004
|                                                                                  |  | UnauditedAs Reported              |        | UnauditedAs Restated
|Interest-Loans                                                                    |  | $                                 | 27,076 |                      | $ | 26,639
|Total interest income                                                             |  | $                                 | 32,150 |                      | $ | 31,713
|Net interest income                                                               |  | $                                 | 25,652 |                      | $ | 25,315
|Net interest income after provision for loan losses                               |  | $                                 | 20,441 |                      | $ | 20,004
|Income from continuing operations before income taxes and discontinued operations |  | $                                 | 9,558  |                      | $ | 9,121 
|Income taxes                                                                      |  | $                                 | 3,861  |                      | $ | 3,684 
|Net income                                                                        |  | $                                 | 5,697  |                      | $ | 5,437 
|Comprehensive income                                                              |  | $                                 | 6,045  |                      | $ | 5,785 
|Earnings per share-basic:                                                         |  |                                   |        |                      |   |       
|Net income before discontinued operations                                         |  | $                                 | 0.35   |                      | $ | 0.34  
|Discontinued operations                                                           |  | $                                 |       |                      | $ |      
|Net income                                                                        |  | $                                 | 0.35   |                      | $ | 0.34  
|Earnings per share-diluted:                                                       |  |                                   |        |                      |   |       
|Net income before discontinued operations                                         |  | $                                 | 0.32   |                      | $ | 0.30  
|Discontinued operations                                                           |  | $                                 |       |                      | $ |      
|Net income                                                                        |  | $                                 | 0.32   |                      | $ | 0.30  



7



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##### Table of Contents

Changes to Consolidated Statements of Cash Flows



(Dollars in thousands, except per share data)



|                                                     |  |                                  |         |   |                      |   |         |  
|---------------------------------------------------- |  | -------------------------------- | ------- | - | -------------------- | - | ------- | -
|                                                     |  | Three Months EndedMarch 31, 2004 |        
|                                                     |  | UnauditedAs Reported             |         |   | UnauditedAs Restated |  
|Net income                                           |  | $                                | 5,697   |   |                      | $ | 5,437   |  
|Decrease (increase) in accrued interest receivable   |  | $                                | (883    | ) |                      | $ | (318    | )
|Decrease in other assets                             |  | $                                | 2,436   |   |                      | $ | 2,558   |  
|Net cash provided by operating activities            |  | $                                | 9,047   |   |                      | $ | 9,174   |  
|Originations net of repayments of non-mortgage loans |  | $                                | (37,358 | ) |                      | $ | (37,485 | )
|Net cash provided by (used in) investing activities  |  | $                                | 49,323  |   |                      | $ | 49,196  |  



Changes to Consolidated Statements
of Financial Condition



(Dollars in thousands, except per share data)



|                                           |  |                      |           |                      |   |          
|------------------------------------------ |  | -------------------- | --------- | -------------------- | - | ---------
|                                           |  | As of June 30, 2004 
|                                           |  | UnauditedAs Reported |           | UnauditedAs Restated
|Loans                                      |  | $                    | 514,119   |                      | $ | 514,456  
|Loans, net                                 |  | $                    | 469,230   |                      | $ | 469,567  
|Accrued interest receivable                |  | $                    | 11,593    |                      | $ | 6,549    
|Other assets                               |  | $                    | 28,305    |                      | $ | 30,244   
|Total Assets                               |  | $                    | 1,668,665 |                      | $ | 1,665,897
|Accrued expenses and other liabilities     |  | $                    | 6,590     |                      | $ | 6,887    
|Total liabilities                          |  | $                    | 1,558,450 |                      | $ | 1,558,747
|Retained earnings                          |  | $                    | 46,079    |                      | $ | 43,014   
|Total Shareholders Equity                 |  | $                    | 110,215   |                      | $ | 107,150  
|Total Liabilities and Shareholders Equity |  | $                    | 1,668,665 |                      | $ | 1,665,897



Changes to Consolidated Statements
of Operations



(Dollars in thousands, except per share data)



|                                                                                  |  |                                 |        |                      |   |       
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------ | -------------------- | - | ------
|                                                                                  |  | Three months endedJune 30, 2004
|                                                                                  |  | UnauditedAs Reported            |        | UnauditedAs Restated
|Interest-Loans                                                                    |  | $                               | 29,488 |                      | $ | 29,175
|Total interest income                                                             |  | $                               | 34,143 |                      | $ | 33,830
|Net interest income                                                               |  | $                               | 27,835 |                      | $ | 27,522
|Net interest income after provision for loan losses                               |  | $                               | 22,721 |                      | $ | 22,408
|Market loss  derivative instruments                                              |  | $                               |       |                      | $ | 297   
|Total non-interest expense                                                        |  | $                               | 12,720 |                      | $ | 13,017
|Income from continuing operations before income taxes and discontinued operations |  | $                               | 10,577 |                      | $ | 9,967 
|Income taxes                                                                      |  | $                               | 4,274  |                      | $ | 4,028 
|Net Income                                                                        |  | $                               | 6,303  |                      | $ | 5,939 
|Comprehensive income                                                              |  | $                               | 3,509  |                      | $ | 3,197 
|Earnings per share-basic:                                                         |  |                                 |        |                      |   |       
|Net income                                                                        |  | $                               | 0.39   |                      | $ | 0.37  
|Earnings per share-diluted:                                                       |  |                                 |        |                      |   |       
|Net income                                                                        |  | $                               | 0.35   |                      | $ | 0.33  



8



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##### Table of Contents

Changes to Consolidated Statements of Operations



|                                                                                  |  |                               |        |                      |   |       
|--------------------------------------------------------------------------------- |  | ----------------------------- | ------ | -------------------- | - | ------
|                                                                                  |  | Six Months EndedJune 30, 2004
|                                                                                  |  | UnauditedAs Reported          |        | UnauditedAs Restated
|Interest-Loans                                                                    |  | $                             | 56,564 |                      | $ | 55,814
|Total interest income                                                             |  | $                             | 66,293 |                      | $ | 65,543
|Net interest income                                                               |  | $                             | 53,487 |                      | $ | 52,737
|Net interest income after provision for loan losses                               |  | $                             | 43,162 |                      | $ | 42,612
|Market loss-derivative instruments                                                |  | $                             |       |                      | $ | 297   
|Total non-interest expense                                                        |  | $                             | 24,882 |                      | $ | 25,179
|Income from continuing operations before income taxes and discontinued operations |  | $                             | 20,135 |                      | $ | 19,088
|Income taxes                                                                      |  | $                             | 8,135  |                      | $ | 7,712 
|Net income                                                                        |  | $                             | 12,000 |                      | $ | 11,376
|Comprehensive Income                                                              |  | $                             | 9,554  |                      | $ | 8,907 
|Earnings per share-basic:                                                         |  |                               |        |                      |   |       
|Net income before discontinued operations                                         |  | $                             | 0.74   |                      | $ | 0.71  
|Net income                                                                        |  | $                             | 0.74   |                      | $ | 0.71  
|Earnings per share-diluted:                                                       |  |                               |        |                      |   |       
|Net income before discontinued operations                                         |  | $                             | 0.67   |                      | $ | 0.63  
|Net income                                                                        |  | $                             | 0.67   |                      | $ | 0.63  



Changes to Consolidated Statements
of Cash Flows



|                                                                     |  |                               |         |   |                      |   |         |  
|-------------------------------------------------------------------- |  | ----------------------------- | ------- | - | -------------------- | - | ------- | -
|                                                                     |  | Six Months EndedJune 30, 2004 |        
|                                                                     |  | UnauditedAs Reported          |         |   | UnauditedAs Restated |  
|Net income                                                           |  | $                             | 12,000  |   |                      | $ | 11,376  |  
|Decrease (increase) in accrued interest receivable and other assets  |  | $                             | (8,594  | ) |                      | $ | (2,396  | )
|Decrease (increase) in accrued expenses and other liabilities        |  | $                             | (205    | ) |                      | $ | 92      |  
|Amortization of premiums on securities                               |  | $                             | 902     |   |                      | $ | 931     |  
|Net cash provided by operating activities                            |  | $                             | 14,122  |   |                      | $ | 14,459  |  
|Originations and purchases, net of repayments, of non-mortgage loans |  | $                             | (72,621 | ) |                      | $ | (72,958 | )
|Net cash provided by (used in) investing activities                  |  | $                             | 3,584   |   |                      | $ | 3,247   |  



9



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##### Table of Contents

Changes to Unaudited Consolidated Statements of Financial Condition



(Dollars in thousands, except per share data)



|                                           |  |                      |           |                      |   |                      |  |             |         |             |   |             |  |   |         |  |   |        
|------------------------------------------ |  | -------------------- | --------- | -------------------- | - | -------------------- |  | ----------- | ------- | ----------- | - | ----------- |  | - | ------- |  | - | -------
|                                           |  | As of March 31, 2003 |           | As of March 31, 2002 |   | As of March 31, 2001
|                                           |  | Unaudited            |           | Unaudited            |   | Unaudited           
|                                           |  | As Reported          |           | As Restated          |   | As Reported          |  | As Restated |         | As Reported |   | As Restated
|Loans                                      |  | $                    | 357,442   |                      | $ | 352,166              |  | $           | 274,058 |             | $ | 271,503     |  |   |        |  |   |       
|Loans, net                                 |  | $                    | 357,442   |                      | $ | 352,166              |  | $           | 254,290 |             | $ | 251,735     |  | $ | 193,090 |  | $ | 191,956
|Accrued interest receivable                |  | $                    | 1,830     |                      | $ | 4,532                |  | $           | 4,491   |             | $ | 5,807       |  | $ | 2,252   |  | $ | 2,911  
|Other assets                               |  | $                    | 18,455    |                      | $ | 19,411               |  | $           | 14,750  |             | $ | 15,187      |  | $ | 15,529  |  | $ | 15,670 
|Total Assets                               |  | $                    | 1,191,109 |                      | $ | 1,189,491            |  | $           | 737,482 |             | $ | 736,680     |  | $ | 497,318 |  | $ | 496,984
|Retained earnings                          |  | $                    | 23,440    |                      | $ | 21,822               |  | $           | 13,204  |             | $ | 12,402      |  | $ | 5,068   |  | $ | 4,734  
|Total Shareholders Equity                 |  | $                    | 89,025    |                      | $ | 87,407               |  | $           | 77,020  |             | $ | 76,218      |  | $ | 71,006  |  | $ | 70,672 
|Total Liabilities and Shareholders Equity |  | $                    | 1,191,109 |                      | $ | 1,189,491            |  | $           | 737,482 |             | $ | 736,680     |  | $ | 497,318 |  | $ | 496,984



Changes to Unaudited Consolidated
Statements of Operations



|                                                                                                              |  |                                   |        |                                   |   |                                   |  |             |        |             |   |             |  |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | --------------------------------- | - | --------------------------------- |  | ----------- | ------ | ----------- | - | ----------- |  | - | ------ |  | - | ------
|                                                                                                              |  | Three Months Ended March 31, 2003 |        | Three Months Ended March 31, 2002 |   | Three Months Ended March 31, 2001
|                                                                                                              |  | Unaudited                         |        | Unaudited                         |   | Unaudited                        
|                                                                                                              |  | As Reported                       |        | As Restated                       |   | As Reported                       |  | As Restated |        | As Reported |   | As Restated
|Interest  loans                                                                                              |  | $                                 | 16,803 |                                   | $ | 16,637                            |  | $           | 13,037 |             | $ | 12,804      |  | $ | 10,290 |  | $ | 10,172
|Total interest income                                                                                         |  | $                                 | 20,517 |                                   | $ | 20,081                            |  | $           | 15,696 |             | $ | 15,463      |  | $ | 13,930 |  | $ | 13,812
|Net interest income                                                                                           |  | $                                 | 15,229 |                                   | $ | 14,793                            |  | $           | 11,700 |             | $ | 11,467      |  | $ | 8,395  |  | $ | 8,277 
|Net interest income after provision for loan losses                                                           |  | $                                 | 12,526 |                                   | $ | 12,090                            |  | $           | 10,402 |             | $ | 10,169      |  | $ | 8,351  |  | $ | 8,233 
|Income from continuing operations before income taxes and cumulative effect of change in accounting principle |  | $                                 | 3,701  |                                   | $ | 3,265                             |  | $           | 2,889  |             | $ | 2,656       |  | $ | 2,529  |  | $ | 2,411 
|Income taxes                                                                                                  |  | $                                 | 1,497  |                                   | $ | 1,321                             |  | $           | 1,078  |             | $ | 989         |  | $ | 985    |  | $ | 939   
|Income from continuing operations before cumulative effect of change in accounting principle                  |  | $                                 | 2,204  |                                   | $ | 1,944                             |  | $           | 1,811  |             | $ | 1,667       |  | $ | 1,544  |  | $ | 1,472 
|Net income                                                                                                    |  | $                                 | 2,636  |                                   | $ | 2,376                             |  | $           | 1,917  |             | $ | 1,773       |  | $ | 1,544  |  | $ | 1,472 
|Comprehensive income                                                                                          |  | $                                 | 2,372  |                                   | $ | 2,112                             |  | $           | 1,354  |             | $ | 1,210       |  | $ | 1,689  |  | $ | 1,617 
|Earnings per share-basic:                                                                                     |  |                                   |        |                                   |   |                                   |  |             |        |             |   |             |  |   |        |  |   |       
|Net income before cumulative effect of change in accounting principle                                         |  | $                                 | 0.14   |                                   | $ | 0.12                              |  | $           | 0.12   |             | $ | 0.10        |  | $ | 0.10   |  | $ | 0.09  
|Discontinued operations                                                                                       |  | $                                 | 0.03   |                                   | $ | 0.03                              |  |             |       |             |   |            |  |   |       |  |   |      
|Net income                                                                                                    |  | $                                 | 0.17   |                                   | $ | 0.15                              |  | $           | 0.13   |             | $ | 0.11        |  | $ | 0.10   |  | $ | 0.09  
|Earnings per share-diluted:                                                                                   |  |                                   |        |                                   |   |                                   |  |             |        |             |   |             |  |   |        |  |   |       
|Net income before cumulative effect of change in accounting principle                                         |  | $                                 | 0.13   |                                   | $ | 0.11                              |  | $           | 0.11   |             | $ | 0.10        |  | $ | 0.10   |  | $ | 0.09  
|Discontinued operations                                                                                       |  | $                                 | 0.02   |                                   | $ | 0.03                              |  |             |       |             |   |            |  |   |       |  |   |      
|Net income                                                                                                    |  | $                                 | .15    |                                   | $ | 0.14                              |  | $           | 0.12   |             | $ | 0.11        |  | $ | 0.10   |  | $ | 0.09  



10



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##### Table of Contents

Changes to Unaudited Consolidated Statements of Cash Flow



|                                                   |  |                                  |       |                                   |   |             |                                   |   |             |   |  |             |       |   |             |   |        |   |  |   |        |  
|-------------------------------------------------- |  | -------------------------------- | ----- | --------------------------------- | - | ----------- | --------------------------------- | - | ----------- | - |  | ----------- | ----- | - | ----------- | - | ------ | - |  | - | ------ | -
|                                                   |  | Three Month Ended March 31, 2003 |       | Three Months Ended March 31, 2002 |   |             | Three Months Ended March 31, 2001 |  
|                                                   |  | Unaudited                        |       | Unaudited                         |   |             | Unaudited                         |  
|                                                   |  | As Reported                      |       | As Restated                       |   | As Reported |                                   |   | As Restated |   |  | As Reported |       |   | As Restated |  
|Net income                                         |  | $                                | 2,636 |                                   | $ | 2,376       |                                   | $ | 1,917       |   |  | $           | 1,773 |   |             | $ | 1,544  |   |  | $ | 1,472  |  
|Decrease (increase) in accrued interest receivable |  | $                                | 50    |                                   | $ | 1,866       |                                   | $ | (462        | ) |  | $           | (229  | ) |             | $ | (1,438 | ) |  | $ | (1,320 | )
|Decrease in other assets                           |  | $                                | 3,708 |                                   | $ | 3,359       |                                   | $ | 315         |   |  | $           | 404   |   |             | $ | (1,460 | ) |  | $ | (1,506 | )
|Net cash provided by operating activities          |  | $                                | 7,601 |                                   | $ | 8,808       |                                   | $ |            |   |  | $           |      |   |             | $ |       |   |  | $ |       |  



Changes to Unaudited Consolidated
Statements of Financial Condition



|                                           |  |                     |           |                     |   |                     |  |             |         |             |   |             |  |   |         |  |   |        
|------------------------------------------ |  | ------------------- | --------- | ------------------- | - | ------------------- |  | ----------- | ------- | ----------- | - | ----------- |  | - | ------- |  | - | -------
|                                           |  | As of June 30, 2003 |           | As of June 30, 2002 |   | As of June 30, 2001
|                                           |  | Unaudited           |           | Unaudited           |   | Unaudited          
|                                           |  | As Reported         |           | As Restated         |   | As Reported         |  | As Restated |         | As Reported |   | As Restated
|Loans                                      |  | $                   | 395,810   |                     | $ | 389,308             |  | $           | 296,285 |             | $ | 293,175     |  |   |        |  |   |       
|Loans, net                                 |  | $                   | 362,376   |                     | $ | 355,874             |  | $           | 273,575 |             | $ | 270,465     |  | $ | 208,017 |  | $ | 206,655
|Accrued interest receivable                |  | $                   | 1,606     |                     | $ | 5,169               |  | $           | 1,525   |             | $ | 3,163       |  | $ | 3,099   |  | $ | 3,859  
|Other assets                               |  | $                   | 19,959    |                     | $ | 21,062              |  | $           | 10,805  |             | $ | 11,331      |  | $ | 14,205  |  | $ | 14,396 
|Total Assets                               |  | $                   | 1,344,491 |                     | $ | 1,342,655           |  | $           | 795,726 |             | $ | 794,780     |  | $ | 597,795 |  | $ | 597,384
|Retained earnings                          |  | $                   | 26,899    |                     | $ | 25,063              |  | $           | 15,596  |             | $ | 14,650      |  | $ | 6,930   |  | $ | 6,519  
|Total Shareholders Equity                 |  | $                   | 92,465    |                     | $ | 90,629              |  | $           | 79,667  |             | $ | 78,721      |  | $ | 74,402  |  | $ | 73,991 
|Total Liabilities and Shareholders Equity |  | $                   | 1,344,491 |                     | $ | 1,342,655           |  | $           | 795,726 |             | $ | 794,780     |  | $ | 597,795 |  | $ | 597,384



Changes to Unaudited Consolidated
Statements of Operations



|                                                    |  |                                  |        |                                  |   |                                  |  |             |        |             |   |             |  |   |        |  |   |       
|--------------------------------------------------- |  | -------------------------------- | ------ | -------------------------------- | - | -------------------------------- |  | ----------- | ------ | ----------- | - | ----------- |  | - | ------ |  | - | ------
|                                                    |  | Three Months Ended June 30, 2003 |        | Three Months Ended June 30, 2002 |   | Three Months Ended June 30, 2001
|                                                    |  | Unaudited                        |        | Unaudited                        |   | Unaudited                       
|                                                    |  | As Reported                      |        | As Restated                      |   | As Reported                      |  | As Restated |        | As Reported |   | As Restated
|Interest - loans                                    |  | $                                | 19,973 |                                  | $ | 19,608                           |  | $           | 14,081 |             | $ | 13,848      |  | $ | 11,057 |  | $ | 10,930
|Total interest income                               |  | $                                | 24,089 |                                  | $ | 23,724                           |  | $           | 17,205 |             | $ | 16,972      |  | $ | 14,525 |  | $ | 14,398
|Net interest income                                 |  | $                                | 18,284 |                                  | $ | 17,919                           |  | $           | 12,768 |             | $ | 12,535      |  | $ | 9,289  |  | $ | 9,162 
|Net interest income after provision for loan losses |  | $                                | 15,108 |                                  | $ | 14,743                           |  | $           | 11,646 |             | $ | 11,413      |  | $ | 9,165  |  | $ | 9,038 
|Income before income taxes                          |  | $                                | 5,783  |                                  | $ | 5,418                            |  | $           | 3,954  |             | $ | 3,721       |  | $ | 3,052  |  | $ | 2,925 
|Income taxes                                        |  | $                                | 2,324  |                                  | $ | 2,177                            |  | $           | 1,562  |             | $ | 1,473       |  | $ | 1,190  |  | $ | 1,140 
|Net income                                          |  | $                                | 3,459  |                                  | $ | 3,241                            |  | $           | 2,392  |             | $ | 2,248       |  | $ | 1,862  |  | $ | 1,785 
|Comprehensive income                                |  | $                                | 3,389  |                                  | $ | 3,171                            |  | $           | 2,646  |             | $ | 2,502       |  | $ | 2,003  |  | $ | 1,926 
|Earnings per share-basic:                           |  |                                  |        |                                  |   |                                  |  |             |        |             |   |             |  |   |        |  |   |       
|Net income                                          |  | $                                | 0.22   |                                  | $ | 0.20                             |  | $           | 0.15   |             | $ | 0.14        |  | $ | 0.12   |  | $ | 0.11  
|Earnings per share-diluted:                         |  |                                  |        |                                  |   |                                  |  |             |        |             |   |             |  |   |        |  |   |       
|Net income                                          |  | $                                | 0.20   |                                  | $ | 0.19                             |  | $           | 0.14   |             | $ | 0.13        |  | $ | 0.11   |  | $ | 0.10  



11



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##### Table of Contents

|                                                                                                              |  |                                |        |                                |   |                                |  |             |        |             |   |             |  |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ------------------------------ | - | ------------------------------ |  | ----------- | ------ | ----------- | - | ----------- |  | - | ------ |  | - | ------
|                                                                                                              |  | Six Months Ended June 30, 2003 |        | Six Months Ended June 30, 2002 |   | Six Months Ended June 30, 2001
|                                                                                                              |  | Unaudited                      |        | Unaudited                      |   | Unaudited                     
|                                                                                                              |  | As Reported                    |        | As Restated                    |   | As Reported                    |  | As Restated |        | As Reported |   | As Restated
|Interest  loans                                                                                              |  | $                              | 36,776 |                                | $ | 35,975                         |  | $           | 27,115 |             | $ | 26,649      |  | $ | 21,346 |  | $ | 21,101
|Total interest income                                                                                         |  | $                              | 44,606 |                                | $ | 43,805                         |  | $           | 32,897 |             | $ | 32,431      |  | $ | 28,454 |  | $ | 28,209
|Net interest income                                                                                           |  | $                              | 33,513 |                                | $ | 32,712                         |  | $           | 24,465 |             | $ | 23,999      |  | $ | 17,684 |  | $ | 17,439
|Net interest income after provision for loan losses                                                           |  | $                              | 27,634 |                                | $ | 26,833                         |  | $           | 22,045 |             | $ | 21,579      |  | $ | 17,516 |  | $ | 17,271
|Income from continuing operations before income taxes and cumulative effect of change in accounting principle |  | $                              | 9,484  |                                | $ | 8,683                          |  | $           | 6,843  |             | $ | 6,377       |  | $ | 5,581  |  | $ | 5,336 
|Income taxes                                                                                                  |  | $                              | 3,821  |                                | $ | 3,498                          |  | $           | 2,640  |             | $ | 2,462       |  | $ | 2,175  |  | $ | 2,079 
|Income from continuing operations before cumulative effect of change in accounting principle                  |  | $                              | 5,663  |                                | $ | 5,185                          |  | $           | 4,203  |             | $ | 3,915       |  | $ | 3,406  |  | $ | 3,257 
|Net income                                                                                                    |  | $                              | 6,095  |                                | $ | 5,617                          |  | $           | 4,309  |             | $ | 4,021       |  | $ | 3,406  |  | $ | 3,257 
|Comprehensive income                                                                                          |  | $                              | 5,761  |                                | $ | 5,283                          |  | $           | 4,001  |             | $ | 3,713       |  | $ | 3,692  |  | $ | 3,543 
|Earnings per share-basic:                                                                                     |  |                                |        |                                |   |                                |  |             |        |             |   |             |  |   |        |  |   |       
|Net income before cumulative effect of change in accounting principle                                         |  | $                              | 0.35   |                                | $ | 0.32                           |  | $           | 0.27   |             | $ | 0.25        |  | $ | 0.21   |  | $ | 0.20  
|Net income                                                                                                    |  | $                              | 0.38   |                                | $ | 0.35                           |  | $           | 0.28   |             | $ | 0.26        |  | $ | 0.21   |  | $ | 0.20  
|Earnings per share-diluted:                                                                                   |  |                                |        |                                |   |                                |  |             |        |             |   |             |  |   |        |  |   |       
|Net income before cumulative effect of change in accounting principle                                         |  | $                              | 0.33   |                                | $ | 0.30                           |  | $           | 0.25   |             | $ | 0.23        |  | $ | 0.21   |  | $ | 0.20  
|Discontinued operations                                                                                       |  |                                | 0.02   |                                | $ | 0.03                           |  |             |       |             |   |            |  |   |       |  |   |      
|Net income                                                                                                    |  | $                              | 0.35   |                                | $ | 0.33                           |  | $           | 0.26   |             | $ | 0.24        |  | $ | 0.21   |  | $ | 0.20  



Changes to Unaudited Consolidated
Statements of Cash Flows



|                                                    |  |                                |        |   |                                |   |                                |             |  |             |       |             |   |       |             |   |        |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------ | ------ | - | ------------------------------ | - | ------------------------------ | ----------- |  | ----------- | ----- | ----------- | - | ----- | ----------- | - | ------ | - |  | - | ------ | -
|                                                    |  | Six Months Ended June 30, 2003 |        |   | Six Months Ended June 30, 2002 |   | Six Months Ended June 30, 2001 |            
|                                                    |  | Unaudited                      |        |   | Unaudited                      |   | Unaudited                      |            
|                                                    |  | As Reported                    |        |   | As Restated                    |   |                                | As Reported |  | As Restated |       | As Reported |   |       | As Restated |  
|Net income                                          |  | $                              | 6,095  |   |                                | $ | 5,617                          |             |  | $           | 5,690 |             | $ | 4,309 |             | $ | 3,406  |   |  | $ | 3,257  |  
|Decrease in other assets                            |  | $                              | 3,633  |   |                                | $ | 3,310                          |             |  | $           | 4,994 |             | $ | 4,138 |             | $ | 1,486  |   |  | $ | 1,390  |  
|Decrease (increase) in accrued interest receivables |  | $                              | (1,106 | ) |                                | $ | (305                           | )           |  | $           | 2,504 |             | $ | 2,970 |             | $ | (2,285 | ) |  | $ | (2,040 | )



Changes to Unaudited Consolidated
Statements of Financial Condition



|                                           |  |                          |           |                          |   |                          |  |             |         |             |   |             |  |   |         |  |   |        
|------------------------------------------ |  | ------------------------ | --------- | ------------------------ | - | ------------------------ |  | ----------- | ------- | ----------- | - | ----------- |  | - | ------- |  | - | -------
|                                           |  | As of September 30, 2003 |           | As of September 30, 2002 |   | As of September 30, 2001
|                                           |  | Unaudited                |           | Unaudited                |   | Unaudited               
|                                           |  | As Reported              |           | As Restated              |   | As Reported              |  | As Restated |         | As Reported |   | As Restated
|Loans                                      |  | $                        | 427,775   |                          | $ | 420,522                  |  | $           | 316,537 |             | $ | 312,829     |  |   |         |  |   |        
|Loans, net                                 |  | $                        | 389,992   |                          | $ | 382,739                  |  | $           | 291,333 |             | $ | 287,625     |  | $ | 224,132 |  | $ | 222,510
|Accrued interest receivable                |  | $                        | 1,846     |                          | $ | 5,685                    |  | $           | 2,101   |             | $ | 4,031       |  | $ | 3,587   |  | $ | 4,436  
|Other assets                               |  | $                        | 18,757    |                          | $ | 20,052                   |  | $           | 11,331  |             | $ | 11,974      |  | $ | 14,797  |  | $ | 15,055 
|Total Assets                               |  | $                        | 1,506,980 |                          | $ | 1,504,861                |  | $           | 917,880 |             | $ | 916,745     |  | $ | 653,199 |  | $ | 652,864
|Retained earnings                          |  | $                        | 29,511    |                          | $ | 27,392                   |  | $           | 18,115  |             | $ | 16,980      |  | $ | 9,070   |  | $ | 8,555  
|Total Shareholders Equity                 |  | $                        | 94,930    |                          | $ | 92,811                   |  | $           | 82,834  |             | $ | 81,699      |  | $ | 74,136  |  | $ | 73,621 
|Total Liabilities and Shareholders Equity |  | $                        | 1,506,980 |                          | $ | 1,504,861                |  | $           | 917,880 |             | $ | 916,745     |  | $ | 653,199 |  | $ | 682,864



12



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##### Table of Contents

Changes to Unaudited Consolidated Statements of Operations



|                                                                                                              |  |                                       |        |                                       |   |                                       |  |             |        |             |   |             |  |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ------------------------------------- | - | ------------------------------------- |  | ----------- | ------ | ----------- | - | ----------- |  | - | ------ |  | - | ------
|                                                                                                              |  | Three Months Ended September 30, 2003 |        | Three Months Ended September 30, 2002 |   | Three Months Ended September 30, 2001
|                                                                                                              |  | Unaudited                             |        | Unaudited                             |   | Unaudited                            
|                                                                                                              |  | As Reported                           |        | As Restated                           |   | As Reported                           |  | As Restated |        | As Reported |   | As Restated
|Interest  loans                                                                                              |  | $                                     | 22,708 |                                       | $ | 22,233                                |  | $           | 15,080 |             | $ | 14,774      |  | $ | 11,852 |  | $ | 11,681
|Total interest income                                                                                         |  | $                                     | 26,717 |                                       | $ | 26,242                                |  | $           | 18,896 |             | $ | 18,590      |  | $ | 14,732 |  | $ | 14,561
|Net interest income                                                                                           |  | $                                     | 20,909 |                                       | $ | 20,434                                |  | $           | 13,631 |             | $ | 13,275      |  | $ | 10,111 |  | $ | 9,940 
|Net interest income after provision for loan losses                                                           |  | $                                     | 14,484 |                                       | $ | 14,009                                |  | $           | 12,259 |             | $ | 11,953      |  | $ | 10,003 |  | $ | 9,832 
|Income before income taxes                                                                                    |  | $                                     | 4,415  |                                       | $ | 3,940                                 |  | $           | 4,185  |             | $ | 3,879       |  | $ | 3,509  |  | $ | 3,338 
|Income taxes                                                                                                  |  | $                                     | 1,803  |                                       | $ | 1,611                                 |  | $           | 1,666  |             | $ | 1,549       |  | $ | 1,369  |  | $ | 1,302 
|Net income                                                                                                    |  | $                                     | 2,612  |                                       | $ | 2,329                                 |  | $           | 2,519  |             | $ | 2,330       |  | $ | 2,140  |  | $ | 2,036 
|Comprehensive income                                                                                          |  | $                                     | 2,349  |                                       | $ | 2,066                                 |  | $           | 2,611  |             | $ | 2,422       |  | $ | 2,404  |  | $ | 2,300 
|Earnings per share-basic:                                                                                     |  |                                       |        |                                       |   |                                       |  |             |        |             |   |             |  |   |        |  |   |       
|Net income                                                                                                    |  | $                                     | 0.16   |                                       | $ | 0.15                                  |  | $           | 0.16   |             | $ | 0.15        |  | $ | 0.13   |  | $ | 0.13  
|Earnings per share-diluted:                                                                                   |  |                                       |        |                                       |   |                                       |  |             |        |             |   |             |  |   |        |  |   |       
|Net income                                                                                                    |  | $                                     | 0.15   |                                       | $ | 0.13                                  |  | $           | 0.15   |             | $ | 0.13        |  | $ | 0.12   |  | $ | 0.11  
|                                                                                                              |  |                                       |       
|                                                                                                              |  | Nine Months Ended September 30, 2003  |        | Nine Months Ended September 30, 2002  |   | Nine Months Ended September 30, 2001 
|                                                                                                              |  | Unaudited                             |        | Unaudited                             |   | Unaudited                            
|                                                                                                              |  | As Reported                           |        | As Restated                           |   | As Reported                           |  | As Restated |        | As Reported |   | As Restated
|Interest  loans                                                                                              |  | $                                     | 59,484 |                                       | $ | 56,208                                |  | $           | 42,197 |             | $ | 41,658      |  | $ | 33,199 |  | $ | 32,783
|Total interest income                                                                                         |  | $                                     | 71,323 |                                       | $ | 70,047                                |  | $           | 51,795 |             | $ | 51,256      |  | $ | 43,187 |  | $ | 42,771
|Net interest income                                                                                           |  | $                                     | 54,422 |                                       | $ | 53,146                                |  | $           | 38,097 |             | $ | 37,558      |  | $ | 27,795 |  | $ | 27,379
|Net interest income after provision for loan losses                                                           |  | $                                     | 42,118 |                                       | $ | 40,842                                |  | $           | 34,305 |             | $ | 33,766      |  | $ | 27,519 |  | $ | 27,103
|Income from continuing operations before income taxes and cumulative effect of change in accounting principle |  | $                                     | 13,899 |                                       | $ | 12,623                                |  | $           | 11,021 |             | $ | 10,482      |  | $ | 9,090  |  | $ | 8,674 
|Income taxes                                                                                                  |  | $                                     | 5,624  |                                       | $ | 5,109                                 |  | $           | 4,306  |             | $ | 4,011       |  | $ | 3,544  |  | $ | 3,381 
|Income from continuing operations before cumulative effect of change in accounting principle                  |  | $                                     | 8,275  |                                       | $ | 7,514                                 |  | $           | 6,715  |             | $ | 6,471       |  | $ | 5,546  |  | $ | 5,293 
|Net income                                                                                                    |  | $                                     | 8,707  |                                       | $ | 7,946                                 |  | $           | 6,821  |             | $ | 6,577       |  | $ | 5,546  |  | $ | 5,293 
|Comprehensive income                                                                                          |  | $                                     | 8,110  |                                       | $ | 7,349                                 |  | $           | 6,605  |             | $ | 6,361       |  | $ | 6,096  |  | $ | 5,843 
|Earnings per share-basic:                                                                                     |  |                                       |        |                                       |   |                                       |  |             |        |             |   |             |  |   |        |  |   |       
|Net income before cumulative effect of change in accounting principle                                         |  | $                                     | 0.52   |                                       | $ | 0.47                                  |  | $           | 0.43   |             | $ | 0.42        |  | $ | 0.34   |  | $ | .33   
|Net income                                                                                                    |  | $                                     | 0.55   |                                       | $ | 0.50                                  |  | $           | 0.44   |             | $ | 0.43        |  | $ | 0.34   |  | $ | .33   
|Earnings per share-diluted:                                                                                   |  |                                       |        |                                       |   |                                       |  |             |        |             |   |             |  |   |        |  |   |       
|Net income before cumulative effect of change in accounting principle                                         |  | $                                     | 0.47   |                                       | $ | 0.43                                  |  | $           | 040    |             | $ | 0.38        |  | $ | 0.33   |  | $ | .31   
|Net income                                                                                                    |  | $                                     | 0.50   |                                       | $ | 0.46                                  |  | $           | 0.41   |             | $ | 0.39        |  | $ | 0.33   |  | $ | .31   



Changes to Unaudited Consolidated
Statements of Cash Flows



|                                                   |  |                                      |       |                                      |   |             |                                      |   |             |   |  |             |       |   |             |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ------------------------------------ | ----- | ------------------------------------ | - | ----------- | ------------------------------------ | - | ----------- | - |  | ----------- | ----- | - | ----------- | - | ------ | - |  | - | ------ | -
|                                                   |  | Nine Months Ended September 30, 2003 |       | Nine Months Ended September 30, 2002 |   |             | Nine Months Ended September 30, 2001 |  
|                                                   |  | Unaudited                            |       | Unaudited                            |   |             | Unaudited                            |  
|                                                   |  | As Reported                          |       | As Restated                          |   | As Reported |                                      |   | As Restated |   |  | As Reported |       |   | As Restated |  
|Net income                                         |  | $                                    | 8,707 |                                      | $ | 7,946       |                                      | $ | 6,821       |   |  | $           | 6,577 |   |             | $ | 5,546  |   |  | $ | 5,293  |  
|Decrease (increase) in other assets                |  | $                                    | 3,289 |                                      | $ | 2,774       |                                      | $ | (934        | ) |  | $           | (639  | ) |             | $ | 894    |   |  | $ | 731    |  
|Decrease (increase) in accrued interest receivable |  | $                                    | 383   |                                      | $ | 1,659       |                                      | $ | 6,514       |   |  | $           | 7,187 |   |             | $ | (2,772 | ) |  | $ | (2,356 | )



13



---

##### Table of Contents

Changes to Consolidated Statements of Financial Condition



|                                           |  |                         |           |                         |   |                         |  |             |         |             |   |             |  |   |         |  |   |        
|------------------------------------------ |  | ----------------------- | --------- | ----------------------- | - | ----------------------- |  | ----------- | ------- | ----------- | - | ----------- |  | - | ------- |  | - | -------
|                                           |  | As of December 31, 2003 |           | As of December 31, 2002 |   | As of December 31, 2001
|                                           |  | As Reported             |           | As Restated             |   | As Reported             |  | As Restated |         | As Reported |   | As Restated
|Loans                                      |  | $                       |          |                         | $ |                        |  | $           | 326,352 |             | $ | 342,601     |  |   |         |  |   |        
|Loans, net                                 |  | $                       |          |                         | $ |                        |  | $           | 298,304 |             | $ | 296,533     |  | $ | 236,448 |  | $ | 233,480
|Accrued interest receivable                |  | $                       | 9,849     |                         | $ | 5,893                   |  | $           | 6,785   |             | $ | 6,398       |  | $ | 4,029   |  | $ | 5,991  
|Other assets                               |  | $                       | 12,228    |                         | $ | 13,742                  |  | $           | 9,762   |             | $ | 10,542      |  | $ | 14,746  |  | $ | 15,094 
|Total Assets                               |  | $                       | 1,667,706 |                         | $ | 1,665,264               |  | $           | 948,276 |             | $ | 948,918     |  | $ | 689,573 |  | $ | 688,915
|Retained earnings                          |  | $                       | 37,089    |                         | $ | 31,637                  |  | $           | 20,804  |             | $ | 19,446      |  | $ | 11,287  |  | $ | 10,629 
|Total Shareholders Equity                 |  | $                       | 103,327   |                         | $ | 97,875                  |  | $           | 86,649  |             | $ | 85,291      |  | $ | 75,666  |  | $ | 75,008 
|Total Liabilities and Shareholders Equity |  | $                       | 1,667,706 |                         | $ | 1,665,264               |  | $           | 948,276 |             | $ | 946,918     |  | $ | 689,573 |  | $ | 688,915



Changes to Consolidated Statements
of Operations



|                                                                                                              |  |                                      |         |                                      |   |                                      |  |             |        |             |   |             |  |   |        |  |   |       
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | ------------------------------------ | - | ------------------------------------ |  | ----------- | ------ | ----------- | - | ----------- |  | - | ------ |  | - | ------
|                                                                                                              |  | Three Months Ended December 31, 2003 |         | Three Months Ended December 31, 2002 |   | Three Months Ended December 31, 2001
|                                                                                                              |  | Unaudited                            |         | Unaudited                            |   | Unaudited                           
|                                                                                                              |  | As Reported                          |         | As Restated                          |   | As Reported                          |  | As Restated |        | As Reported |   | As Restated
|Interest  loans                                                                                              |  | $                                    | 25,130  |                                      | $ | 4,588                                |  | $           | 15,815 |             | $ | 15,455      |  | $ | 12,499 |  | $ | 12,216
|Total interest income                                                                                         |  | $                                    | 29,888  |                                      | $ | 29,346                               |  | $           | 19,560 |             | $ | 19,200      |  | $ | 14,965 |  | $ | 14,732
|Net interest income                                                                                           |  | $                                    | 23,643  |                                      | $ | 23,101                               |  | $           | 14,108 |             | $ | 13,748      |  | $ | 10,835 |  | $ | 10,602
|Net interest income after provision for loan losses                                                           |  | $                                    | 18,210  |                                      | $ | 28,534                               |  | $           | 12,393 |             | $ | 12,033      |  | $ | 10,496 |  | $ | 10,263
|Income from continuing operations before income taxes                                                         |  | $                                    | 7,664   |                                      | $ | 7,122                                |  | $           | 4,198  |             | $ | 3,838       |  | $ | 3,637  |  | $ | 3,404 
|Income taxes                                                                                                  |  | $                                    | 3,096   |                                      | $ | 2.877                                |  | $           | 1,509  |             | $ | 1,372       |  | $ | 1,420  |  | $ | 1,330 
|Net income                                                                                                    |  | $                                    | 4,568   |                                      | $ | 4,255                                |  | $           | 2,689  |             | $ | 2,466       |  | $ | 2,217  |  | $ | 2,074 
|Comprehensive income                                                                                          |  | $                                    | 4,406   |                                      | $ | 4,083                                |  | $           | 3,044  |             | $ | 2,821       |  | $ | 1,914  |  | $ | 1,771 
|Earnings per share-basic:                                                                                     |  |                                      |         |                                      |   |                                      |  |             |        |             |   |             |  |   |        |  |   |       
|Continuing operations                                                                                         |  | $                                    | 0.29    |                                      | $ | 0.26                                 |  | $           | 0.17   |             | $ | 0.16        |  | $ | 0.14   |  | $ | 0.13  
|Net income                                                                                                    |  | $                                    | 0.29    |                                      | $ | 0.26                                 |  | $           | 0.17   |             | $ | 0.16        |  | $ | 0.14   |  | $ | 0.13  
|Earnings per share-diluted:                                                                                   |  |                                      |         |                                      |   |                                      |  |             |        |             |   |             |  |   |        |  |   |       
|Continuing operations                                                                                         |  | $                                    | 0.25    |                                      | $ | 0.24                                 |  | $           | 0.16   |             | $ | 0.14        |  | $ | 0.13   |  | $ | 0.12  
|Net income                                                                                                    |  | $                                    | 0.25    |                                      | $ | 0.24                                 |  | $           | 0.16   |             | $ | 0.14        |  | $ | 0.13   |  | $ | 0.12  
|                                                                                                              |  |                                      |        
|                                                                                                              |  | Year Ended December 31, 2003         |         | Year Ended December 31, 2002         |   | Year Ended December 31, 2001        
|                                                                                                              |  | As Reported                          |         | As Restated                          |   | As Reported                          |  | As Restated |        | As Reported |   | As Restated
|Interest  loans                                                                                              |  | $                                    | 84,614  |                                      | $ | 82,796                               |  | $           | 58,013 |             | $ | 56,861      |  | $ | 45,648 |  | $ | 44,999
|Total interest income                                                                                         |  | $                                    | 101,211 |                                      | $ | 99,393                               |  | $           | 71,357 |             | $ | 70,225      |  | $ | 58,152 |  | $ | 57,503
|Net interest income                                                                                           |  | $                                    | 78,065  |                                      | $ | 76,247                               |  | $           | 52,207 |             | $ | 51,075      |  | $ | 38,630 |  | $ | 37,981
|Net interest income after provision for loan losses                                                           |  | $                                    | 60,328  |                                      | $ | 58,510                               |  | $           | 46,700 |             | $ | 45,568      |  | $ | 38,015 |  | $ | 37,366
|Income from continuing operations before income taxes and cumulative effect of change in accounting principle |  | $                                    | 21,563  |                                      | $ | 19,745                               |  | $           | 15,226 |             | $ | 14,094      |  | $ | 12,727 |  | $ | 12,078
|Income taxes                                                                                                  |  | $                                    | 8,720   |                                      | $ | 7,986                                |  | $           | 5,815  |             | $ | 5,383       |  | $ | 4,964  |  | $ | 4,711 
|Income from continuing operations before cumulative effect of change in accounting principle                  |  | $                                    | 12,843  |                                      | $ | 11,759                               |  | $           | 9,411  |             | $ | 8,711       |  | $ | 7,763  |  | $ | 7,367 
|Net income                                                                                                    |  | $                                    | 13,275  |                                      | $ | 12,191                               |  | $           | 9,517  |             | $ | 8,817       |  | $ | 7,763  |  | $ | 7,367 
|Comprehensive income                                                                                          |  | $                                    | 12,516  |                                      | $ | 11,432                               |  | $           | 9,656  |             | $ | 8,956       |  | $ | 8,010  |  | $ | 7,614 
|Earnings per share-basic:                                                                                     |  |                                      |         |                                      |   |                                      |  |             |        |             |   |             |  |   |        |  |   |       
|Continuing operations                                                                                         |  | $                                    | 0.80    |                                      | $ | 0.74                                 |  | $           | 0.60   |             | $ | 0.55        |  | $ | 0.48   |  | $ | 0.46  
|Net income                                                                                                    |  | $                                    | 0.83    |                                      | $ | 0.77                                 |  | $           | 0.61   |             | $ | 0.56        |  | $ | 0.48   |  | $ | 0.46  
|Earnings per share-diluted:                                                                                   |  |                                      |         |                                      |   |                                      |  |             |        |             |   |             |  |   |        |  |   |       
|Continuing operations                                                                                         |  | $                                    | 0.73    |                                      | $ | 0.67                                 |  | $           | 0.55   |             | $ | 0.51        |  | $ | 0.46   |  | $ | 0.43  
|Discontinued operations                                                                                       |  | $                                    | 0.03    |                                      | $ | 0.02                                 |  |             |       |             |   |            |  |   |       |  |   |      
|Net income                                                                                                    |  | $                                    | 0.76    |                                      | $ | 0.69                                 |  | $           | 0.56   |             | $ | 0.52        |  | $ | 0.46   |  | $ | 0.43  



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Changes to Consolidated Statements of Cash Flows



|                                                    |  |                              |          |   |                              |   |          |                              |  |   |             |   |  |             |          |   |             |   |        |   |  |   |        |  
|--------------------------------------------------- |  | ---------------------------- | -------- | - | ---------------------------- | - | -------- | ---------------------------- |  | - | ----------- | - |  | ----------- | -------- | - | ----------- | - | ------ | - |  | - | ------ | -
|                                                    |  | Year Ended December 31, 2003 |          |   | Year Ended December 31, 2002 |   |          | Year Ended December 31, 2001 | 
|                                                    |  | As Reported                  |          |   | As Restated                  |   |          | As Reported                  |  |   | As Restated |   |  | As Reported |          |   | As Restated |  
|Net income                                          |  | $                            | 13,275   |   |                              | $ | 12,191   |                              |  | $ | 9,517       |   |  | $           | 8,817    |   |             | $ | 7,763  |   |  | $ | 7,367  |  
|Deferred income taxes                               |  | $                            | 4,560    |   |                              | $ | 3,826    |                              |  | $ | 4,323       |   |  | $           | 3,891    |   |             | $ | 3,681  |   |  | $ | 3,428  |  
|Decrease (increase) in accrual interest receivable  |  | $                            | (3,064   | ) |                              | $ | 505      |                              |  | $ | (2,756      | ) |  | $           | (407     | ) |             | $ | (3,215 | ) |  | $ | (2,566 | )
|Net cash provided by operating activities           |  | $                            | 23,277   |   |                              | $ | 25,028   |                              |  | $ | 16,001      |   |  | $           | 17,218   |   |             | $ |       |   |  | $ |       |  
|Purchases, net of repayments, of non-mortgage loans |  | $                            | (115,904 | ) |                              | $ | (117,655 | )                            |  | $ | (67,363     | ) |  | $           | (68,580  | ) |             | $ |       |   |  | $ |       |  
|Net cash used in investing activities               |  | $                            | (730,785 | ) |                              | $ | (732,536 | )                            |  | $ | (394,971    | ) |  | $           | (396,188 | ) |             | $ |       |   |  | $ |       |  



|3. | Basis of Presentation
|-- | ---------------------



The accompanying unaudited consolidated financial statements include the accounts of United PanAm Financial Corp., PAFI, Inc. and Pan American Bank, FSB
and its subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.



These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Companys financial condition and results of operations for the interim periods presented in this Form 10-Q
have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2003.



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



15



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##### Table of Contents

|4. | Earnings Per Share
|-- | ------------------



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



|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ------------- | ------ |  | - | ------ | -
|                                            |  | Three Months Ended September 30, |        | Nine Months Ended September 30, |  
|(In thousands, except per share amounts)    |  | 2004                             |        | 2003                            |   | 2004   |  | 2003          |       
|                                            |  |                                  |        | (As Restated)                   |   |        |  | (As Restated) |       
|Earnings per share - basic:                 |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Income before discontinued operations       |  | $                                | 3,761  |                                 | $ | 1,927  |  | $             | 14,310 |  | $ | 6,216  | )
|Net Income                                  |  | $                                | 7,021  |                                 | $ | 2,329  |  | $             | 18,398 |  | $ | 7,946  |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Average common shares outstanding           |  |                                  | 16,168 |                                 |   | 15,892 |  |               | 16,146 |  |   | 15,879 |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Per share before discontinued operations    |  | $                                | 0.23   |                                 | $ | 0.12   |  | $             | 0.89   |  | $ | 0.39   |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Earnings per share                          |  | $                                | 0.43   |                                 | $ | 0.15   |  | $             | 1.14   |  | $ | 0.50   |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Earnings per share  diluted:               |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Income before discontinued operations       |  | $                                | 3,761  |                                 | $ | 1,927  |  | $             | 14,310 |  | $ | 6,216  |  
|Net Income                                  |  | $                                | 7,021  |                                 | $ | 2,329  |  | $             | 18,398 |  | $ | 7,946  |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Average common shares outstanding           |  |                                  | 16,168 |                                 |   | 15,892 |  |               | 16,146 |  |   | 15,879 |  
|Add: Stock options                          |  |                                  | 1,854  |                                 |   | 2,044  |  |               | 1,866  |  |   | 1,541  |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Average common shares outstanding  diluted |  |                                  | 18,022 |                                 |   | 17,936 |  |               | 18,012 |  |   | 17,420 |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Per share before discontinued operations    |  | $                                | 0.21   |                                 | $ | 0.11   |  | $             | 0.80   |  | $ | 0.36   |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  
|Earnings per share                          |  | $                                | 0.39   |                                 | $ | 0.13   |  | $             | 1.02   |  | $ | 0.46   |  
|                                            |  |                                  |        |                                 |   |        |  |               |        |  |   |        |  



|5. | Stock-Based Compensation
|-- | ------------------------



At September 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 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 nine months ended September 30, 2004 and 2003:



|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- | - | ----- |  | ------------- | ------ |  | - | ----- | -
|                                                                                                                |  | Three Months Ended September 30, |       | Nine Months Ended September 30, |  
|(In thousands, except per share amounts)                                                                        |  | 2004                             |       | 2003                            |   | 2004  |  | 2003          |       
|                                                                                                                |  |                                  |       | (As Restated)                   |   |       |  | (As Restated) |       
|Net Income as reported                                                                                          |  | $                                | 7,021 |                                 | $ | 2,329 |  | $             | 18,398 |  | $ | 7,946 | )
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards |  | $                                | 335   |                                 | $ | 363   |  | $             | 935    |  | $ | 896   |  
|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  
|Net Income  pro forma                                                                                          |  | $                                | 6,686 |                                 | $ | 1,966 |  | $             | 17,463 |  | $ | 7,050 |  
|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  
|Net Income per share as reported  basic                                                                        |  | $                                | 0.43  |                                 | $ | 0.15  |  | $             | 1.14   |  | $ | 0.50  |  
|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  
|Net Income per share  pro forma  basic                                                                        |  | $                                | 0.41  |                                 | $ | 0.12  |  | $             | 1.08   |  | $ | 0.44  |  
|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  
|Net Income per share as reported  fully diluted                                                                |  | $                                | 0.39  |                                 | $ | 0.13  |  | $             | 1.02   |  | $ | 0.46  |  
|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  
|Net Income per share  pro forma  fully diluted                                                                |  | $                                | 0.37  |                                 | $ | 0.11  |  | $             | 0.97   |  | $ | 0.40  |  
|                                                                                                                |  |                                  |       |                                 |   |       |  |               |        |  |   |       |  



|6. | Allowance for Loan Losses
|-- | -------------------------



United Auto Credit Corp (UACC), a subsidiary of the Bank, purchases auto contracts at a discount from face value. Prior to 2003, the Bank has
accounted for the purchase of auto contracts by recording the auto contract at face value, and allocating the remainder to the allowance for credit losses and unearned income. This method resulted in estimated expected credit losses over the life of
the contract being provided at the date of purchase and the credit-adjusted yield being recorded as interest income over the life of the contract. At December 31, 2002, the Company was allocating 11.5% of the net loan amount of all new auto loans to
the allowance for loan losses.



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##### Table of Contents

Commencing January 1, 2003, the Bank began to allocate the purchase price entirely to auto 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 recorded in income as necessary to
provide for estimated contract losses expected in the next 12 months at each reporting date.



The total allowance for loan losses was $25.2 million at September 30, 2004 compared with $26.0 million at September 30, 2003, representing 5.23% of loans at September 30, 2004 and 6.35% at September 30, 2003.
Additionally, unearned discounts on loans totaled $22.2 million at September 30, 2004 compared with $11.8 million at September 30, 2003, representing 4.41% of loans at September 30, 2004 compared with 2.81% of loans at September 30, 2003.



|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 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 consolidated 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 believes this pronouncement will not have a material impact on our consolidated financial position and results of operations.



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##### Table of Contents

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 two reportable segments: (1) automobile finance and (2) investments 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 investments and banking segment holds for sale a portfolio of investment securities funded by
repurchase agreements and has a small portfolio of deposits of the Bank currently held for sale. Historically, the Company has had another reportable segment composed of insurance premium finance, which was a strategic business unit that would
underwrite and finance automobile and commercial insurance premiums in California. Beginning this quarter ended September 30, 2004, the insurance premium finance segment and the sale of our three retail bank branches and related deposits are treated
as discontinued operations. The normal net operating costs and interest expense on deposits of the Bank have not been reclassified to discontinued operations from prior periods because the associated loans funded by these deposits are not
discontinued and the cost of the replacement funds from the securitization and warehouse line are very similar to the net cost of deposits including operating costs.



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



|                          |  |                                                               |         |             |   |           |       |  |   |          
|------------------------- |  | ------------------------------------------------------------- | ------- | ----------- | - | --------- | ----- |  | - | ---------
|(In thousands)            |  | At or For Three Months Ended September 30, 2004              
|                          |  | Auto Finance                                                  |         | Investments |   |           | Total
|Net interest income       |  | $                                                             | 26,331  |             | $ | 2,715     |       |  | $ | 29,046   
|Provision for loan losses |  |                                                               | 7,383   |             |   |          |       |  |   | 7,383    
|Non-interest income       |  |                                                               | 132     |             |   | 271       |       |  |   | 403      
|Non-interest expense      |  |                                                               | 11,551  |             |   | 4,100     |       |  |   | 15,651   
|                          |  |                                                               |         |             |   |           |       |  |   |          
|Segment profit, pre-tax   |  | $                                                             | 7,529   |             | $ | (1,114    | )     |  | $ | 6,415    
|Total assets              |  | $                                                             | 510,374 |             | $ | 1,044,484 |       |  | $ | 1,554,858
|                          |  |                                                               |         |             |   |           |       |  |   |          
|                          | 
|(In thousands)            |  | (As Restated) At or For Three Months Ended September 30, 2003
|                          |  | Auto Finance                                                  |         | Investments |   |           | Total
|Net interest income       |  | $                                                             | 17,808  |             | $ | 1,803     |       |  | $ | 19,611   
|Provision for loan losses |  |                                                               | 6,373   |             |   |          |       |  |   | 6,373    
|Non-interest income       |  |                                                               | 111     |             |   | 315       |       |  |   | 426      
|Non-interest expense      |  |                                                               | 8,859   |             |   | 1,541     |       |  |   | 10,400   
|                          |  |                                                               |         |             |   |           |       |  |   |          
|Segment profit, pre-tax   |  | $                                                             | 2,687   |             | $ | 577       |       |  | $ | 3,264    
|                          |  |                                                               |         |             |   |           |       |  |   |          
|Total assets              |  | $                                                             | 355,096 |             | $ | 1,310,168 |       |  | $ | 1,665,264
|                          |  |                                                               |         |             |   |           |       |  |   |          



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|                               |  |                                                              |         |             |   |           |  |   |          
|------------------------------ |  | ------------------------------------------------------------ | ------- | ----------- | - | --------- |  | - | ---------
|(In thousands)                 |  | At or For Nine Months Ended September 30, 2004              
|                               |  | Auto Finance                                                 |         | Investments |   | Total    
|Net interest income            |  | $                                                            | 72,338  |             | $ | 7,863     |  | $ | 80,201   
|Provision for loan losses      |  |                                                              | 17,686  |             |   |          |  |   | 17,686   
|Non-interest income            |  |                                                              | 384     |             |   | 1,579     |  |   | 1,963    
|Non-interest expense           |  |                                                              | 32,260  |             |   | 8,108     |  |   | 40,368   
|                               |  |                                                              |         |             |   |           |  |   |          
|Segment profit, pre-tax        |  | $                                                            | 22,776  |             | $ | 1,334     |  | $ | 24,110   
|                               |  |                                                              |         |             |   |           |  |   |          
|Total assets                   |  | $                                                            | 510,374 |             | $ | 1,044,484 |  | $ | 1,554,858
|                               |  |                                                              |         |             |   |           |  |   |          
|                               | 
|(In thousands)                 |  | (As Restated) At or For Nine Months Ended September 30, 2003
|                               |  | Auto Finance                                                 |         | Investments |   | Total    
|Net interest income            |  | $                                                            | 46,273  |             | $ | 4,550     |  | $ | 50,823   
|Provision for loan losses      |  |                                                              | 12,391  |             |   |          |  |   | 12,391   
|Non-interest income            |  |                                                              | 338     |             |   | 1,100     |  |   | 1,438    
|Non-interest expense           |  |                                                              | 24,820  |             |   | 4,607     |  |   | 29,427   
|                               |  |                                                              |         |             |   |           |  |   |          
|Segment profit (loss), pre-tax |  | $                                                            | 9,400   |             | $ | 1,043     |  | $ | 10,443   
|                               |  |                                                              |         |             |   |           |  |   |          
|Total assets                   |  | $                                                            | 355,096 |             | $ | 1,310,168 |  | $ | 1,665,264
|                               |  |                                                              |         |             |   |           |  |   |          



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



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



General



The Company



We are a specialty finance company engaged primarily in non-prime automobile finance. We provide financing to borrowers who typically have limited or
impaired credit histories that restrict their ability to obtain loans through traditional sources. We conduct our automobile finance business through our second-tier subsidiary 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.



Historically, we have also provided retail banking services through our wholly-owned subsidiary, Pan American Bank, FSB, a federally chartered savings
association, or the Bank, and have conducted an insurance premium finance business. However, we have implemented a plan for the Bank to exit its federal thrift charter and have discontinued our insurance premium finance business. Beginning this
quarter ended September 30, 2004, the insurance premium finance business and the banking operation are treated as discontinued operations.



We have historically funded our automobile finance business mainly with retail and wholesale deposits of the Bank. However, as part of our plan to exit
the Banks federal thrift charter, we have shifted the funding source of our automobile finance business to the public capital markets through



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securitizations and warehouse facilities. This quarter we closed our first securitization composed of a $420 million offering of automobile receivable backed
securities. We also closed a $200 million automobile finance warehouse facility. We intend to use the securitization and warehouse facility (and future securitizations and warehouse facilities) to fund our ongoing business operations.



During this quarter, the Bank adopted a Plan of Voluntary Dissolution to
dissolve and ultimately exit its federal thrift charter and the OTS conditionally approved the plan. As part of the Banks plan of dissolution, during the quarter, we completed the sale of all three branches of the Bank. We are exiting the
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.



Pursuant to the Banks voluntary plan of dissolution, 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 business. Until the Bank completes the voluntary plan of dissolution, we are continuing with our planned expansion
of the automobile finance branch network.



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.



Investment and Banking



The Bank is a federally chartered stock savings bank. We have previously announced a plan for the Bank to exit its federal thrift charter and shift the
funding source of our business to securitizations and warehouse funding and reduce our reliance on insured deposits of the Bank as a funding source. In July of 2004, the Bank adopted a Plan of Voluntary Dissolution to dissolve and ultimately exit
its federal thrift charter. In August of 2004, the OTS conditionally approved the plan, subject to the Bank satisfying certain conditions imposed by the OTS. In September 2004, pursuant to the voluntary plan of dissolution, we completed the sale of
our three retail branches with deposits of $213.5 million and our brokered deposits of $184.3 million. As part of the sale of these deposits, we recognized a one time net gain, after associated costs of $3.1 million after tax. At September 30, 2004,
we have an $84.3 million portfolio of Internet originated deposits remaining, which are under contract for sale before December 31, 2004.



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As part of the Plan of Voluntary Dissolution, during the three months ended September 30, 2004, the
investment securities and all related repurchase agreement liabilities were transferred from the Bank to us.



Subsequent to the sale of the remaining deposits, the charter of the Bank will be surrendered to the OTS and any remaining assets and liabilities of the
Bank will be transferred to us to complete the Plan of Voluntary Dissolution of the Bank.



During 2004, the Bank entered into derivative contracts to offset the risk of rising interest rates between the time we entered into an agreement to securitize our auto loans and the time of finally setting the fixed
rates on the securitization. Subsequently, interest rates fell and the derivatives lost value. This loss in value of $2.4 million was charged against current income. The charge will be offset in the future by lower fixed rates on our automobile loan
securitizations resulting in lower inherent cost and higher net income in future periods.



Discontinued Operations



In September 2004, following the sale all the branches of our retail banking operation, we decided to discontinue our insurance premium finance operations to concentrate our efforts on our other businesses. We entered the insurance premium
finance business in May 1995 through an agreement with BPN. Under the agreement, we would underwrite and finance consumer automobile and small business, or commercial, insurance premiums. BPN would market this financing primarily to independent
insurance agents in California and service such insurance premium loans.



Because of our decision to discontinue our insurance premium finance operations, related operating activity for the insurance premium finance business has been reclassified and reported as discontinued operations in
the consolidated financial statements. We intend to sell our outstanding portfolio of insurance premium finance loans near par by December 31, 2004 or during the first quarter of 2005.



Also in September 2004, we sold our three retail bank branches and our brokered deposit portfolio and we have our remaining
Internet originated deposits under contract for sale pending regulatory approval. We have included the net gain on these sales, net of costs associated with the sales, as discontinued operations in our consolidated statement of operations. The
normal net operating costs and interest expense on deposits of the Bank have not been reclassified to discontinued operations from prior periods because the associated loans funded by these deposits are not discontinued and the cost of the
replacement funds from the securitization and the warehouse line are very similar to the net cost of deposits including operating costs.



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. Certain accounting policies are described in detail in Note 2 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.



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Securitization Transactions



The transfer of our auto contracts to the securitization trust is treated as a secured financing under accounting principles
generally accepted in the United States of America, also known as GAAP. For GAAP purposes, the contracts are retained on the balance sheet with the securities issued to finance the contracts recorded as securitized notes payable. We record interest
income on the securitized contracts and interest expense on the notes issued through the securitization transactions.



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



Allowance for Loan Losses



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 and evaluation of credit loss 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 by using the Expected 12 month Charge Off Method which establishes allowances based on the
incurred loss method 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 we account for such contracts by static pool, stratified into six-month pools, 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 for these pools purchased prior to 2003 were
recognized immediately for pools where 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 during the entire life of the loans.



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 recorded in income as necessary to provide for estimated contract losses at each reporting date. 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.



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Derivatives and Hedging Activities



The contracts originated and held by us are fixed rate and, accordingly, we have exposure to changes in interest rates. To
protect against potential changes in interest rates affecting interest payments on future securitization transactions, we entered into various agreements prior to closing the transaction. We entered into forward agreements in order to reduce the
risk of incurring larger interest payments on our notes payable on automobile secured financing. The market value of these agreements is designed to respond inversely to changes in interest rates. Because of this inverse relationship, we can
effectively lock in a gross interest rate spread at the time of entering into the transaction. Gains and losses on these agreements are recorded on our Consolidated Statements of Operations, because the derivative transactions do not meet the
accounting literature requirements to qualify for hedge accounting. Credit risk related to these instruments is minimal.



Factors Affecting Future Results of Operations



This quarterly report on Form 10-Q contains forward-looking statements, including statements regarding our strategies, objectives, expectations and intentions, which
are subject to a variety of risks and uncertainties. You should carefully consider the following risks in your evaluation of us and our common stock. The risks and uncertainties described below may not be the only ones we face.



Risks Related to Our Business



We require substantial liquidity to run our business.



We require a substantial amount of liquidity to operate our business and we
require substantial cash to fund growth of our automobile finance operations. Among other things, we use such liquidity to acquire automobile contracts, pay securitization costs and fund related accounts, satisfy working capital requirements and pay
operating expenses and to pay interest expense. We depend on warehouse financing to fund our operations and there is no assurance that we will be able to obtain warehouse financing in the future. If we are unable to obtain acceptable warehouse
financing or access the capital markets, our financial position, liquidity and results of operations would be materially adversely affected.



We recently shifted the funding source of our business and so do not have experience in managing our new sources of funding.



During the third quarter of 2003, we have shifted the funding source of our
automobile finance business to the public capital markets through warehouse facilities and securitizations. Historically, we have funded the purchase of automobile contracts business principally through deposits of the Bank. However, our Board of
Directors decided to implement the 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 of the Bank. Non-prime
lending has been and continues to be an area of lending that has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS.



As a result of this shift in our funding source, we now rely on the public
capital markets to obtain acceptable terms of financing, rather than relying on obtaining Bank deposits. We are not experienced in managing warehouse facilities and securitizations, and have also started hedging transactions as part of this shift in
fuding sources. If we are unable to successfully manage our sources of funding, our ability to access liquidity could be adversely impacted.



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We face risks related to our recent accounting restatements



On November 5, 2004, we publicly announced that we had discovered accounting
inaccuracies in previously reported consolidated financial statements. As a result, following consultation with our auditors, we decided to restate our consolidated financial statements for the three and six months ended June 30, 2004 and 2003,
three months ended March 31, 2004 and 2003, three and nine months ended September 30, 2003 and each of the years ended December 31, 2003, 2002 and 2001 to correct accounting entries.



As a result, the restatement of these consolidated financial statements may lead to litigation claims and/or regulatory
proceedings against us. The defense of any such claims or proceedings may cause the diversion of managements attention and resources, and we may be required to pay damages if any such claims or proceedings are not resolved in our favor. Any
litigation or regulatory proceeding, even if resolved in our favor, could cause us to incur significant legal and other expenses. We also may have difficulty obtaining other financing such as lines of credit or otherwise. We may not be able to
effectuate our current operating strategy, including the ability to acquire contracts at projected levels. Moreover, we may be the subject of negative publicity focusing on the financial statement inaccuracies and resulting restatements and negative
reactions from our stockholders, creditors or others with which we do business. The occurrence of any of the foregoing could harm our business and reputation and cause the price of our common stock to decline.



We depend on our warehouse facility to finance the purchase of automobile contracts
pending a new securitization. Our business strategy requires that such financing continue to be available during the warehousing period.



Our primary source of operating cash comes from a $200 million warehouse facility, which we use to fund our automobile finance operations to purchase
automobile contracts pending securitization. Under the terms of the facility, our indirect subsidiary, UPFC Funding Corp., may obtain advances on a revolving basis by issuing notes to the participating lenders and pledging for each advance a
portfolio of automobile receivables. UPFC Funding Corp. purchases the automobile receivables from UACC and UACC services the automobile receivables, which are held by a custodian. We have agreed to provide an absolute and unconditional and
irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UACC under the warehouse facility.



Whether our $200 million warehouse facility continues to be available to us depends on, among other things, whether we
maintain a target net yield for the automobile receivables that are pledged under the facility and comply with certain financial covenants contained in the sale and servicing agreement. The timing and amount of cash flows from automobile contracts
varies based on a number of factors, including:



| |  | the rates and amounts of loan delinquencies, defaults and net credit losses;
| | - | ----------------------------------------------------------------------------



| |  | how quickly and at what price repossessed vehicles can be resold; and
| | - | ---------------------------------------------------------------------



| |  | how quickly new automobile finance branches become cash-flow positive.
| | - | ----------------------------------------------------------------------



Any adverse change in these factors could adversely affect our ability to obtain warehouse financing. We cannot assure you that our automobile finance
warehouse facility will be available to us or that it will be available on favorable terms. If we are unable to arrange new warehousing credit facilities or extend our existing credit facility when it expires, our results of operations, financial
condition and cash flows could be materially and adversely affected.



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We depend on securitizations to generate revenue.



We rely on our ability to aggregate and pledge receivables to securitization trusts and sell securities in the asset-backed
securities market to generate cash proceeds for repayment of our automobile warehouse credit facility and to create availability to purchase additional automobile contracts. Our ability to complete securitizations of our automobile contracts is
affected by the following factors, including, among other things:



| |  | conditions in the securities markets generally;
| | - | -----------------------------------------------



| |  | conditions in the asset-backed securities market specifically; and
| | - | ------------------------------------------------------------------



| |  | the credit quality of our portfolio of automobile contracts; and our ability to obtain credit enhancement.
| | - | ----------------------------------------------------------------------------------------------------------



If we are unable to securitize a sufficient number of our contracts in a
timely manner, our liquidity position could be adversely affected as we will continue to require the execution of securitization transactions in order to fund our future liquidity needs. In addition, unanticipated delays in closing a securitization
could also increase our interest rate risk by increasing the warehousing period for our contracts. There can be no assurance that funding will be available to us through these sources or, if available, that it will be on terms acceptable to us. If
these sources of funding are not available to us on a regular basis for any reason, including the occurrence of events of default, deterioration in loss experience on the receivables, breach of financial covenants or otherwise, we will be required
to revise the scale of our business, which would have a material adverse effect on our ability to achieve our business and financial objectives.



The terms of our securitization depends on credit enhancement and there is no assurance we will be able to continue to obtain credit enhancement



Our securitization utilized credit enhancement in the form of a financial
guaranty insurance policy in order to achieve AAA/Aaa rating. This form of credit enhancement reduces the cost of the securitizations relative to alternative forms of credit enhancement currently available to us and enhance the
marketability of these transactions to investors in asset-backed securities. The willingness of an insurance provider to insure our future securitizations is subject to many factors outside our control including the insurance providers own
rating considerations. We cannot assure you that we will be able to continue to obtain credit enhancements in any form or on acceptable terms or that future securitizations will be similarly rated.



If we fail to maintain an effective system of internal and disclosure controls, we may not
be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our securities.



Effective internal and disclosure controls are necessary
for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We
have in the past discovered, and may in the future discover, material weaknesses in our internal controls as defined under interim standards adopted by the Public Company Accounting Oversight Board (PCAOB) that require remediation.
Furthermore, our former independent auditor has, in the past, advised us that it had noted certain material weaknesses in the Companys internal financial reporting and accounting controls and we have also noted material weaknesses.
Additionally, it is possible that as we continue our ongoing review and analysis of internal controls over financial reporting for Sarbanes-Oxley compliance, additional weaknesses in internal controls may be discovered. Under the PCAOB standards, a
material weakness is a significant deficiency or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be



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prevented or detected. A significant deficiency is a control deficiency or combination of control deficiencies, that adversely affect a
companys ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a
companys annual or interim financial statements that is more than inconsequential will not be prevented or detected.



As a result of the material weaknesses we have identified in our internal controls, we also identified certain deficiencies in some of our disclosure
controls and procedures that we believe require remediation. We cannot be certain that our efforts to improve our internal and disclosure controls will be successful or that we will be able to maintain adequate controls over our financial processes
and reporting in the future. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which
could affect our ability to remain listed with the NASDAQ National Market. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on
the trading price of our securities.



We are a holding company with no
operations of our own.



The results of our operations and
our financial condition are dependent upon the business activities of our principal consolidated subsidiary, UACC. In addition, our ability to fund our operations, meet our obligations for payment of principal and interest on our outstanding debt
obligations and pay dividends on our common stock is dependent upon the earnings from the businesses conducted by our subsidiaries and is also subject to the restrictions of the California Corporations Code. As of December 31, 2003, we had
approximately $10.3 million of subordinated debt issued to a subsidiary trust, UPFC Trust I, which, in turn, had $10 million of company obligated mandatorily redeemable preferred securities outstanding. The maturity of the subordinated debt is 2033.
However, subject to receiving any required regulatory approval, we may call the debt any time on or after July 7, 2008 and may call it before July 7, 2008 if certain events occur as described in the subordinated debt. The redemption price is par
plus accrued and unpaid interest, except in the case of redemption if the debt is called before July 7, 2008. It is possible that we may not have sufficient funds to repay that debt at the required time. Our subsidiaries are separate and distinct
legal entities and have no obligation to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. Any distribution of funds to us from our subsidiaries is subject to statutory, regulatory or
contractual restrictions, subsidiaries earnings and various other business considerations.



A significant portion of our cash flow comes from our principal consolidated subsidiary UACC. UACC is a wholly owned subsidiary of the Bank, which, in
turn, is our wholly owned subsidiary. We have implemented a plan for the Bank to exit its federal thrift charter; however, until the Bank exits the federal thrift charter, it is subject to limitations upon its ability to pay dividends to us by
regulations of the OTS. Any amounts owed to other creditors of UACC may impair the Banks ability to have funds available for dividend to us. Furthermore, UACC is party to a $200 million warehouse facility, which it uses to fund its operations.
We have agreed to provide an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UACC under the warehouse facility. If UACC defaults on its
obligations under the warehouse facility, it is possible that we may not have sufficient funds to satisfy this guarantee.



The ownership of our common stock is concentrated, which may result in conflicts of interest and it may be capable of preventing the consummation of corporate
transactions that may be in the best interests of other shareholders.



As of December 31, 2003, Pan American Financial, L.P. and its general partner, BVG West Corp., together owned 10,050,000 shares of our common stock, representing more than 60% of our total



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outstanding common stock. Our Chairman, Guillermo Bron, beneficially owns these shares through his majority ownership of and executive position held at BVG.



As a result, our officers and directors, acting together, will
have substantial influence over our management and affairs, including the ability to control substantially all matters submitted to our shareholders for approval, the election and removal of our Board of Directors, any amendment of our articles of
incorporation or bylaws and the adoption of measures that could delay or prevent a change in control or impede a merger. This concentration of ownership could adversely affect the price of our common stock or lessen any premium over market price
that an acquirer might otherwise pay.



Our automobile finance business would
be harmed if we cannot maintain relationships with independent dealers and franchisees of automobile manufacturers.



We purchase automobile contracts primarily from dealers in used automobiles. Many of our competitors have long standing relationships with automobile
dealers and may offer dealers or their customers other forms of financing that we currently do not provide. If we are unsuccessful in maintaining and expanding our relationships with dealers, our automobile finance business would be materially and
adversely affected.



Because we loan money to credit-impaired borrowers, we
may have a higher risk of delinquency and default.



Substantially all of our automobile contracts involve loans made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than are permitted by traditional lenders. Loans made to borrowers who are restricted
in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than loans made to borrowers with better credit. Delinquency interrupts the flow of projected
interest income from a loan, and default can ultimately lead to a loss if the net realizable value of the automobile securing the loan is insufficient to cover the principal and interest due on the loan. Although we believe that our underwriting
criteria and collection methods enable us to manage the higher risks inherent in loans made to nonprime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If we experience higher
losses than anticipated, our financial condition, results of operations and business prospects would be materially and adversely affected.



We expect our operating results to continue to fluctuate, which may adversely impact our business.



Our results of operations have fluctuated in the past and are expected to fluctuate in the future. Factors that could affect
our quarterly earnings include:



| |  | seasonal variations in the volume of automobile contracts purchased, which historically tend to be higher in the first and second quarters of the year;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | interest rate spreads;
| | - | ----------------------



| |  | credit losses, which historically tend to be higher in the third and fourth quarters of the year;
| | - | -------------------------------------------------------------------------------------------------



| |  | the phase in of the recent change in accounting estimate; and
| | - | -------------------------------------------------------------



| |  | operating costs.
| | - | ----------------



If we do not retain our key employees and we fail to attract new employees, our business will be impaired.



We are dependent upon the continued services of our key employees. In addition, our growth strategy depends in part on our ability to attract and retain
qualified branch managers. The loss of the services of any key employee, or our failure to attract and retain other qualified personnel, could also have a material adverse effect on our financial condition, results of operations and business
prospects.



Competition may adversely affect our performance.



Our business is highly competitive. Competition in our
markets can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and terms of the loan and interest rates. Many of our competitors are substantially larger and have considerably
greater financial, technical and marketing resources than us. We compete in the nonprime automobile finance industry primarily with independent companies specializing in nonprime automobile finance and, to a lesser extent, with commercial banks, the
captive finance affiliates of automobile manufacturers and savings associations.



Fluctuations in interest rates and general and localized economic conditions also may affect the competition we face. Competitors with lower costs of capital have a competitive advantage over us.



As we expand into new geographic markets, we will face additional competition
from lenders already established in these markets. There can be no assurance that we will be able to compete successfully with these lenders.



We may be unable to manage our growth, and if we cannot do so, it could have a material adverse effect on our business.



Our operations have rapidly expanded over the past seven years and we remain
vulnerable to a variety of business risks generally associated with rapidly growing companies. We intend to pursue growth for the foreseeable future, particularly in our automobile finance business by opening new branches. In addition, we may
broaden our product offerings to include additional types of consumer loans or may enter other specialty finance businesses. This growth strategy will require that we successfully obtain acceptable warehouse financing and access the capital markets
to fund the growth, it will require additional capital and human resources as well as improvements to our infrastructure and management information systems. Our failure to implement our planned growth strategy or the failure of our automated
systems, including a failure of data integrity or accuracy, would have a material adverse effect on our financial condition, results of operations and business prospects.



We may be unable to sustain UACCs prior rate of growth.



We have realized substantial growth in our automobile finance business since its inception in 1996. Of UACCs 83
branches as of September 30, 2004, 55 opened after January 1, 2001 and the amount of automobile contracts purchased has increased from $233.4 million for 2001 to $314.6 million for 2002



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to $442.2 million for 2003. In the future, UACCs rate of growth will be dependent upon, among other things, the continued success of its efforts to
expand the number of branches, attract qualified branch managers, and expand its relationships with independent and franchised dealers of used automobiles.



The ability to grow our automobile finance business has been affected in the past by the fact that we historically used insured deposits of the Bank to
fund our operations. Non-prime lending has been and continues to be an area of lending that has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS. As a result
of the increased regulatory scrutiny, our Board of Directors decided to implement a plan to exit the Banks federal thrift charter because of the increasing regulatory requirements associated with financing UACCs non-prime automobile
finance business with insured deposits of the Bank. We have pursued strategic financing and other alternatives to enable us to conduct UACCs non-prime automobile lending business outside a federal thrift charter. However, if the Bank is unable
to successfully exit its federal thrift charter, regulatory scrutiny could significantly impact UACCs ability to grow. Accordingly, UACCs current expansion and future growth will depend to a significant extent our ability to successfully
manage our new sources of financing and for the Bank to successfully exit the federal thrift charter.



Risks Related to Regulatory Factors



The scope of our operations exposes us to risks of noncompliance with an increasing and inconsistent body of complex state and local regulations and laws.



Because we operate in 26 states, we must comply with the laws and regulations, as well as judicial and administrative
decisions, for all of these jurisdictions. The volume of new or modified laws and regulations has increased in recent years, and in some cases conflict between jurisdictions. From time to time, legislation, as well as regulations, are enacted which
have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This
legislation may change banking statutes and our operating environment and that of our subsidiaries in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible
activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any
implementing regulations, would have on the financial condition or results of operations of us or any of our subsidiaries. Furthermore, as our operations continue to grow, it may be more difficult to comprehensively identify, accurately interpret
and properly train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance with these laws and regulations which could have a material adverse effect on our results
of operations, financial condition and business prospects.



We
believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable local, state and federal regulations. There can be no assurance, however, that we will be able to
maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations.



The Bank has adopted a Plan of Voluntary Dissolution for the Bank to dissolve and ultimately exit the federal thrift charter, but there
is no assurance we will be able to complete all the elements of the plan and successfully dissolve the Bank.



The Bank has adopted a Plan of Voluntary Dissolution to dissolve and ultimately exit its federal thrift charter. The OTS has conditionally approved the
plan, subject to the Bank satisfying certain conditions imposed by the OTS. The Plan of Voluntary Dissolution is composed of many complicated



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elements such as securitizing automobile receivables, selling branch locations, selling brokered and internet certificates of deposit, changing the
Banks headquarters, distributing United States government agency securities, distributing the automobile loan portfolio, distributing other subsidiaries and terminating membership in the Federal Home Loan Bank of San Francisco.



While we have made substantial steps in our plan to exit the Banks
federal thrift charter, including selling all branches of the Bank and certain brokered certificates of deposit held by the Bank, there is no assurance we will be able to manage and satisfy all of the elements for the Bank to successfully dissolve.
If the Bank does not successfully dissolve then we may not be able to grow our automobile finance business and our results of operations will be adversely affected. Furthermore, as part of the Plan of Voluntary Dissolution, we have agreed to
irrevocably guarantee certain obligations of the Bank.



While the Bank is
chartered as a federal thrift, we are subject to increased regulatory requirements and, because we engage in a high level of nonprime lending, we may be forced to meet higher capital requirements.



The Bank has adopted a Plan of Voluntary Dissolution to dissolve and
ultimately exit the federal thrift charter. Nevertheless, while the Bank is chartered as a federal thrift, it is subject to inspection and regulation by the OTS, which has the power to enforce the Home Owners Loan Act of 1934, as amended, and its
regulations by a variety of actions, ranging from a memorandum of understanding to cease and desist proceedings under the Federal Deposit Insurance Act. We engage in the business of non-prime lending, which has been and continues to be an area of
lending that is the subject of extraordinary regulatory concern and scrutiny among all of the banking regulatory authorities including the OTS. The OTS has broad powers to, among other things, require us to change our business practices, hold
additional capital, change management and adopt or change accounting practices, such as our allowance for loan losses. Any actions by the OTS could have a material adverse impact on our business and may impact the price of our common stock, and our
access to the capital markets.



We engage in nonprime lending,
which is considered to be a high risk activity by the OTS unless there are sufficient controls. Because of the high percentage of nonprime assets relative to our Tier 1 capital, the OTS has the authority to impose additional regulatory capital
requirements of up to three times higher than the amount normally required even if there are sufficient controls in place. We maintain and currently intend to maintain regulatory capital ratios of at least two times that which is normally required
with respect to our nonprime portfolio. If the OTS imposes requirements to maintain higher levels of regulatory capital, it could limit our ability to fund our operations, require us to raise additional capital or sell assets and have an adverse
effect on our ability to grow.



The Bank must also meet the
requirements of the Qualified Thrift Lender test, or QTL test, that is set forth by the OTS. Under the QTL test, the Bank must maintain 60% of its assets in qualified thrift investments which are residential mortgages and related
investments such as mortgage-related securities. Under the QTL test, no more than 30% of the Banks assets can consist of indirect consumer loans, which include automobile contracts. If the Bank fails to adjust and manage its sources of funds
and assets, it may not meet the QTL test and there is an even higher risk that the Bank will not meet the QTL test as we have shifted the funding source of our business. In order to meet the QTL test, we may be required to shift our assets, which
could impact our automobile finance business and affect our ability to grow.



The business of the Bank is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System, or
the Federal Reserve Board. The Federal Reserve Board implements national monetary policies, (with objectives such as curbing inflation and combating recession), through its open-market operations in U.S. Government securities by adjusting the
required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in
these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on



30



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##### Table of Contents

interest-earning assets and paid on interest-bearing liabilities. The nature and impact on us and the Bank of any future changes in monetary and fiscal
policies cannot be predicted.



Risks Related to Factors Outside Our Control



Adverse economic conditions could adversely affect our business.



Each of our businesses is affected directly by changes in
general economic conditions, including changes in employment rates, prevailing interest rates and real wages. During periods of economic slowdown or recession, we may experience a decrease in demand for our financial products and services, an
increase in our servicing costs, a decline in collateral values and an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses. Any
sustained period of increased delinquencies, defaults or losses would materially and adversely affect our financial condition, results of operations and business prospects.



Fluctuations in interest rates could adversely affect our margin spread and the profitability of our lending activities.



Our results of operations depend to a large extent upon our net interest
income, which is the difference between interest received by us on the automobile contracts acquired and the interest rates payable under our credit facilities.



Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political
conditions, which are beyond our control. Several factors affect our ability to manage interest rate risk. First, the contracts are purchased or originated at fixed interest rates, while amounts borrowed under our warehouse facilities bear interest
at variable rates that are subject to frequent adjustment to reflect prevailing rated for short-term borrowings. In addition, the interest rates charged on the automobile contracts purchased from dealers are limited by statutory maximums,
restricting our opportunity to pass on increased interest costs.



Also, the interest rate demanded by investors in securitizations is a function of prevailing market rates for comparable transactions and the general interest rate environment. Because the contracts purchased by us have fixed rates, we bear
the risk of spreads narrowing because of interest rate increases during the period from the date the contracts are purchased until the pricing of our securitization of such contracts.



Decrease in wholesale auction proceeds could adversely impact our recovery rates.



We sell repossessed automobiles at wholesale auction markets located
throughout the United States. Auction proceeds from the sale of repossessed vehicles and other recoveries usually do not cover the outstanding balance of the automobile contracts, and the resulting deficiencies are charged off. Decreased auction
proceeds resulting from the depressed prices at which used automobiles may be sold during periods of economic slowdown, recession or otherwise will result in higher credit losses for us. Furthermore, depressed wholesale prices for used automobiles
may result from significant liquidations of rental or fleet inventories and from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. There can be no assurance that our recovery rates will stay at
current levels or improve in the future.



31



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##### Table of Contents

Average Balance Sheets



The following table sets forth information relating to the Company for the three and nine-month periods ended September 30, 2004 and 2003. The yields
and costs are derived by dividing income or expense by the average balance of assets or liabilities allocated to continuing operations, respectively, for the periods shown. The yields and costs include fees, which are considered adjustments to
yields.



|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|---------------------------------------------------------------- |  | -------------------------------- | --------- | ----------- | ------------------ | ------------------- |  | ----- | ------------------ |  | ----------- | --------- | ----------------- | - | ------ |  | ----- | -
|                                                                 |  | Three Months Ended September 30, |          
|                                                                 |  | 2004                             |           |             | 2003 (As Restated) |                    
|(Dollars in thousands)                                           |  | Average Balance(1)               |           | Interest(1) |                    | Average Yield/ Cost |  |       | Average Balance(1) |  | Interest(1) |           | AverageYield/Cost |  
|Assets                                                           |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Interest earning assets                                          |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Securities                                                       |  | $                                | 1,071,964 |             | $                  | 5,314               |  | 1.97  | %                  |  | $           | 1,011,821 |                   | $ | 4,009  |  | 1.57  | %
|Automobile installment Contracts, net(2)                         |  |                                  | 444,552   |             |                    | 30,685              |  | 27.38 | %                  |  |             | 343,577   |                   |   | 21,070 |  | 24.33 | %
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total interest earning assets                                    |  |                                  | 1,516,516 |             |                    | 35,999              |  | 9.42  | %                  |  |             | 1,355,398 |                   |   | 25,079 |  | 7.34  | %
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Non-interest earning assets                                      |  |                                  | 46,507    |             |                    |                     |  |       |                    |  |             | 40,702    |                   |   |        |  |       |  
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total assets                                                     |  | $                                | 1,563,023 |             |                    |                     |  |       |                    |  | $           | 1,396,100 |                   |   |        |  |       |  
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Liabilities and Equity                                           |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Interest bearing liabilities                                     |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Deposits                                                         |  | $                                | 448,242   |             | $                  | 2,895               |  | 2.56  | %                  |  | $           | 430,863   |                   | $ | 3,095  |  | 2.85  | %
|Securitizations                                                  |  |                                  | 42,000    |             |                    | 286                 |  | 2.70  | %                  |  |             |          |                   |   |       |  |      | %
|Warehouse facility                                               |  |                                  | 808       |             |                    | 5                   |  | 2.45  | %                  |  |             |          |                   |   |       |  |      | %
|Repurchase agreements                                            |  |                                  | 944,332   |             |                    | 3,644               |  | 1.53  | %                  |  |             | 855,523   |                   |   | 2,409  |  | 1.12  | %
|Trust preferred                                                  |  |                                  | 10,310    |             |                    | 123                 |  | 4.73  | %                  |  |             |          |                   |   |       |  |      | %
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total interest bearing liabilities                               |  |                                  | 1,445,692 |             |                    | 6,953               |  | 1.91  | %                  |  |             | 1,286,386 |                   |   | 5,504  |  | 1.70  | %
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Non-interest bearing liabilities                                 |  |                                  | 6,475     |             |                    |                     |  |       |                    |  |             | 12,947    |                   |   |        |  |       |  
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total liabilities                                                |  |                                  | 1,452,167 |             |                    |                     |  |       |                    |  |             | 1,299,333 |                   |   |        |  |       |  
|Equity                                                           |  |                                  | 110,856   |             |                    |                     |  |       |                    |  |             | 96,767    |                   |   |        |  |       |  
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total liabilities and equity                                     |  | $                                | 1,563,023 |             |                    |                     |  |       |                    |  | $           | 1,396,100 |                   |   |        |  |       |  
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Net interest income before provision for loan losses             |  |                                  |           |             | $                  | 29,046              |  |       |                    |  |             |           |                   | $ | 19,575 |  |       |  
|                                                                 |  |                                  |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Net interest rate spread(3)                                      |  |                                  |           |             |                    |                     |  | 7.51  | %                  |  |             |           |                   |   |        |  | 5.64  | %
|Net interest margin(4)                                           |  |                                  |           |             |                    |                     |  | 7.60  | %                  |  |             |           |                   |   |        |  | 5.73  | %
|Ratio of interest earning assets to interest bearing liabilities |  |                                  |           |             |                    |                     |  | 105   | %                  |  |             |           |                   |   |        |  | 105   | %

---

|(1) | The table above excludes average assets and liabilities of our insurance premium finance operations, as interest income and interest expense associated with the
insurance premium finance business are reported as discontinued operations in the consolidated statements of operations. Allocated assets and liabilities for 2004 and 2003 are shown below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                        |  |                                  |           |      |   |          
|------------------------------------------------------- |  | -------------------------------- | --------- | ---- | - | ---------
|                                                        |  | Quarter Ended September 30, 2004
|(In thousands)                                          |  | 2004                             |           | 2003
|Average assets of continuing operations                 |  | $                                | 1,566,310 |      | $ | 1,398,076
|Average IPF loans of discontinued operations            |  |                                  | 39,247    |      |   | 42,332   
|                                                        |  |                                  |           |      |   |          
|Total average assets                                    |  |                                  | 1,605,557 |      | $ | 1,440,408
|                                                        |  |                                  |           |      |   |          
|Average liabilities and equity of continuing operations |  | $                                | 1,566,310 |      | $ | 1,398,076
|Average deposits allocated to discontinued operations   |  |                                  | 38,247    |      |   | 42,332   
|                                                        |  |                                  |           |      |   |          
|Total average liabilities and equity                    |  | $                                | 1,605,557 |      | $ | 1,440,408
|                                                        |  |                                  |           |      |   |          



|(2) | Net of unearned finance charges, unearned discounts and allowance for loan losses; includes
non-performing loans. Yield includes accrued discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Net interest margin represents net interest income divided by average interest earning
assets.
|--- | ----------------------------------------------------------------------------------------------



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##### Table of Contents

|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|---------------------------------------------------------------- |  | ------------------------------- | --------- | ----------- | ------------------ | ------------------- |  | ----- | ------------------ |  | ----------- | --------- | ----------------- | - | ------ |  | ----- | -
|                                                                 |  | Nine Months Ended September 30, |          
|                                                                 |  | 2004                            |           |             | 2003 (As Restated) |                    
|(Dollars in thousands)                                           |  | Average Balance(1)              |           | Interest(1) |                    | Average Yield/ Cost |  |       | Average Balance(1) |  | Interest(1) |           | AverageYield/Cost |  
|Assets                                                           |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Interest earning assets                                          |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Securities                                                       |  | $                               | 1,130,688 |             | $                  | 15,041              |  | 1.78  | %                  |  | $           | 860,313   |                   | $ | 11,839 |  | 1.84  | %
|Automobile installment contracts, net(2)                         |  |                                 | 414,530   |             |                    | 84,401              |  | 27.22 | %                  |  |             | 314,513   |                   |   | 55,826 |  | 23.73 | %
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total interest earning assets                                    |  |                                 | 1,545,218 |             |                    | 99,442              |  | 8.60  | %                  |  |             | 1,174,826 |                   |   | 67,665 |  | 7.70  | %
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Non-interest earning assets                                      |  |                                 | 49,791    |             |                    |                     |  |       |                    |  |             | 38,856    |                   |   |        |  |       |  
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total assets                                                     |  |                                 | 1,595,009 |             |                    |                     |  |       |                    |  | $           | 1,213,682 |                   |   |        |  |       |  
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Liabilities and Equity                                           |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Interest bearing liabilities                                     |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Deposits                                                         |  | $                               | 472,300   |             | $                  | 9,390               |  | 2.66  | %                  |  | $           | 433,313   |                   | $ | 9,779  |  | 3.02  | %
|Securitization                                                   |  |                                 | 14,000    |             |                    | 286                 |  | 2.73  | %                  |  |             |          |                   |   |       |  |      | %
|Warehouse facility                                               |  |                                 | 269       |             |                    | 5                   |  | 2.48  | %                  |  |             |          |                   |   |       |  |      | %
|Repurchase agreements                                            |  |                                 | 985,167   |             |                    | 9,208               |  | 1.25  | %                  |  |             | 677,707   |                   |   | 6,266  |  | 1.24  | %
|Trust preferred                                                  |  |                                 | 10,303    |             |                    | 352                 |  | 4.57  | %                  |  |             |          |                   |   |       |  |      | %
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total interest bearing liabilities                               |  |                                 | 1,482,039 |             |                    | 19,241              |  | 1.74  | %                  |  |             | 1,111,020 |                   |   | 16,045 |  | 1.93  | %
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Non-interest bearing liabilities                                 |  |                                 | 5,859     |             |                    |                     |  |       |                    |  |             | 9,215     |                   |   |        |  |       |  
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total liabilities                                                |  |                                 | 1,487,898 |             |                    |                     |  |       |                    |  |             | 1,120,235 |                   |   |        |  |       |  
|Equity                                                           |  |                                 | 107,111   |             |                    |                     |  |       |                    |  |             | 93,447    |                   |   |        |  |       |  
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Total liabilities and equity                                     |  | $                               | 1,595,009 |             |                    |                     |  |       |                    |  | $           | 1,213,682 |                   |   |        |  |       |  
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Net interest income before provision for loan losses             |  |                                 |           |             | $                  | 80,201              |  |       |                    |  |             |           |                   | $ | 51,620 |  |       |  
|                                                                 |  |                                 |           |             |                    |                     |  |       |                    |  |             |           |                   |   |        |  |       |  
|Net interest rate spread(3)                                      |  |                                 |           |             |                    |                     |  | 6.86  | %                  |  |             |           |                   |   |        |  | 5.77  | %
|Net interest margin(4)                                           |  |                                 |           |             |                    |                     |  | 6.94  | %                  |  |             |           |                   |   |        |  | 5.87  | %
|Ratio of interest earning assets to interest bearing liabilities |  |                                 |           |             |                    |                     |  | 104   | %                  |  |             |           |                   |   |        |  | 106   | %

---

|(1) | The table above excludes average assets and liabilities of our insurance premium finance operations, as interest income and interest expense associated with the
insurance premium finance business are reported as discontinued operations in the consolidated statements of operations. Allocated assets and liabilities for 2004 and 2003 are shown below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                        |  |                             |           |      |   |          
|------------------------------------------------------- |  | --------------------------- | --------- | ---- | - | ---------
|                                                        |  | Quarter Ended September 30,
|(In thousands)                                          |  | 2004                        |           | 2003
|Average assets of continuing operations                 |  | $                           | 1,597,953 |      | $ | 1,215,412
|Average IPF loans of discontinued operations            |  |                             | 38,772    |      |   | 37,936   
|                                                        |  |                             |           |      |   |          
|Total average assets                                    |  |                             | 1,636,725 |      |   | 1,253,348
|                                                        |  |                             |           |      |   |          
|Average liabilities and equity of continuing operations |  |                             | 1,597,953 |      |   | 1,215,412
|Average deposits allocated to discontinued operations   |  |                             | 38,772    |      |   | 37,936   
|                                                        |  |                             |           |      |   |          
|Total average liabilities and equity                    |  | $                           | 1,636,725 |      | $ | 1,253,348
|                                                        |  |                             |           |      |   |          



|(2) | Net of unearned finance charges, unearned discounts and allowance for loan losses; includes non-performing loans. Yield includes accrued discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Net interest margin represents net interest income divided by average interest earning
assets.
|--- | ----------------------------------------------------------------------------------------------



33



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##### Table of Contents

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



General



For the three months ended September 30, 2004, the Company reported income
of $7.0 million or $0.39 per diluted share; an increase of $4.7 million from $2.3 million or $.13 per diluted share for the three months ended September 30, 2003.



The increase in net income was due primarily to the sale of the deposits of the Banks retail branches and brokered CD
portfolio which resulted in a net gain of $3.1 million, net of tax, and a $9.4 million increase in net interest margin, partially offset by a $1.0 million increase in provision for loan losses, a $3.2 million increase in non interest expenses and a
corresponding $4.2 million increase in income taxes.



Automobile contracts purchased, including unearned finance charges, increased $31.3 million to $145.4 million from $114.1 million for the three months ended September 30, 2003, as a result of our planned growth in the automobile finance
business.



Interest Income



Interest income increased to $36.0 million from $25.1 million for the three
months ended September 30, 2003, due primarily to a $161.1 million increase in average interest earning assets and a 2.08% increase in yield on earning assets. The largest growth component in average interest earning assets was in automobile
installment contracts, which increased by $101.0 million. The increase in auto contracts resulted from the purchase of additional dealer contracts in existing and new markets consistent with planned growth.



The increase in interest income was due primarily to the increase in auto
contracts outstanding and an increased yield on auto contracts. Average auto contracts increased $101.0 million to $444.6 million from $343.6 million. The average net yield on auto contracts increased to 27.38% from 24.88% for the three-month period
ended September 30, 2004 and 2003 respectively. The increase in yield on auto contracts resulted from the previously announced change in accounting method so that discounts on auto contracts purchased are now accreted into interest income rather
than contributed to allowance for loan losses as under the old method.



Interest Expense



Interest expense increased
to $7.0 million for the three months ended September 30, 2004 from $5.5 million for the three months ended September 30, 2003, due to a $159.3 million increase in average interest bearing liabilities and a general increase in market interest rates.
The largest components of average interest bearing liabilities were deposits of $448.2 million and repurchase agreements of $944.3 million. Average repurchase agreements increased to $944.3 million from $855.5 million for the three months ended of
September 30, 2003 as a result of a corresponding increase in investment securities being funded by repurchase sources. The average cost of liabilities increased to 1.91% for the three months ended September 30, 2004 from 1.70% for the comparable
period in 2003, generally as a result of an increase in market interest rates.



Provision and Allowance for Loan Losses



The provision for loan losses was $7.4 million for the three months ended September 30, 2004 compared to $6.4 million for the three months ended September 30, 2003. For further information about our allowance for loan
losses, see Critical Accounting Policies  Allowance for Loan Losses.



The total allowance for loan losses was $25.2 million at September 30, 2004 compared with $21.1 million at September 30, 2003, representing 5.01% of loans at September 30, 2004 and 6.88% at September 30, 2003.
Additionally, unearned discounts on loans totaled $22.2 million at September 30, 2004 compared with $11.8 million at September 30, 2003, representing 4.41% of loans at September 30, 2003 compared with 2.84% of loans at September 30, 2003.



34



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##### Table of Contents

Annualized net charge-offs to average gross loans (prior to deduction for discounts and ALLL) were 4.88%
for the three months ended September 30, 2004 compared with 5.70% for the three months ended September 30, 2003.



Non-interest Income



Non-interest income decreased to $403,000 from $426,000 for the three months ended September 30, 2003.



Non-interest Expense



Non-interest expense increased $5.3 million to $15.7 million from $10.4
million for the three months ended September 30, 2003. The major portion of the increase in non-interest expense was a loss in value of derivative contracts designed to reduce the risk of change in interest rates. We entered into derivative
contracts to manage the risk associated with the time between the date the fixed rate securitization transaction is planned and the date the transaction is finally closed. We record a market valuation adjustment for our economic hedge and any
subsequent payments paid or received on these derivatives as a current period expense or revenue. During the three months ended September 30, 2004, we recognized a loss on derivative instruments of $2.1 million, because the derivative transactions
did not meet the requirements of the accounting literature to qualify for hedge accounting. We also recognized a $297,000 loss on derivative instruments during the three months ended June 30, 2004. There were no derivative instrument transactions in
2003 because our first securitization transaction was in 2004. The loss on derivative instruments was the result of a decline in the 1 year and 2 year forward LIBOR curves between the time we locked the effective rate and the date the transaction
actually closed. The remaining 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 590 employees in 83 offices, as of September 30, 2004 from 564 employees in 78 offices, as of June 30, 2004.



Income Taxes



Income taxes increased $1.4 million to $2.7 million for the three months
ended September 30, 2004 from $1.3 million for the three months ended September 30, 2003. This increase occurred as a result of a $3.2 million increase in income before income taxes and before discontinued operations between the two periods.



Comparison of Operating Results for the Nine Months Ended September 30,
2004 and September 30, 2003



General



For the nine months ended September 30, 2004, we reported income of $18.4
million or $1.02 per diluted share. This compares with income of $7.9 million or $0.46 per diluted share, for the comparable period a year ago.



The increase in net income was due primarily to the sale of the deposits of the Banks retail branches and the Banks brokered certificates of
deposit portfolio which resulted in a net gain of $3.1 million, net of tax, and a $29.4 million increase in net interest income, partially offset by a $5.3 million increase in provision for loan losses, an $8.6 million increase in non interest
expense and a corresponding $5.6 million increase in income taxes.



35



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##### Table of Contents

Automobile contracts purchased, including unearned finance charges, increased $104.5 million to $441.5
million for the nine months ended September 30, 2003 from $337.0 million for the nine months ended September 30, 2003, as a result of our planned growth in the auto finance business.



Interest Income



Interest income increased to $99.4 million from $66.9 million for the nine months ended September 30, 2003, due primarily to a $370.4 million increase in
average interest earning assets and a .90% increase in yield on earning assets. The largest growth components in average interest earning assets were in investment securities, which increased by $270.4 million and automobile installment contracts,
which increased by $100.0 million. The increase in auto contracts resulted from the purchase of additional dealer contracts in existing and new markets consistent with planned growth.



The increase in net interest margin was due primarily to an increase in auto contracts outstanding and an increased yield on
auto contracts. Average auto contracts outstanding increased $100 million to $414.5 million from $314.5 million. The average net yield on auto contracts increased to 27.2% from 23.7% for the 9-month periods ended September 30, 2004 and 2003,
respectively. The increase in yield on automobile contracts resulted from the previously announced change in accounting method so discounts on auto contracts purchased are now accreted into income rather than contributed to allowance for loan losses
as under the previous method.



Interest Expense



Interest expense increased to $19.3 million from $16.0
million for the nine months ended September 30, 2003 due to a $371.0 million increase in average interest bearing liabilities, partially offset by a 0.19% decline in average cost of liabilities. The largest components of average interest bearing
liabilities are Bank deposits, which increased to $511.1 million from an average balance of $471.2 million during the nine months ended September 30, 2003, and repurchase agreements, which increased to $985.2 million from $677.7 million for the nine
months ended September 30, 2003. The average cost of liabilities decreased to 1.74% for the nine months ended September 30, 2004 from 1.97% for the comparable period in 2003 generally as a result of a decrease in market interest rates.



Provision and Allowance for Loan Losses



The provision for loan losses was $17.7 million for the nine months ended
September 30, 2004 compared to $12.4 million for the nine months ending September 30, 2003. For further information about our allowance for loan losses, see Critical Accounting Policies  Allowance for Loan Losses.



The total allowance for loan losses was $25.2 million at September 30,
2004 compared with $26.0 million at September 30, 2003, representing 5.23% of loans at September 30, 2004 and 6.35% at September 30, 2003. Additionally, unearned discounts on loans totaled $22.2 million at September 30, 2004 compared with $11.8
million at September 30, 2003, representing 4.41% of loans at September 30, 2003 compared with 2.81% of loans at September 30, 2003.



Annualized net charge-offs to average gross loans (prior to deduction for discounts and ALLL) were 5.13% for the nine months ended September 30, 2004
compared with 5.93% for the nine months ended September 30, 2003. The allowance for loan losses for 2003 was favorably impacted by the recovery of $537,000 from the State of California for refund of sales taxes on repossessed autos.



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Non-interest Income



Non-interest income increased to $2.0 million from $1.4 million for the nine months ended September 30, 2003. The increase
is result of increases in service charges and fees and other income.



Non-interest Expense



Non-interest expense
increased $11.0 million to $40.4 million from $29.4 million for the nine months ended September 30, 2003. The major portion of the increase in non-interest expense was a loss in value of derivative contracts designed to reduce the risk of change in
interest rates. We entered into derivative contracts to manage the risk associated with the time between the date the fixed rate securitization transaction is planned and the date the transaction is finally closed. We record a market valuation
adjustment for our economic hedge and any subsequent payments paid or received on these derivatives as a current period expense or revenue, because the derivative transactions did not meet the requirements of the accounting literature to qualify for
hedge accounting. During the nine months ended September 30, 2004, we recorded a loss on derivative instruments of $2.4 million. There were no derivative instrument transactions in 2003 because our first securitization transaction was in 2004. The
loss on derivative instruments was the result of a decline in the 1 year and 2 year forward LIBOR curves between the time we locked the effective rate and the date the transaction actually closed. The remaining 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, we expanded offices, as of September 30, 2004, from 440 employees in 65
offices, as of September 30, 2003.



Income Taxes



Income taxes increased $5.6 million; to $9.8 million for
the nine months ended September 30, 2004 from $4.2 million for the nine months ended September 30, 2003. This increase occurred as a result of a $13.7 million increase in income before income taxes and discontinued operations between the two
periods.



Comparison of Financial Condition at September 30, 2003 and
December 31, 2002



Total assets decreased $108.8 million
to $1,556.3 million, from $1,665.3 million at December 31, 2003. This decrease occurred primarily as a result of a $247.2 million decrease in the securities to $955.3 million, from $1,202.7 million at December 31, 2003, partially offset by a $103.7
million increase in loans to $503.4 million from $399.7 million at December 31, 2003.



Deposits decreased $414.1 million to $84.3 million from $498.4 million at December 31, 2003. During the 3 months ended September 30, 2004, the Company sold the deposits of the remaining three Retail bank branches
totaling $213.5 million and broker originated deposits of $184.3 million.



Assets of discontinued operations, consisting of $39.3 million of net loans and $12.0 of Federal Home Loan Bank Stock at cost, decreased to $51.3 million at September 30, 2004 from $52.5 million, consisting of $41.0
million of net loans and $11.5 million of Federal Home Loan Bank Stock at cost, at December 31, 2003.



Repurchase agreements decreased $158.9 million to $893.3 million at September 30, 2004 from $1,052.2 million at December 31, 2003. The decrease was in
LIBOR based floating rate borrowings used to fund LIBOR based floating rate securities.



During the three months ended September 30, 2004, the Company entered into its first securitization financing of its auto loans totaling $420 million. This transaction is treated as secured financing and there was no
recognition of gain on sale. Also, the Company entered into a $200 million warehouse agreement through a commercial paper conduit from Deutsche Bank. The initial advance on this warehouse facility was $24.2 million. For further information see
Liquidity and Capital Resources.



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Liabilities of discontinued operations  deposits held for sale, decreased to $84.3 million at
September 30, 2004 from $498.4 at December 31, 2003.



Shareholders equity increased to $115.8 million at September 30, 2004 from $97.9 million at December 31, 2003, primarily as a result of net income of $18.4 million during the nine months ended September 30, 2004.



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 its operations to changes in interest rates. Our Board of Directors reviews on a quarterly basis the 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.



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 the Banks quarterly financial information.



At June 30, 2004, the most recent date for which the relevant
NPV model is available, the Banks sensitivity measure resulting from a 200 basis point decrease in interest rates was 51 basis points and would result in a $10 million increase in the NPV of the Bank, and from a 200 basis point increase in
interest rates was -53 basis points and would result in a $10 million decrease in the NPV of the Bank.



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



The following
table shows the NPV and projected change in the NPV of the Bank at June 30, 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 PortfolioValue of Assets
|Change in Rates |  | $ Amount |  | $ Change            |         |                        | % Change                             |         |   | NPV Ratio |       |   | % Change
|                |  |          |  |                     |         | (Dollars in thousands) |                                      |         |   |           |       |  
|+300 bp         |  |          |  | $                   | 139,981 |                        | $                                    | (15,430 | ) |           | -9.93 | % |          | 8.25 | % |  | -79 bp
|+200 bp         |  |          |  |                     | 145,115 |                        |                                      | (10,295 | ) |           | -6.63 | % |          | 8.52 | % |  | -53 bp
|+100 bp         |  |          |  |                     | 150,257 |                        |                                      | (5,154  | ) |           | -3.32 | % |          | 9.78 | % |  | -26 bp
|0 bp            |  |          |  |                     | 155,411 |                        |                                      |        |   |           |      |   |          | 9.04 | % |  |      
|-100 bp         |  |          |  |                     | 160,590 |                        |                                      | 5,180   |   |           | 3.33  | % |          | 9.30 | % |  | 26 bp 
|-200 bp         |  |          |  |                     | 165,531 |                        |                                      | 10,120  |   |           | 6.51  | % |          | 9.55 | % |  | 51 bp 
|-300 bp         |  |          |  |                     | 170,134 |                        |                                      | 14,723  |   |           | 9.78  | % |          | 9.78 | % |  | 74 bp 



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The contracts originated and held by us are fixed rate and, accordingly, we have exposure to changes in
interest rates. To protect against potential changes in interest rates affecting interest payments on future securitization transactions, we may enter into various hedge agreements prior to closing the transaction. We enter into forward agreements
in order to hedge our future interest payments on our notes payable on automobile secured financing. The market value of these hedge agreements is designed to respond inversely to changes in interest rates. Because of this inverse relationship, we
can effectively lock in a gross interest rate spread at the time of entering into the hedge transaction. Gains and losses on these agreements are recorded in accumulated other comprehensive income (loss), net of tax, on our Consolidated Statements
of Financial Condition. Any ineffective portion is recognized in interest expense during that period if the hedge is greater than 100% effective. Upon completion of the securitization transaction, the gains or losses are amortized on a level yield
basis over the duration of the notes issued. These hedge instruments are settled daily, and therefore, there are no related financial instruments recorded on the consolidated statements of financial condition. Credit risk related to these hedge
instruments is minimal.



Management monitors our hedging
activities to ensure that the value of hedges, their correlation to the contracts being hedged and the amounts being hedged continue to provide effective protection against interest rate risk. The amount and timing of hedging transactions are
determined by our senior management based upon the monitoring activities of management.



Liquidity and Capital Resources



General



We require substantial cash and
capital resources to operate our business. Historically, our primary source of funds have been 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, during this quarter we have shifted the funding source of our automobile finance business primarily to warehouse credit lines and securitizations. We still have a small portfolio of Bank deposits
and FHLB advances. However, we plan to have the Bank exit its federal thrift charter, at which point, we will no longer rely on insured deposits of the Bank or FHLB advances as a funding source.



Our primary uses of cash include:



| |  | acquisition of automobile contracts,
| | - | ------------------------------------



| |  | securitization costs,
| | - | ---------------------



| |  | operating expenses, and
| | - | -----------------------



| |  | interest expense.
| | - | -----------------



The capital resources available to us include:



| |  | interest income on automobile contracts,
| | - | ----------------------------------------



| |  | servicing fees that we earn for under the automobile securitizations,
| | - | ---------------------------------------------------------------------



| |  | releases from the spread account relating to the securitization,
| | - | ----------------------------------------------------------------



| |  | automobile loan securitization proceeds,
| | - | ----------------------------------------



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| |  | borrowings under our credit facilities,
| | - | ---------------------------------------



| |  | commercial repurchase agreements, and
| | - | -------------------------------------



| |  | our securities portfolio.
| | - | -------------------------



Management believes that the resources available to us will provide the needed capital to fund purchases of automobile contracts, investments in
origination and servicing capabilities and ongoing operations.



Securitizations



We completed one
securitization transaction in the third quarter of 2004. This transaction is structured as an on-balance sheet transaction, recorded as secured financing. Regular contract securitizations are an integral part of our business plan for the future so
we will increase our liquidity and reduce risks associated with interest rate fluctuations. We had developed a securitization program that involves selling interests in pools of our auto contracts to investors through the public issuance of AAA/Aaa
rated asset-backed securities. Automobile securitizations are used by many financial institutions and are part of a multi-billion dollar annual market for asset-backed securities. As part of this process, management considers the relative risks and
returns prior to initiating a securitization. These risks include, but are not limited to, interest rate fluctuations during the warehouse period, increased prepayments speeds and losses, loss of servicing rights and adverse economic conditions.
These factors are explained in further detail in the section Business Risks. The table below provides information about the outstanding trust assets and liabilities as of September 30, 2004.



|                  |  |                   |        
|----------------- |  | ----------------- | -------
|(In thousands)    |  | September 30,2004
|Total assets      |  | $                 | 467,667
|Total liabilities |  | $                 | 420,000



In its securitization
we sold our automobile contracts to a newly formed owner trust, which issued notes. The net proceeds of the securitization were used to fund the sale of the Banks deposit liabilities.



To improve the level of profitability from the sale of securitized automobile
contracts, we arranged for credit enhancement to improve the credit rating on the asset-backed securities issued. This credit enhancement was in the form of a financial guaranty insurance policy insuring the payment of principal and interest due on
the asset-backed securities. The policy was issued by AMBAC Insurance Corporation.



Warehouse Facility



As
of September 30, 2004 we were party to one warehouse facility. We have a warehouse facility of $200 million, which we use to fund our automobile finance operations to purchase automobile contracts pending securitization. Under the terms of the
facility, our indirect subsidiary, UPFC Funding Corp., may obtain advances on a revolving basis by issuing notes to the participating lenders and pledging for each advance a portfolio of automobile receivables. UPFC Funding Corp. purchases the
automobile receivables from UACC and UACC services the automobile receivables, which are held by a custodian. We have agreed to provide an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all
liabilities, agreements and other obligations of UACC under the warehouse facility. This facility is used to fund the purchase of automobile contracts and will be used as ongoing credit until we can structure another securitization.



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##### Table of Contents

Other Sources of Funds



The collection of principal and interest from contracts originated and securitized and the release of cash from the
securitization spread account is another source of significant funds for us. Pursuant to the securitization, we receive cash released from the trustee from the spread account on the securitization once the spread account reaches a predetermined
funding level. The amount released from the spread account represents the return of the initial deposits to such accounts as well as the release of the excess spread on the securitized contract.



For future securitizations, collections of principal and interest may be
deposited into collection accounts established in connection with the securitization. We may receive access to the amounts deposited into collection accounts and amounts held in the spread account for these securitizations. We would use the amounts
received in our daily operations, although delinquency or charge off rates in a securitization that exceeds established triggers, will require that amounts being held in spread accounts increase.



Deposits



We have deposits remaining in the Bank of $84.3 million. These deposits are
under contract for sale and are expected to close before December 31, 2004 or during the first quarter of 2005. Accordingly, we will no longer have access to deposits to fund our operations.



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



|                        |  |                        |        |                     |              |      |         |   |                     |  |      |         |  |                     |         |  |      |  
|----------------------- |  | ---------------------- | ------ | ------------------- | ------------ | ---- | ------- | - | ------------------- |  | ---- | ------- |  | ------------------- | ------- |  | ---- | -
|                        |  | September 30, 2004     |        |                     | December 31, |     
|                        |  |                        | 2003   |                     |              | 2002 |        
|                        |  | Balance                |        | WeightedAverageRate |              |      | Balance |   | WeightedAverageRate |  |      | Balance |  | WeightedAverageRate |        
|                        |  | (Dollars in thousands) |       
|Passbook accounts       |  | $                      | 1,052  |                     | 1.03         | %    |         | $ | 72,990              |  | 1.45 | %       |  | $                   | 52,911  |  | 1.72 | %
|Checking accounts       |  |                        |       |                     |             | %    |         |   | 19,331              |  | 0.71 | %       |  |                     | 16,854  |  | 1.00 | %
|Certificates of deposit |  |                        |        |                     |              |      |         |   |                     |  |      |         |  |                     |         |  |      |  
|Under $100,000          |  |                        | 38,825 |                     | 2.80         | %    |         |   | 310,535             |  | 3.00 | %       |  |                     | 314,130 |  | 3.63 | %
|$100,000 and over       |  |                        | 44,392 |                     | 2.53         | %    |         |   | 95,533              |  | 2.53 | %       |  |                     | 84,563  |  | 3.13 | %
|                        |  |                        |        |                     |              |      |         |   |                     |  |      |         |  |                     |         |  |      |  
|Total                   |  | $                      | 84,269 |                     | 2.64         | %    |         | $ | 498,389             |  | 2.59 | %       |  | $                   | 468,458 |  | 3.23 | %
|                        |  |                        |        |                     |              |      |         |   |                     |  |      |         |  |                     |         |  |      |  



The following table
sets forth the time remaining until maturity for all CDs at September 30, 2004, December 31, 2003 and 2002.



|                              |  |                        |        |                  |   |                  |  |   |        
|----------------------------- |  | ---------------------- | ------ | ---------------- | - | ---------------- |  | - | -------
|                              |  | September 30, 2004     |        | December 31,2003 |   | December 31,2002
|                              |  | (Dollars in thousands)
|Maturity within one year      |  | $                      | 51,405 |                  | $ | 184,292          |  | $ | 185,295
|Maturity within two years     |  |                        | 24,462 |                  |   | 86,812           |  |   | 58,852 
|Maturity within three years   |  |                        | 5,853  |                  |   | 79,332           |  |   | 41,628 
|Maturity over three years     |  |                        | 1,488  |                  |   | 55,632           |  |   | 112,918
|                              |  |                        |        |                  |   |                  |  |   |        
|Total certificates of deposit |  | $                      | 83,217 |                  | $ | 406,068          |  | $ | 398,693
|                              |  |                        |        |                  |   |                  |  |   |        



Capital
Requirements



At September 30, 2003, the Bank exceeded all
of its regulatory capital requirements with tangible capital of $67.6 million, or 11.19% of total adjusted assets, which is above the required level of $9.1 million, or 1.5%; core capital of $67.6 million, or 11.19% of total adjusted assets, which
is above the required level of $18.1 million, or 3.0%; and risk-based capital of $74.7 million, or 13.56% of risk-weighted assets, which is above the required level of $44.1 million, or 8.0%.



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As used herein, leverage ratio means the ratio of core capital to adjusted total assets, Tier 1
risk-based capital ratio means the ratio of core capital to risk-weighted assets, and total risk-based capital ratio means the ratio of total capital to risk-weighted assets, in each case as calculated in accordance with current OTS capital
regulations.



Through the Bank, we can obtain advances from the
FHLB, collateralized by its securities and enter into repurchase agreements utilizing its securities. When we exit the thrift charter, we will no longer have access to the FHLB advances.



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



|                                                             |  |                                   |         |   |              |      |           |   |  |   |         |  
|------------------------------------------------------------ |  | --------------------------------- | ------- | - | ------------ | ---- | --------- | - |  | - | ------- | -
|                                                             |  | Nine MonthsendedSeptember 30,2004 |         |   | December 31, |     
|                                                             |  |                                   | 2003    |   |              | 2002 |          
|                                                             |  | (Dollars in thousands)            |        
|Auto loan securitizations                                    |  |                                   |         |   |              |      |           |   |  |   |         |  
|Maximum month-end balance                                    |  | $                                 | 420,000 |   |              | $    |          |   |  | $ |        |  
|Balance at end of period                                     |  |                                   | 420,000 |   |              |      |          |   |  |   |        |  
|Average balance for period                                   |  |                                   | 14,000  |   |              |      |          |   |  |   |        |  
|Weighted average interest rate on balance at end of period   |  |                                   | 2.73    | % |              |      |          | % |  |   |        | %
|Weighted average interest rate on average balance for period |  |                                   | 2.73    | % |              |      |          | % |  |   |        | %
|Auto loan warehouse facility                                 |  |                                   |         |   |              |      |           |   |  |   |         |  
|Maximum month-end balance                                    |  | $                                 | 24,247  |   |              | $    |          |   |  | $ |        |  
|Balance at end of period                                     |  |                                   | 24,247  |   |              |      |          |   |  |   |        |  
|Average balance for period                                   |  |                                   | 270     |   |              |      |          |   |  |   |        |  
|Weighted average interest rate on balance at end of period   |  |                                   | 2.48    | % |              |      |          | % |  |   |        | %
|Weighted average interest rate on average balance for period |  |                                   | 2.48    | % |              |      |          | % |  |   |        | %
|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                                    |  | $                                 | 923,404 |   |              | $    | 1,052,205 |   |  | $ | 410,234 |  
|Balance at end of period                                     |  |                                   | 893,252 |   |              |      | 1,052,205 |   |  |   | 388,624 |  
|Average balance for period                                   |  |                                   | 985,167 |   |              |      | 755,755   |   |  |   | 260,139 |  
|Weighted average interest rate on balance at end of period   |  |                                   | 1.79    | % |              |      | 1.14      | % |  |   | 1.40    | %
|Weighted average interest rate on average balance for period |  |                                   | 1.25    | % |              |      | 1.20      | % |  |   | 1.79    | %



Aggregate
Contractual Obligations



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



|                               |  |                        |           |                  |   |                   |  |                  |        |       |   |        |  |   |          
|------------------------------ |  | ---------------------- | --------- | ---------------- | - | ----------------- |  | ---------------- | ------ | ----- | - | ------ |  | - | ---------
|                               |  | Less than1 Years       |           | 1 Year to3 Years |   | 4 Yearsto 5 Years |  | More Than5 Years |        | Total
|                               |  | (Dollars in thousands)
|Deposits                       |  | $                      | 52,457    |                  | $ | 30,324            |  | $                | 1,488  |       | $ |       |  | $ | 84,269   
|Repurchase agreements          |  |                        | 893,252   |                  |   |                  |  |                  |       |       |   |       |  |   | 893,252  
|Securitizations                |  |                        | 189,764   |                  |   | 191,917           |  |                  | 38,319 |       |   |       |  |   | 420,000  
|Warehouse facility             |  |                        | 24,247    |                  |   |                  |  |                  |       |       |   |       |  |   | 24,247   
|Operating lease obligations    |  |                        | 3,372     |                  |   | 4,535             |  |                  | 1,806  |       |   |       |  |   | 9,713    
|Junior subordinated debentures |  |                        |          |                  |   |                  |  |                  |       |       |   | 10,310 |  |   | 10,310   
|                               |  |                        |           |                  |   |                   |  |                  |        |       |   |        |  |   |          
|Total                          |  | $                      | 1,164,092 |                  | $ | 226,776           |  | $                | 41,613 |       | $ | 10,310 |  | $ | 1,442,791
|                               |  |                        |           |                  |   |                   |  |                  |        |       |   |        |  |   |          



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The obligations are categorized by their contractual due dates, except securitizations which are
categorized by projected principal payments on underlying loans. 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 September 30, 2004, our portfolio of loans held for investment constituted $455.4 million, or 29% of our total assets.



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



|                                 |  |                    |         |   |                   |   |         |                   |  |   |         |  
|-------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|(Dollars in thousands)           |  | September 31, 2004 |         |   | December 31, 2003 |   |         | December 31, 2002 | 
|Consumer Loans                   |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Automobile installment contracts |  | $                  | 507,920 |   |                   | $ | 405,085 |                   |  | $ | 293,440 |  
|Other consumer loans             |  |                    | 6       |   |                   |   | 49      |                   |  |   | 80      |  
|                                 |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Total consumer loans             |  |                    | 507,926 |   |                   |   | 405,134 |                   |  |   | 293,520 |  
|                                 |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Total loans                      |  |                    | 507,926 |   |                   |   | 405,134 |                   |  |   | 293,520 |  
|Unearned discounts               |  |                    | (22,179 | ) |                   |   | (14,368 | )                 |  |   |        |  
|Unearned finance charges         |  |                    | (4,534  | ) |                   |   | (5,385  | )                 |  |   | (3.490  | )
|Allowance for loan losses        |  |                    | (25,184 | ) |                   |   | (24,982 | )                 |  |   | (27,780 | )
|                                 |  |                    |         |   |                   |   |         |                   |  |   |         |  
|Total loans, net                 |  | $                  | 456,029 |   |                   | $ | 360,399 |                   |  | $ | 262,330 |  
|                                 |  |                    |         |   |                   |   |         |                   |  |   |         |  



Loan Maturities



The following table sets forth the dollar amount of loans
maturing in our loan portfolio at September 30, 2004 based on final maturity. Loan balances are reflected before unearned discounts and premiums, unearned finance charges and allowance for loan losses. All loans have a fixed rate of interest.



|                       |  |                 |        |                            |   |                            |  |                              |         |            |   |        |  |   |        
|---------------------- |  | --------------- | ------ | -------------------------- | - | -------------------------- |  | ---------------------------- | ------- | ---------- | - | ------ |  | - | -------
|(Dollars in thousands) |  | One Yearor Less |        | More Than1 Year to 3 Years |   | More Than3 Years to5 Years |  | More Than 5Years to 10 Years |         | TotalLoans
|Consumer loans         |  |                 | 10,023 |                            |   | 156,981                    |  |                              | 327,743 |            |   | 13,179 |  |   | 507,926
|                       |  |                 |        |                            |   |                            |  |                              |         |            |   |        |  |   |        
|Total                  |  | $               | 10,023 |                            | $ | 156,981                    |  | $                            | 347,743 |            | $ | 13,179 |  | $ | 507,926
|                       |  |                 |        |                            |   |                            |  |                              |         |            |   |        |  |   |        



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. For more information see Critical
Accounting Policies  Allowance for Loan Losses.



The total allowance for loan losses was $25.2 million at September 30, 2004 compared with $26.0 million at September 30, 2003, representing 5.23% of loans at September 30, 2004 and 6.35% at September 30, 2003. Additionally, unearned
discounts on loans totaled $22.2 million at September 30, 2004 compared with $11.8 million at September 30, 2003, representing 4.41% of loans at September 30, 2004 compared with 2.81% of loans at September 30, 2003.



43



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##### Table of Contents

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



Our
management uses its best judgment in providing for possible loan losses and establishing allowances for loan losses. However, the allowance is an estimate, which is inherently uncertain and depends on the outcome of future events.



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



|                   |  |                        |       |                 |    |   |                  |   |                 |  |     |                  |  |                 |       |  |     |  
|------------------ |  | ---------------------- | ----- | --------------- | -- | - | ---------------- | - | --------------- |  | --- | ---------------- |  | --------------- | ----- |  | --- | -
|                   |  |                        |       |                 |    |   | (As Restated)    |   |                 |  |     | (As Restated)    |  |                 |      
|Loan Delinquencies |  | September 30, 2004     |       | % of TotalLoans |    |   | December 31,2003 |   | % of TotalLoans |  |     | December 31,2002 |  | % of TotalLoans |      
|                   |  | (Dollars in thousands) |      
|30 to 59 days      |  | $                      | 2,219 |                 | .3 | % |                  | $ | 2,015           |  | 0.5 | %                |  | $               | 1,317 |  | 0.5 | %
|60 to 89 days      |  |                        | 731   |                 | .1 | % |                  |   | 675             |  | 0.2 | %                |  |                 | 581   |  | 0.2 | %
|90+ days           |  |                        | 485   |                 | .1 | % |                  |   | 390             |  | 0.1 | %                |  |                 | 251   |  | 0.1 | %
|                   |  |                        |       |                 |    |   |                  |   |                 |  |     |                  |  |                 |       |  |     |  
|Total              |  | $                      | 3,435 |                 | .5 | % |                  | $ | 3,080           |  | 0.8 | %                |  | $               | 2,149 |  | 0.8 | %
|                   |  |                        |       |                 |    |   |                  |   |                 |  |     |                  |  |                 |       |  |     |  



Nonaccrual and Past
Due Loans



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



The only nonaccrual loans held for investment at September 30, 2004 are loans in the portfolio of the insurance premium
finance business, which was discontinued this quarter.



44



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##### Table of Contents

Allowance for Loan Losses



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



|                                                                                              |  |                                                 |         |   |                                      |      |         |               |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ------------------------------------ | ---- | ------- | ------------- |  | - | ------- | -
|                                                                                              |  | At or For theNine MonthsEndedSeptember 30, 2004 |         |   | At or For the Year EndedDecember 31, |     
|                                                                                              |  |                                                 | 2003    |   |                                      | 2002 |        
|                                                                                              |  |                                                 |         |   | (As Restated)                        |      |         | (As Restated) | 
|                                                                                              |  | (Dollars in thousands)                          |        
|Allowance for Loan Losses                                                                     |  |                                                 |         |   |                                      |      |         |               |  |   |         |  
|Balance at beginning of period                                                                |  | $                                               | 24,982  |   |                                      | $    | 27,586  |               |  | $ | 16,965  |  
|Provision for loan losses                                                                     |  |                                                 | 17,656  |   |                                      |      | 17,963  |               |  |   | 5,269   |  
|Charge-offs                                                                                   |  |                                                 | (18,624 | ) |                                      |      | (22,374 | )             |  |   | (17,927 | )
|Recoveries                                                                                    |  |                                                 | 1,174   |   |                                      |      | 1,807   |               |  |   | 866     |  
|                                                                                              |  |                                                 |         |   |                                      |      |         |               |  |   |         |  
|Net charge-offs                                                                               |  |                                                 | (17,450 | ) |                                      |      | (20,567 | )             |  |   | (17,061 | )
|Acquisition discounts allocated to loss allowance                                             |  |                                                 |        |   |                                      |      |        |               |  |   | 22,413  |  
|                                                                                              |  |                                                 |         |   |                                      |      |         |               |  |   |         |  
|Balance at end of period                                                                      |  | $                                               | 25,188  |   |                                      | $    | 24,982  |               |  | $ | 27,586  |  
|                                                                                              |  |                                                 |         |   |                                      |      |         |               |  |   |         |  
|Annualized net charge-offs to average gross loans (prior to deduction for discounts and ALLL) |  |                                                 | 5.13    | % |                                      |      | 5.82    | %             |  |   | 6.71    | %
|Ending allowance to period end loans                                                          |  |                                                 | 5.19    | % |                                      |      | 6.39    | %             |  |   | 9.46    | %



Cash Equivalents and Securities
Portfolio



Our cash equivalents and securities portfolios
are used primarily for liquidity and investment income purposes. Cash equivalents and securities satisfy regulatory requirements for liquidity.



The following is a summary of our short-term investments and securities portfolios as of the dates indicated.



|                                           |  |                        |            |   |              |      |            |   |  |   |            |  
|------------------------------------------ |  | ---------------------- | ---------- | - | ------------ | ---- | ---------- | - |  | - | ---------- | -
|                                           |  | September 30,2004      |            |   | December 31, |     
|                                           |  |                        | 2003       |   |              | 2002 |           
|                                           |  | (Dollars in thousands) |           
|Balance at end of period                   |  |                        |            |   |              |      |            |   |  |   |            |  
|Overnight deposits                         |  | $                      | 18,527     |   |              | $    | 5,833      |   |  | $ | 3,590      |  
|U.S. agency securities                     |  |                        | 63,894     |   |              |      | 105,277    |   |  |   | 288,193    |  
|U. S. mortgage backed securities           |  |                        | 890,036    |   |              |      | 1,097,167  |   |  |   | 315,075    |  
|                                           |  |                        |            |   |              |      |            |   |  |   |            |  
|Total                                      |  | $                      | 953,930    |   |              | $    | 1,208,277  |   |  | $ | 606,858    |  
|                                           |  |                        |            |   |              |      |            |   |  |   |            |  
|Weighted average yield at end of period    |  |                        |            |   |              |      |            |   |  |   |            |  
|Overnight deposits                         |  |                        | 1.72       | % |              |      | 0.55       | % |  |   | 0.69       | %
|U.S. agency securities                     |  |                        | 1.61       | % |              |      | 1.29       | % |  |   | 2.10       | %
|U.S. mortgage backed securities            |  |                        | 2.36       | % |              |      | 1.66       | % |  |   | 2.43       | %
|Weighted average maturity at end of period |  |                        |            |   |              |      |            |   |  |   |            |  
|Overnight deposits                         |  |                        | 1 day      |   |              |      | 1 day      |   |  |   | 1 day      |  
|U.S. agency securities                     |  |                        | 34 months  |   |              |      | 36 months  |   |  |   | 55 months  |  
|U.S. mortgage backed securities            |  |                        | 320 months |   |              |      | 313 months |   |  |   | 286 months |  



45



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|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 September 30, 2004, UPFC had 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.



Subsequent to the quarter ended September 30, 2004, as part of our ongoing
analysis and review of internal controls over financial reporting for Sarbanes-Oxley compliance, management discovered that, due to a 1998 programming error in the Companys computer-based accounting systems, the systems have failed to properly
reverse accrued interest on certain charged off accounts since 1998. Additionally, we have reflected all market adjustments in the values of our derivative instruments used to limit interest rate risk in ordinary expense and adjusted the
amortization of our capitalized asset against interest income to more closely reflect the level yield method of interest calculation. Consequently, this led to a decision to restate our consolidated financial statements for the years ended December
31, 2001, 2002 and 2003 and subsequent interim periods to correct the impact of unreversed accrued interest on these charged off accounts. For a further description of this restatement see Note 2. Restatements of Consolidated Financial
Statements in this 10-Q. We intend to file restated consolidated financial statements as soon as possible.



Prior to this development, during the quarter ended September 30, 2004, as part of our ongoing analysis of our internal controls over financial reporting
and in connection with the preparation and review of our consolidated financial statements for the quarter ended June 30, 2004, management discovered and corrected an error in the application the individual pool methodology utilized for determining
the adequacy of our allowance for loan losses and the related provision for loan losses. The identified errors in the computation of our allowance for loan losses and corresponding provision for loan losses led to a decision to restate our
consolidated financial statements for the years ended December 31, 2003 and 2002 and subsequent quarterly periods. As a result, we determined that an additional provision for loan losses in the amount of $4,869,000 was required for 2002, which, in
turn affected the provisions required for 2003 and 2004. Management also determined to correct the computation of earnings per share and made a reclassification of a gain on sale of residual interest as discontinued operations. A further description
about these restatements is included in Amendment No. 1 on Form 10-K/A, which we filed on September 3, 2004, under Note 2. Restatements of Consolidated Financial Statements to our Notes to Consolidated Financial Statements in the
Amendment No. 1 on Form 10-K/A.



We discussed these errors as
we identified them with our current independent auditors and our former independent auditors. As we have identified these errors, we have noted material weaknesses in our internal controls as defined under interim standards adopted by the PCAOB.
Under these standards, a material weakness is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements
will not be prevented or detected. A significant deficiency is a control deficiency or combination of control deficiencies, that adversely affect a companys ability to initiate, authorize, record, process, or



46



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##### Table of Contents

report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a
misstatement of a companys annual or interim financial statements that is more than inconsequential will not be prevented or detected.



Our former independent auditors, KPMG LLP, advised us that in connection with its audit for the two most recent fiscal years and through September 24,
2004, it had noted certain material weaknesses in the Companys internal financial reporting and accounting controls. The material weaknesses identified include the following:



| |  | Processes for determining the adequacy of the allowance for loan losses. Our individual static pool methodology utilized in estimating the appropriate amount of the allowance
for loan losses and the related provision for loan losses was not sufficient to identify, on a timely basis, the additional provisions required to compensate for allowance shortfalls on an individual pool basis. In addition, the documentation of the
systematic methodology for measuring loan losses and evaluating the appropriateness of the allowance for loan losses should be considered with the principles set forth in Securities and Exchange Commission (SEC) Staff Accounting Bulletin
No. 102.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Resources in Financial Reporting and Accounting Departments. Inadequate monitoring over financial accounting standards that have been implemented and inadequate controls to
appropriately interpret and implement financial accounting standards in accordance with generally accepted accounting principles
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | We have discussed the issues with our Audit Committee and outside auditors in order thoroughly understand the situation.
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | We established additional provision for loan losses for 2002.
| | - | -------------------------------------------------------------



| |  | We have adopted and will continue to evaluate and enhance steps to formalize the process for determining the allowance for loan losses on a consistent basis, including establishing
review and monitoring mechanisms for verifying the validity of the underlying data used in arriving at the allowance need, and evaluating, on an ongoing basis, the documentation of its methodology, consistent with applicable accounting principles,
including SEC Staff Accounting Bulletin No. 102.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We corrected the programming error and verified that our computer accounting systems will properly account for the interest accruals on charged-off loans going forward.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We are adopting processes to implement appropriate oversight of computational accounting systems, including establishing review and monitoring mechanisms for verifying the validity
of the underlying data generated by computational accounting systems.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have determined that the errors indicate the need for enhanced internal controls in the financial reporting function. To address this need we have evaluated and will continue to
evaluate on an ongoing basis and have taken actions to enhance the monitoring over financial accounting standards implemented by us, and to appropriately interpret and implement financial accounting standards in accordance with accounting principles
generally accepted in the United States.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have evaluated and will continue to evaluate on an ongoing basis the need for additional resources in the financial reporting and accounting functions in order to ensure that the
resources of those functions are sufficient to provide necessary internal control.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have implemented procedures for all changes in values of derivative instruments to be included in ordinary income or expense.
| | - | --------------------------------------------------------------------------------------------------------------------------------



| |  | We have implemented quarterly evaluation on the amortization of our capitalized asset to reflect the level yield method of interest calculation.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have employed additional support personnel, including a controller with appropriate financial reporting background, to allow existing resources in the our financial reporting and
accounting functions to perform the enhanced internal control activities described above and are currently in the process of further accounting staffing.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | We are consistently reviewing accounting literature and other technical materials with the Companys auditor to ensure that the appropriate personnel have a full awareness and
understanding of applicable accounting pronouncements and how they are implemented.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have engaged outside financial and auditing resources to supplement the finance and accounting departments to support the preparation of financial statements and reports that are
to be filed with the SEC and to implement appropriate control activities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that our disclosure controls and procedures have improved due to the scrutiny of such matters by our management and Audit Committee. Therefore, the Chief Executive Officer and Chief Financial Officer have
concluded that disclosure controls and procedures are now effective. 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.



As of November 15, 2004, we have re-evaluated the
effectiveness of the design of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). This evaluation was done under the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, 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. We have not yet evaluated (tested) the operating
effectiveness of such controls.



(b) Changes in Internal
Controls



During the quarter ended September 30, 2004,
there have been changes in our internal controls over financial reporting that has materially affected, and are reasonably likely to materially affect, these controls. During the quarter ended September 30, 2004, 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.



Subsequent to the
quarter ended September 30, 2004, we adopted processes to implement appropriate oversight of computational accounting systems after management discovered that, due to a programming error in our computer-based accounting systems, the systems have
failed to properly reverse accrued interest on certain charged off accounts. We implemented procedures for all changes in values of derivative instruments to be included in ordinary income or expense and for a quarterly evaluation on the
amortization of our capitalized asset to reflect the level yield method of interest calculation. We also began implementing changes described above. When fully implemented, we will test the operating effectiveness of such controls, as performed, in
the normal course of business.



48



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------



Not applicable



|Item 2. | Changes in Securities and Use of Proceeds.
|------- | ------------------------------------------



Not applicable



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------



Not applicable



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



None



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



Not applicable



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



(a) List of Exhibits



|            |  |                                                                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                              
|            | 
|2.2         |  | Plan of Voluntary Liquidation and Dissolution of Pan American Bank FSB dated July 28, 2004.                                                                                                                              
|            | 
|4.6         |  | Amended and Restated Registration Rights Agreement entered into on September 29, 2004 and effective as of July 1, 2004 by and between United PanAm Financial Corp., BVG West Corp., and Pan
American Financial, L.P.(1)  
|            | 
|4.7         |  | UPFC Auto Receivables Trust 2004-A Amended and Restated Trust Agreement dated August 31, 2004 between ACE Securities Corp. and Wells Fargo Delaware Trust Company.(2)                                                    
|            | 
|4.8         |  | Indenture dated August 31, 2004 between UPFC Auto Receivables Trust 2004-A and Deutsche Bank Trust Company Americas.(2)                                                                                                  
|            | 
|10.116      |  | Sale Agreement dated August 31, 2004 between United Auto Credit Corporation and UPFC Auto Receivables Corp.(2)                                                                                                           
|            | 
|10.117      |  | Purchase Agreement dated August 31, 2004 between UPFC Auto Receivables Corp. and ACE Securities Corp.(2)                                                                                                                 
|            | 
|10.118      |  | Insurance and Indemnity Agreement dated September 22, 2004 among United Auto Credit Corporation, UPFC Auto receivable Corp., Ambac Assurance Corporation, ACE Securities Corp. and UPFC Auto
Receivables Trust 2004-A.(2)
|            | 
|10.119      |  | Spread Account Agreement dated September 22, 2004 among UPFC Auto Receivables Trust 2004-A, Ambac Assurance Corporation and Deutsche Bank Trust Company Americas.(2)                                                     
|            | 
|10.120      |  | Sale and Servicing Agreement dated August 31, 2004 among UPFC Auto Receivables Trust 2004-A, ACE Securities Corp. and United Auto Credit Corporation.(2)                                                                 



49



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##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.121 |  | Receivables Financing Agreement dated September 23, 2004 among UPFC Funding Corp., United Auto Credit Corporation and United PanAm Financial Corp.                                                                                                                                            
|       | 
|10.122 |  | Sale and Servicing Agreement dated September 1, 2004 among UPFC Funding Corp., United Auto Credit Corporation, United PanAm Financial Corp., certain noncommitted and committed lenders, agents
for lenders groups, Centerone Financial Services LLC and Deutsche Bank Trust Company Americas.
|       | 
|10.123 |  | Branch Purchase and Assumption Agreement by and between Pan American Bank, FSB and Guaranty Bank dated as of July 1, 2004.                                                                                                                                                                    
|       | 
|10.124 |  | Agreement to Assume Liabilities and to Acquire Assets of Branch Banking Office by and among Kaiser Federal Bank, Pan American Bank, FSB and United PanAm Financial Corp dated July 2,
2004.                                                                                                   
|       | 
|10.125 |  | Brokered Deposit Purchase and Assumption Agreement dated as of July 15, 2004 among EverBank, Pan American Bank FSB and United PanAm Financial Corp.                                                                                                                                           
|       | 
|31.1   |  | Rule 13a-14(a) / 15d-14(a) Certification                                                                                                                                                                                                                                                      
|       | 
|31.2   |  | Rule 13a-14(a) / 15d-14(a) Certification                                                                                                                                                                                                                                                      
|       | 
|32.1   |  | Section 1350 Certification                                                                                                                                                                                                                                                                    
|       | 
|32.2   |  | Section 1350 Certification                                                                                                                                                                                                                                                                    

---

|(1) | Incorporated herein by reference from Exhibits to Form 8-K filed on October 5, 2004.
|--- | ------------------------------------------------------------------------------------



|(2) | Incorporated herein by reference from Exhibits to Form 8-K/A filed on October 28, 2004.
|--- | ---------------------------------------------------------------------------------------



(b) Reports on Form 8-K



|                |  |                                                                                                                                                                                                                                                                                     
|--------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Filing Date     |  | Description                                                                                                                                                                                                                                                                         
|July 9, 2004    |  | Announced appointment of Chief Executive Officer and announced that the Company intends to sell their branches.                                                                                                                                                                     
|                | 
|July 29, 2004   |  | Filed a press release announcing the quarterly earnings for the period ended June 30, 2004.                                                                                                                                                                                         
|                | 
|August 16, 2004 |  | Announced that the Company intends to restate its financial statements for the years ended December 31, 2002 and 2003 and subsequent interim periods.                                                                                                                               
|                | 
|August 20, 2004 |  | Announced that the Bank has signed a definitive agreement to sell certain certificates of deposit booked by the Bank through the internet.                                                                                                                                          
|                | 
|August 24, 2004 |  | Filed a press release about timing of filing of the Companys quarterly report for the quarter ended June 30, 2004.                                                                                                                                                                 
|                | 
|August 30, 2004 |  | Filed a press release stating that, as a result of the delayed filing of the Companys quarterly report for the quarter ended June 30, 2004, the Company received a Nasadaq Staff
Determination that the Company failed to comply with requirements for continued listing on Nasdaq.



50



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##### Table of Contents

|                   |  |                                                                                                                                                                                                                                
|------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|September 7, 2004  |  | Filed a press release stating that the Company had filed its quarterly report for the quarter ended June 30, 2004.                                                                                                             
|                   | 
|September 16, 2004 |  | Announced that the Company had regained compliance with the continued listing requirements with the Nasdaq National Market as a result of filing its quarterly report for the quarter ended
June 30, 2004.                     
|                   | 
|September 21, 2004 |  | Filed a press release announcing the pricing of a $420 million offering of automobile receivable backed securities.                                                                                                            
|                   | 
|September 28, 2004 |  | Filed a press release announcing the closing of a $420 million offering of automobile receivable backed securities.                                                                                                            
|                   | 
|September 30, 2004 |  | Announced the closing of a $200 million automobile finance warehouse facility and the entry into material definitive agreements.                                                                                               
|                   | 
|September 30, 2004 |  | Announced the completion of the sale of all three branches of the Bank. Announced the completion of the sale of certain brokered certificates of deposit.                                                                      
|                   | 
|September 30, 2004 |  | Announced that the Companys client-auditor relationship with KPMG LLP, its independent auditors, has ceased.                                                                                                                  
|                   | 
|October 5, 2004    |  | Filed a press release announcing that the Company had selected Stonefield Josephson, Inc. as its new independent auditors.                                                                                                     
|                   | 
|October 5, 2004    |  | Announced that the Company had entered into an Amended and Restated Registration rights Agreement on September 29, 2004 by and among the Company, BVG West Corp and Pan American Financial,
L.P.                               
|                   | 
|October 21, 2004   |  | Announced that the Company would not proceed with the client-auditor relationship with Stonefield Josephson, Inc. and announced that the Company had selected Grobstein, Horwath & Company
LLP as its new independent auditors.
|                   | 
|October 28, 2004   |  | Filed an Amended 8-K/A announcing entry into material definitive agreements in connection with $420 million offering of automobile receivable backed securities.                                                               
|                   | 
|November 5, 2004   |  | Filed a press release announcing initial internal control findings and its intention to restate its financial statements for the years ended December 31, 2001, 2002 and 2003 and subsequent
interim periods.                  
|                   | 
|November 12, 2004  |  | Announced that the Bank had signed a definitive agreement dated November 11, 2004 to sell certain certificates of deposit booked by the Bank through the internet to Geauga Savings
Bank.                                      



51



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##### Table of Contents

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: November 18, 2004 |  |  |  | /s/    Ray Thousand                         
|                        |  |  |  | Ray Thousand                                
|                        |  |  |  | Chief Executive Officer and President       
|                        |  |  |  | (Principal Executive Officer)               
|                        |  | 
|Date:November 18, 2004  |  |  |  | /s/    Garland W. Koch                      
|                        |  |  |  | Garland W. Koch                             
|                        |  |  |  | Executive Vice President                    
|                        |  |  |  | and Chief Financial Officer                 
|                        |  |  |  | (Principal Financial and Accounting Officer)



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