<PAGE>
 
                                 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 March 31, 1999

                                       Or

[_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
           For the transition period from __________ to ___________

                       Commission File Number 000-24051

                         UNITED PANAM FINANCIAL CORP.
            (Exact name of Registrant as specified in its charter)

               California                               95-3211687
       (State or other jurisdiction of               (I.R.S. Employer
        incorporation or organization)             Identification Number)

                           1300 SOUTH EL CAMINO REAL
                         SAN MATEO, CALIFORNIA   94402
              (Address of principal executive offices) (Zip Code)

                                (650) 345-1800
             (Registrant's telephone number, including area code)

                                NOT APPLICABLE
  (Former name, former address and former fiscal year, if changed since last
                                    report)


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

The number of shares outstanding of the Registrant's Common Stock as of May 10,
1999 was 16,979,250 shares.
<PAGE>
 
                         UNITED PANAM FINANCIAL CORP.
                                   FORM 10-Q
                                MARCH 31, 1999

                                     INDEX


<TABLE>
<CAPTION>
PART I.        FINANCIAL INFORMATION                                                              Page
                                                                                                  ----
<S>            <C>                                                                                <C> 
Item 1.        Financial Statements

               Consolidated Statements of Financial Condition as of
                 March 31, 1999 and December 31, 1998                                                1

               Consolidated Statements of Operations
                 for the three months ended March 31, 1999
                 and March 31, 1998                                                                  2

               Consolidated Statements of Cash Flows
                 for the three months ended March 31, 1999
                 and March 31, 1998                                                                  3

               Notes to Consolidated Financial Statements                                            5

Item 2.        Management's Discussion and Analysis of
                 Financial Condition and Results of Operations                                       9

Item 3.        Quantitative and Qualitative Disclosures About Market Risk                           30
 
PART II.       OTHER INFORMATION

Item 1.        Legal Proceedings                                                                    31

Item 2.        Changes in Securities and Use of Proceeds                                            31

Item 3.        Defaults Upon Senior Securities                                                      31

Item 4.        Submission of Matters to a Vote of Security Holders                                  31

Item 5.        Other Information                                                                    31

Item 6.        Exhibits and Reports on Form 8-K                                                     32
</TABLE>
<PAGE>
 
PART I.                       FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.
           -------------------- 

                 UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                  (UNAUDITED)
                                        
<TABLE>
<CAPTION>
 
                                                                           March 31,       December 31,
(Dollars in thousands, except per share data)                                1999              1998
                                                                          -----------      ------------ 
<S>                                                                       <C>              <C>  
ASSETS                                                                                       
Cash and due from banks                                                   $    46,100        $   5,211
Short term investments                                                         42,500           47,000
                                                                          -----------        ---------
   Cash and cash equivalents                                                   88,600           52,211
Residual interests in securitizations, at fair value                           12,191                -
Loans, net                                                                    165,574          133,718
Loans held for sale                                                           129,668          214,406
Premises and equipment, net                                                     4,861            4,803
Federal Home Loan Bank stock, at cost                                           2,148            2,120
Accrued interest receivable                                                     1,297            2,034
Real estate owned, net                                                          2,248            1,877
Goodwill and other intangible assets                                            2,198            2,349
Other assets                                                                   13,481           12,041
                                                                          -----------        ---------
     Total assets                                                         $   422,266        $ 425,559
                                                                          ===========        =========
 
LIABILITIES AND SHAREHOLDERS' EQUITY                                      

Deposits                                                                  $   312,986        $ 321,668
Notes payable                                                                  10,930           10,930
Accrued expenses and other liabilities                                         16,726           10,048
                                                                          -----------        ---------
     Total liabilities                                                        340,642          342,646
                                                                          -----------        ---------
                                                                        
Common stock (no par value):
    Authorized, 20,000,000 shares
    Issued and outstanding, 16,879,250 and 17,375,000 shares at
    March 31, 1999 and December 31, 1998, respectively                         66,288           68,378
Retained earnings                                                              15,336           14,535
                                                                          -----------        ---------
     Total shareholders' equity                                                81,624           82,913
                                                                          -----------        ---------
     Total liabilities and shareholders' equity                           $   422,266        $ 425,559
                                                                          ===========        =========
</TABLE>
                                                                               
See notes to consolidated financial statements                                1 

<PAGE>
 
                 UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                                    Three Months
(Dollars in thousands, except per share data)                                      Ended March 31,
                                                                      ----------------------------------------
                                                                             1999                   1998
                                                                      -----------------      -----------------
<S>                                                                  <C>                     <C>
INTEREST INCOME
   Loans                                                                      $  11,552               $  9,358
   Short term investments                                                           527                    186
                                                                      -----------------      -----------------
        Total interest income                                                    12,079                  9,544
                                                                      -----------------      ----------------- 
 INTEREST EXPENSE
   Deposits                                                                       4,032                  3,247
   Warehouse lines of credit                                                        350                    559
   Federal Home Loan Bank advances                                                    -                    301
   Notes payable                                                                    137                    188
                                                                      -----------------      -----------------    
     Total interest expense                                                       4,519                  4,295
                                                                      -----------------      -----------------
             Net interest income                                                  7,560                  5,249
   Provision for loan losses                                                      2,630                     38
                                                                      -----------------      -----------------       
            Net interest income after provision for loan losses                   4,930                  5,211
                                                                      -----------------      -----------------
Non-interest Income
  Gain on sale of loans, net                                                     10,182                  9,897
   Loan related charges and fees                                                     41                     27
   Service charges and fees                                                         196                    143
   Other income                                                                      43                     31 
                                                                      -----------------      -----------------  
         Total non-interest income                                               10,462                 10,098
                                                                      -----------------      -----------------
NON-INTEREST EXPENSE
   Compensation and benefits                                                      8,408                  8,600
   Occupancy                                                                      1,467                  1,112
   Other                                                                          4,152                  3,085
                                                                      -----------------      -----------------
     Total non-interest expense                                                  14,027                 12,797
                                                                      -----------------      -----------------  
     Income before income taxes                                                   1,365                  2,512

Income taxes                                                                        564                  1,059
                                                                      -----------------      -----------------
Net income                                                                    $     801               $  1,453
                                                                      =================      =================
Earnings per share-basic                                                      $    0.05               $   0.13
                                                                      =================      =================
Earnings per share-diluted                                                    $    0.04               $   0.12
                                                                      =================      =================
Weighted average shares outstanding-basic                                        17,210                 10,950
                                                                      =================      =================
Weighted average shares outstanding-diluted                                      17,850                 11,876
                                                                      =================      =================
</TABLE>

See notes to consolidated financial statements                              2
<PAGE>
 
                 UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
(Dollars in thousands)                                                                              Three Months
                                                                                                   Ended March 31,
                                                                                    ------------------------------------------
                                                                                            1999                    1998
                                                                                    ------------------     -------------------
<S>                                                                                 <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                                   $     801               $   1,453
 
Adjustments to reconcile net income
 to net cash provided by (used in) operating activities:
   Gain on sale of loans                                                                          (232)                 (9,897)
   Origination of mortgage loans held for sale                                                (213,910)               (263,502)
   Sales of mortgage loans held for sale                                                       259,652                 202,957
   Non cash gain on securitization of mortgage loans                                           (12,191)                     --
   Net proceeds from sale of residual interests in securitizations                                  --                   8,302
   Provision for loan losses                                                                     2,630                      38
   Accretion of discount on loans                                                                  (28)                   (338)
   Depreciation and amortization                                                                   687                     377
   FHLB stock dividend                                                                             (28)                    (27)
   Decrease (increase) in accrued interest receivable                                              737                    (366)
   Increase in other assets                                                                     (1,440)                 (3,804)
   Increase in accrued expenses and other liabilities                                            6,678                   5,162
   Other, net                                                                                      211                      --
                                                                                    ------------------     -------------------
     Net cash provided by (used in) operating activities                                        43,567                 (59,645)
                                                                                    ------------------     -------------------
 
CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities of investment securities                                                --                   1,002
   Repayments of mortgage loans                                                                 11,943                   7,410
   Originations, net of repayments, of non-mortgage loans                                       (8,013)                (18,428)
   Purchase of premises and equipment                                                             (594)                   (851)
   Purchase of treasury stock                                                                   (2,362)                     --
   Proceeds from sale of real estate owned                                                         470                     445
   Other, net                                                                                       60                    (330)
                                                                                    ------------------     ------------------- 
     Net cash provided by (used in) investing activities                                         1,504                 (10,752)
                                                                                    ------------------     ------------------- 
 
CASH FLOWS FROM FINANCING ACTIVITIES
   Net (decrease) increase in deposits                                                          (8,682)                 55,038
   Proceeds, net of repayments, from warehouse lines of credit                                      --                  47,651
   Proceeds, net of repayments, from FHLB advances                                                  --                 (23,000)
                                                                                    ------------------     ------------------- 
       Net cash (used in) provided by financing activities                                      (8,682)                 79,689
                                                                                    ------------------     -------------------
 
Net increase in cash and cash equivalents                                                       36,389                   9,292

Cash and cash equivalents at beginning of period                                                52,211                  19,026
                                                                                    ------------------     -------------------
Cash and cash equivalents at end of period                                                   $  88,600               $  28,318
                                                                                    ==================     ===================
</TABLE>

See notes to consolidated financial statements. 

                                                                               3
<PAGE>
 
                 United PanAm Financial Corp. and Subsidiaries
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
(Dollars in thousands)                                                                           Three Months Ended
                                                                                                      March 31,
                                                                                       -------------------------------------
                                                                                              1999                 1998
                                                                                       ----------------     ----------------
<S>                                                                                    <C>                  <C> 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for:
 
       Interest                                                                                  $4,376               $3,909
                                                                                       ----------------     ----------------

       Taxes                                                                                     $   --               $1,585
                                                                                       ----------------     ----------------
 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
       ACTIVITIES
 
       Acquisition of real estate owned through
            foreclosure of related mortgage loans                                                $  841               $  270
                                                                                       ----------------     ----------------
</TABLE>

See notes to consolidated financial statements. 

                                                                               4
<PAGE>
 
                 UNITED PANAM FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                                  (UNAUDITED)

1.  Organization
 
      United PanAm Financial Corp. (the "Company") was incorporated in
California on April 9, 1998 for the purpose of reincorporating its business in
that state, through the merger of United PanAm Financial Corp., a Delaware
corporation (the "Predecessor"), into the Company.  Unless the context indicates
otherwise, all references herein to the "Company" include the Predecessor.  The
Company was originally organized as a holding company for Pan American
Financial, Inc. ("PAFI") and Pan American Bank, FSB (the "Bank") to purchase
certain assets and assume certain liabilities of Pan American Federal Savings
Bank from the Resolution Trust Corporation (the "RTC") on April 29, 1994
pursuant to a whole purchase and assumption agreement.  The Company, PAFI and
the Bank are considered to be minority owned.  PAFI is a wholly-owned subsidiary
of the Company, and the Bank is a wholly-owned subsidiary of PAFI.  United PanAm
Mortgage Corporation, a California corporation, was organized in 1997 as a
wholly-owned subsidiary of the Company.

2.  BASIS OF PRESENTATION

      Certain statements in this Quarterly Report on Form 10-Q, including
statements regarding the Company's 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: limited operating history; loans made to credit-impaired
borrowers; need for additional sources of financing; concentration of business
in California; reliance on operational systems and controls and key employees;
competitive pressure in the banking and mortgage lending industry; changes in
the interest rate environment; rapid growth of the Company's businesses; pricing
of loans in the whole loan and securitization markets; risks in connection with
the securitization of mortgage loans; risks relating to Year 2000; general
economic conditions; and other risks identified from time to time in the
Company's filings with the Securities and Exchange Commission (the "SEC").  See
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Factors That May Affect Future Results."

      The accompanying unaudited consolidated financial statements include the
accounts of United PanAm Financial Corp., Pan American Financial, Inc., United
PanAm Mortgage Corporation and Pan American Bank, FSB.  Substantially all of the
Company's revenues are derived from the operations of the Bank and they
represent substantially all of the Company's consolidated assets and liabilities
as of March 31, 1999 and December 31, 1998.  Significant inter-company accounts
and transactions have been eliminated in consolidation.

      These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles 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 generally accepted accounting principles 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 

                                                                               5
<PAGE>
 
Report on Form 10-K for the year ended December 31, 1998.

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

3.  EARNINGS PER SHARE

      At December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("SFAS 128").
Under SFAS 128, basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period.  Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted from issuance of common
stock.

      Basic EPS and diluted EPS are calculated as follows for the three months
ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                                      Three Months
(Dollars in thousands, except per share amounts)                                                     Ended March 31,
                                                                                           ---------------------------------
                                                                                                 1999               1998
                                                                                           ---------------    -------------- 
<S>                                                                                        <C>                <C>
Earnings per share - basic
     Net income                                                                                    $   801           $ 1,453
                                                                                           ---------------    --------------       
     Average common shares outstanding                                                              17,210            10,950
                                                                                           ===============    ==============
     Earnings per share - basic                                                                    $  0.05           $  0.13
                                                                                           ===============    ==============
Earnings per share - diluted
     Net income                                                                                    $   801           $ 1,453
                                                                                           ===============    ==============
     Average common shares outstanding                                                              17,210            10,950
     Add: Stock options                                                                                640               926
                                                                                           ---------------    --------------
     Average common shares outstanding - diluted                                                    17,850            11,876
                                                                                           ===============    ============== 
     Earnings per share - diluted                                                                  $  0.04           $  0.12
                                                                                           ===============    ==============
</TABLE>

4.    ACCOUNTING PRONOUNCEMENTS

      In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements.  SFAS 130 does not, however, require a
specific format for presenting such information, but requires the Company to
display an amount representing total comprehensive income for the periods
presented in that financial statement.  For the three months ended March 31,
1999 and 1998, the Company had no items of comprehensive income to report other
than net income.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and  reporting standards  for  derivative instruments and for hedging
activities.  SFAS 133 requires that an entity recognize all  derivatives as
either assets  or liabilities  in  the statements of financial condition  and
measure those instruments at fair value. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
 
5.  INITIAL PUBLIC OFFERING

      On April 23, 1998, the Company's Registration Statement on Form S-1 for
the initial public offering of 5,500,000 shares of its common stock at a price
of $11.00 per share was declared effective by the SEC.  The Company received
approximately $56 million from the sale of its common stock after underwriting
discount and expenses associated with the offering.  On May 22, 1998, the
Underwriters' over-allotment 

                                                                               6
<PAGE>
 
option for 825,000 shares of common stock was exercised resulting in $8 million
of additional proceeds being received by the Company, after underwriting
discount.

6.  OPERATING SEGMENTS

      In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS 131"), which establishes standards
for the way that public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders.  Effective January 1, 1998, the Company adopted
SFAS 131 and is reporting on its operating segments discussed below.

      The Company has four reportable segments: (1) mortgage finance, (2) auto
finance, (3) insurance premium finance, and (4) banking.  The mortgage finance
segment originates and sells or securitizes subprime mortgage loans
collateralized primarily by first mortgages on single family residences.  The
auto finance segment acquires, holds for investment and services subprime retail
automobile installment sales contracts generated by franchised and independent
dealers of used automobiles.  The insurance premium finance segment, through a
joint venture, underwrites and finances automobile and commercial insurance
premiums in California.  The banking segment operates a five-branch federal
savings bank and is the principal funding source for the Company's mortgage,
auto and insurance premium finance segments.

      The accounting policies of the segments are the same as those of the
Company's except for (1) funds provided by the banking segment to the other
operating segments which are accounted for at a predetermined transfer price
(including certain overhead costs) and (2) an allocation between the mortgage
finance and banking segment representing a cost reimbursement for services
provided by the banking segment to the mortgage finance segment.

     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.

<TABLE>
<CAPTION>
                                                                  At or For Three Months Ended March 31, 1999        
                                       -------------------------------------------------------------------------------------------
                                                                                    Insurance                                     
                                            Mortgage              Auto               Premium                                      
                                            Finance              Finance             Finance           Banking           Total    
                                                                                                                                  
                                       ---------------      ---------------     ---------------   ---------------  ---------------
<S>                                      <C>                  <C>                 <C>               <C>              <C>          
Net interest income                           $  1,151              $ 3,050             $   638           $ 2,721         $  7,560
Provision for loan losses                        2,558                   --                  72                --            2,630
Non-interest income                             10,182                   41                 126               563           10,912
Non-interest expense                            10,152                2,166                 222             1,937           14,477
                                       ---------------      ---------------     ---------------   ---------------  ---------------
Segment profit (loss), pre-tax                $ (1,377)             $   925             $   470           $ 1,347         $  1,365
                                       ===============      ===============     ===============   ===============  ===============
Loans                                         $141,302              $71,573             $43,258           $39,109         $295,242
Allowance for loan losses                     $  5,335              $ 5,011             $   300           $   744         $ 11,390
                                                                                                                                  
                                                                At or For Three Months Ended March 31, 1998                       
                                       -------------------------------------------------------------------------------------------
                                                                                    Insurance                                     
                                           Mortgage               Auto               Premium                                      
                                            Finance              Finance             Finance           Banking           Total    
                                                                                                                                  
                                       ---------------      ---------------     ---------------   ---------------  ---------------
Net interest income                           $  1,080              $ 1,563             $   709           $ 1,897         $  5,249
Provision for loan losses                           --                   --                  38                --               38
Non-interest income                              9,897                   21                  79               551           10,548
Non-interest expense                            10,376                1,333                  96             1,442           13,247
                                       ---------------      ---------------     ---------------   ---------------  ---------------
Segment profit, pre-tax                       $    601              $   251             $   654           $ 1,006         $  2,512
                                       ===============      ===============     ===============   ===============  ===============
Loans                                         $191,376              $35,740             $50,157           $72,722         $349,995
Allowance for loan losses                     $  1,059              $ 2,310             $   423           $ 3,140         $  6,932
</TABLE>

                                                                               7
<PAGE>
 
      For the reportable segment information presented, there are no reconciling
items between the Company's consolidated results and segment net interest
income, segment assets and segment profit.  Substantially all expenses are
recorded directly to each industry segment.  Segment non-interest income and
non-interest expense differ from the consolidated results due to an inter-
segment cost reimbursement in 1999 and 1998 as follows:

<TABLE>
<CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                ---------------------------------------
                                                                                       1999                    1998
                                                                                ---------------         ---------------
<S>                                                                             <C>                     <C>
Non-interest income for reportable segments                                             $10,912                 $10,548
Inter-segment cost reimbursement                                                           (450)                   (450)
                                                                                ---------------         ---------------        
Consolidated non-interest income                                                        $10,462                 $10,098
                                                                                ===============         ===============
 
Non-interest expense for reportable segments                                            $14,477                 $13,247
Inter-segment cost reimbursement                                                           (450)                   (450)
                                                                                ---------------         ---------------
Consolidated non-interest expense                                                       $14,027                 $12,797
                                                                                ===============         ===============
</TABLE>

                                                                               8
<PAGE>
 
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 the Company's 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: limited operating history; loans made to credit-impaired
borrowers; need for additional sources of financing; concentration of business
in California; reliance on operational systems and controls and key employees;
competitive pressure in the banking and mortgage lending industry; changes in
the interest rate environment; rapid growth of the Company's businesses; pricing
of loans in the whole loan and securitization markets; risks in connection with
the securitization of mortgage loans; risks relating to Year 2000; general
economic conditions; and other risks identified from time to time in the
Company's filings with the Securities and Exchange Commission (the "SEC"). For
discussion of the factors that might cause such a difference, see "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That May Affect Future Results" and other risks identified
from time to time in the Company's filings with the SEC.

GENERAL

  THE COMPANY

      The Company is a diversified specialty finance company engaged primarily
in originating and acquiring for investment or sale residential mortgage loans,
personal automobile insurance premium finance contracts and retail automobile
installment sales contracts.  The Company markets to customers who generally
cannot obtain financing from traditional lenders.  These customers usually pay
higher loan origination fees and interest rates than those charged by
traditional lenders to gain access to consumer financing.  The Company believes
that management's experience in originating, assessing, pricing and managing
credit risk enables the Company to earn attractive risk-adjusted returns.  The
Company has funded its operations to date principally through retail deposits,
Federal Home Loan Bank ("FHLB") advances, mortgage warehouse lines of credit,
loan securitizations, and whole loan sales.

      The Company commenced operations in 1994 by purchasing from the RTC
certain assets and assuming certain liabilities of the Bank's predecessor, Pan
American Federal Savings Bank.  The Company has used the Bank as a base for
expansion into its current specialty finance businesses.  In 1995, the Company
commenced its insurance premium finance business through a joint venture with
BPN Corporation ("BPN").  In 1996, the Company commenced its current mortgage
and automobile finance businesses.  The Company was incorporated in California
on April 9, 1998 for the purpose of reincorporating its business in that state,
through the merger of the Predecessor into the Company.

      Finance companies, such as the Company, generate income from a combination
of (1) "spread" or "net interest" income (i.e., the difference between the yield
on loans, net of loan losses, and the cost of funding) and (2) "non-interest"
income (i.e., the fees received for various services and gain on the sale of
loans). Income is used to cover operating expenses incurred (i.e., compensation
and benefits, occupancy and other expenses) in generating that income. Each of
the Company's businesses, as described below, generates income from a
combination of spread and non-interest income.

  MORTGAGE FINANCE

      The Company originates and sells or securitizes subprime mortgage loans
collateralized primarily by first mortgages on single family residences.  The
Company's mortgage finance customers are considered "subprime" because of
factors such as impaired credit history or high debt-to-income ratios compared
to customers of traditional mortgage lenders.  The Company has funded its
mortgage finance business to date 

                                                                               9
<PAGE>
 
primarily through the Bank's deposits, FHLB advances, mortgage warehouse lines
of credit, the sale of its mortgage loan originations to mortgage companies and
investors through whole loan packages offered for bid several times per month
and, to a lesser extent, from loan securitizations. The Company completed its
first securitization of mortgage loans in December 1997 and in March 1998 sold
the residual interests in this securitization for cash at a price in excess of
its carrying value. The Company completed its second securitization of mortgage
loans in March 1999 in the amount of $225 million and recorded a net gain on
sale of $10.1 million.
 
     As part of the March 1999 securitization, the Company also recorded
residual interests in securitizations consisting of beneficial interests in the
form of an interest-only strip representing the subordinated right to receive
cash flows from the pool of securitized loans after payment of required amounts
to the holders of the securities and certain costs associated with the
securitization. The Company classifies its residual interests in securitizations
as trading securities and records them at fair market value with any unrealized
gains or losses recorded in the results of operations.

     Valuations of the residual interests in securitizations at each reporting
period are based on discounted cash flow analyses.  Cash flows are estimated as
the amount of the excess of the weighted-average coupon on the loans sold over
the sum of the interest pass-through on the senior certificates, a servicing
fee, an estimate of annual future credit losses and prepayment assumptions and
other expenses associated with the securitization, discounted at an interest
rate which the Company believes is commensurate with the risks involved.  The
Company uses prepayment and default assumptions that market participants would
use for similar instruments subject to prepayment, credit and interest rate
risks.

     To date, the Company's mortgage lending income is generated from gains on
securitizations of loans, cash gains on sales of loans and a spread component
resulting from loans held prior to sale. Income generated from this mortgage
finance business covers operating costs, including compensation, occupancy, loan
origination, and administrative expenses.

  INSURANCE PREMIUM FINANCE

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

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

     In January 1998, the Company and BPN purchased from Providian National Bank
and others the right to solicit new and renewal personal and commercial
insurance premium finance business from brokers who previously have provided
contracts to Commonwealth Premium Finance. The purchase price for the agreement
was provided 60% by the Company and 40% by BPN. The relationship between the
Company and BPN continues to be governed by the joint venture agreement already
in effect. The Company also acquired the Commonwealth name and certain equipment
and software. The agreement also provides that Providian National Bank and the
servicers of its insurance premium finance business may not solicit or engage in
the insurance premium finance business in California for a period of three
years.

                                                                              10
<PAGE>
 
     During November 1998, the Company and BPN, purchased from Norwest Financial
Coast, Inc. ("Coast") for $3.0 million the right to solicit new and renewal
personal and commercial insurance premium finance business from brokers who
previously provided contracts to Coast. The purchase price for the agreement was
provided 60% by the Company and 40% by BPN. The Company also acquired the
"Coast" name, and certain furniture, equipment and software.

     As a result of the Commonwealth and Coast acquisitions, IPF increased its
commercial insurance premium financing to approximately 14.7% of loans
outstanding at March 31, 1999.

  AUTOMOBILE FINANCE

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

  THE BANK

     The Company has funded its operations to date primarily through the Bank's
deposits, FHLB advances, mortgage warehouse lines of credit and loan sales and
securitizations. As of March 31, 1999, the Bank was a five-branch federal
savings bank with $313.0 million in deposits. The loans generated by the
Company's mortgage, insurance premium and automobile finance businesses
currently are funded and held by the Bank. In addition, the Bank holds a
portfolio of primarily traditional residential mortgage loans acquired from the
RTC in 1994 and 1995 at a discount from the unpaid principal balance of such
loans, which loans aggregated $30.0 million in principal amount (before unearned
discounts and premiums) at March 31, 1999.

     The Bank generates spread income not only from loans originated or
purchased by each of the Company's principal businesses, but also from (1) loans
purchased from the RTC, (2) its short term investments portfolio, and (3)
consumer loans originated by its retail deposit branches. This income is
supplemented by non-interest income from its branch banking activities (e.g.,
deposit service charges, safe deposit box fees), and is used to cover operating
costs and other expenses.

  YEAR 2000 COMPLIANCE

     State of Readiness.

     The Company is working to resolve the potential impact of the Year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the Year 1900 rather than the Year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operations.

     The Company established a Year 2000 project management team in 1997 to
ensure that its operating systems will be fully capable of processing its
transactions. The Company also adopted a Year 2000 operating plan in accordance
with the guidelines prescribed by the Office of Thrift Supervision and the
Federal Financial Institutions Examination Council. The assessment and awareness
phases of the plan have been completed and the Company is now in the testing
phase.

                                                                              11
<PAGE>
 
     The Company relies upon third-party software vendors and service providers
for a substantial amount of its electronic data processing. Thus, one of the
Company's Year 2000 focuses is to monitor the progress of its primary software
vendors and service providers towards compliance with Year 2000 issues and
prepare to test actual data of the Company on simulated processing of future
sensitive dates. It is expected that all critical systems provided by third-
party service providers will be tested and validated by June 1999.

     The Company has initiated formal communications with its customers and
vendors to determine the extent to which the Company may be affected by the
failure of these parties to correct their own Year 2000 issues. The Company's
borrowers and customers are generally consumers which mitigates much of the Year
2000 risk. As of this time, the Company has not identified any significant
issues with its major customers or vendors.

     Costs to Address the Year 2000 Issue.

     The Company has budgeted expenditures of approximately $600,000 in 1998 and
1999 to ensure that its systems are ready for processing information in the Year
2000. The majority of these expenditures relate to the cost of fully dedicated
Year 2000 project management team resources, some of whom are third party
contractors. The Company estimates that it has incurred approximately $375,000
of its Year 2000 budget expenditures through March 31, 1999 and will incur an
additional $200,000 by the end of 1999. In addition, the Company has incurred,
and will continue to incur, certain costs relating to the temporary reallocation
of its internal resources to address Year 2000 issues. The Company does not
track the cost and time that its own internal employee spend on addressing Year
2000 issues.

     Risks Presented by the Year 2000 Issue.

     Should the Company and/or its third-party software vendors and service
providers upon whom the Company relies fail to timely identify, address and
correct material Year 2000 issues, such failure could have a material adverse
impact on the Company's ability to operate. The range of adverse impacts may
include the requirement to pay significant overtime to manually process certain
transactions and added costs to process certain financing activity through a
centralized administrative function. In addition, if corrections made by such
third-party software vendors and service providers to address Year 2000 issues
are incompatible with the Company's systems, the Year 2000 issue could have a
material adverse impact on the Company's operations.

     Despite the Company's activities in regards to the Year 2000 issue, there
can be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software will not have a material adverse
effect on the Company's business, financial condition, results of operations and
business prospects.

     Contingency Plans.

     The Year 2000 project management team currently is developing contingency
plans in the event of an unanticipated business interruption as a result of a
Year 2000 systems failure. These plans will address how the Company operates its
critical activities in a business interruption resulting from any Year 2000
issues. An initial draft of the plan was completed in 1998 with final plans to
be adopted by June 1999. There can be no assurance, however, that such
contingency plans will be successful.

                                                                              12
<PAGE>
 
  AVERAGE BALANCE SHEETS

     The following table sets forth information relating to the Company for the
three months ended March 31, 1999 and 1998. The yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. The yields and costs include fees which are
considered adjustments to yields.

<TABLE>
<CAPTION>
                                                                        Three Months Ended March 31,                          
                                             -----------------------------------------------------------------------------    
                                                                1999                                   1998                   
                                             ----------------------------------------  -----------------------------------    
                                                                             Average                               Average    
(Dollars in thousands)                           Average                      Yield/      Average                   Yield/    
                                               Balance(1)         Interest     Cost     Balance(1)     Interest      Cost     
                                              -------------     -----------  --------  ------------   ----------   -------    
<S>                                           <C>               <C>          <C>       <C>            <C>          <C>        
Assets                                                                                                                        
Interest earning assets                                                                                                       
   Investment securities                         $ 41,811        $   527       5.04%    $ 15,253         $  186     4.89%     
   Mortgage loans, net(2)                         269,072          6,130       9.11%     257,070          5,857     9.11%     
   IPF loans, net(3)                               42,962          1,416      13.19%      45,300          1,462    12.91%     
   Automobile installment                                                                                                     
    contracts, net(4)                              68,245          4,006      23.48%      33,537          2,039    24.32%     
                                                 --------        -------                --------         ------               
      Total interest earning assets               422,090         12,079      11.45%     351,160          9,544    10.87%     
                                                                 -------                                 ------               
Non-interest earnings assets                       39,922                                 11,454                              
                                                 --------                               --------                              
       Total assets                              $462,012                               $362,614                              
                                                 ========                               ========                              
Liabilities and Equity                                                                                                        
Interest bearing liabilities                                                                                                  
   Customer deposits                             $328,958        $ 4,032       4.97%    $262,907         $3,247     5.01%     
   Notes payable                                   10,930            137       5.03%      12,930            188     5.90%     
   FHLB advances                                       --             --         --       20,907            301     5.84%     
   Warehouse lines of credit                       24,174            350       5.87%      33,535            559     6.76%     
                                                 --------        -------                --------         ------               
       Total interest bearing liabilities         364,062          4,519       5.03%     330,279          4,295     5.27%     
                                                                 -------                                 ------               
Non-interest bearing liabilities                   16,294                                 19,319                              
                                                 --------                               --------                              
       Total liabilities                          380,356                                349,598                              
Equity                                             81,656                                 13,016                              
                                                 --------                               --------                              
      Total liabilities and equity               $462,012                               $362,614                              
                                                 ========                               ========                              
Net interest income before  provision                                                                                         
       for loan losses                                           $ 7,560                                 $5,249               
                                                                 =======                                 ======               
Net interest rate spread(5)                                                    6.42%                                5.60%     
Net interest margin(6)                                                         7.26%                                6.06%     
Ratio of interest earning assets to                                                                                           
       interest bearing liabilities                                             116%                                 106%      
</TABLE>
                                                                                

_______________________
(1)  Average balances are measured on a month-end basis.
(2)  Net of deferred loan origination fees, unamortized discounts, premiums and
     allowance for estimated loan losses; includes loans held for sale and non-
     performing loans.
(3)  Net of allowance for estimated losses; includes non-performing loans.
(4)  Net of unearned finance charges and allowance for estimated losses;
     includes non-performing loans.
(5)  Net interest rate spread represents the difference between the yield on
     interest earning assets and the cost of interest bearing liabilities.
(6)  Net interest margin represents net interest income divided by average
     interest earning assets.


COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
MARCH 31, 1998

     GENERAL

      Net income decreased from $1.5 million for the three months ended March 
31, 1998 to $801,000 for the three months ended March 31, 1999. The Company's
automobile finance division reported operating income of $925,000 for the three
months ended March 31, 1999, compared with $251,000 for the first quarter of
1998, representing an increase of 269%. Growth in automobile finance receivables
from the Company's existing retail branches as well as new branches opened in
1998 and 1999 contributed significantly to the growth in automobile finance
operating income. Also showing improved results was the

                                                                              13
<PAGE>
 
Company's banking operations which reported operating income of $1.3 million for
the first quarter of 1999, compared with $1.0 million for the same quarter in
the prior year. The banking operations benefited from a decline in the average
rate paid on deposits and other borrowings, spread income from the Company's
other businesses, as well as using a portion of the cash proceeds from the
Company's initial public offering to provide additional financing for its
business units.

     Operating income for the Company's insurance premium finance business
declined to $470,000 in the first quarter of 1999, compared with $654,000 for
the same period in 1998. Additional competition in this business from insurance
companies' direct bill and sale programs as well as lower average balances per
loan were the primary reasons for the decline in operating income. Lower average
balances per loan generally resulted from lower insurance premiums available to
the public.

     The Company's mortgage finance business reported an operating loss of $1.4
million for the first quarter of 1999, compared with an operating profit of
$601,000 in the first quarter of 1998. The mortgage finance business continues
to be negatively impacted by lower loan origination volumes, lower loan sale
pricing and high levels of non-accrual loans. While the net gains on the sale of
loans were 3.89% during the first quarter of 1999, an improvement over the
fourth quarter of 1998 level of 2.96%, they were less than the 5.10% reported in
the first quarter of 1998. In addition, the provision for loan losses in the
mortgage finance business was $2.6 million for the first quarter of 1999. The
increase in provision for loan losses was a direct result of the increase in 
non-accrual loans from $9.1 million at March 31, 1998 to $18.5 million at March
31, 1999.

     Mortgage loan originations decreased from $263.8 million for the three
months ended March 31, 1998 to $207.7 million for the three months ended March
31, 1999 and insurance premium finance originations decreased from $43.9 million
for the three months ended March 31, 1998 to $33.6 million for the three months
ended March 31, 1999, while auto contracts purchased increased from $17.8
million for the three months ended March 31, 1998 to $28.1 million for the three
months ended March 31, 1999. Sales of mortgage loans were $261.9 million for the
three months ended March 31, 1999 and $193.8 million for the comparable period
in 1998.

   INTEREST INCOME

     Interest income increased from $9.5 million for the three months ended
March 31, 1998 to $12.1 million for the three months ended March 31, 1999 due
primarily to a $70.9 million increase in average interest earning assets and a
0.58% increase in the weighted average interest rate on interest earning assets.
The largest components of growth in average interest earning assets were
automobile installment contracts, which increased $34.7 million, investment
securities, which increased $26.6 million and mortgage loans, which increased
$12.0 million. The increase in auto contracts principally resulted from the
purchasing of additional dealer contracts in existing and new markets consistent
with the planned growth of this business unit. The increase in investment
securities was a result of an increase in the Company's liquidity, reflecting
the proceeds received from the initial public offering. The increase in mortgage
loan receivables was a result of an increase in the average balance of loans
held for sale during the three months ended March 31, 1999, compared to the
three months ended March 31, 1998. As a result of the loan securitization
completed in March 1999, loans were accumulated in the warehouse for a longer
period of time as compared to the first quarter of 1998.

     The improvement in the average yield on interest earning assets was
principally due to an increased concentration of higher yielding loans in the
three months ended March 31, 1999 compared to the three months ended March 31,
1998.  Average automobile installment contracts, with an average yield of 23.5%,
comprised 16.2% of average interest earning assets at March 31, 1999 compared to
9.6% of average interest earning assets at March 31, 1998.

                                                                              14
<PAGE>
 
  INTEREST EXPENSE

     Interest expense increased from $4.3 million for the three months ended
March 31, 1998 to $4.5 million for the three months ended March 31, 1999 due to
a $33.8 million increase in average interest bearing liabilities partially
offset by a 0.24% decrease in the weighted average interest rate on interest
bearing liabilities. The largest component of growth in average interest bearing
liabilities was deposits of the Bank, which increased from an average balance of
$262.9 million during the quarter ended March 31, 1998 to $329.0 million during
the quarter ended March 31, 1999. The increase in deposits resulted from the use
of retail and wholesale certificates of deposit ("CDs") to finance the Company's
lending growth. The average cost of deposits decreased from 5.01% for the three
months ended March 31, 1998 to 4.97% for the comparable period in 1999 generally
as a result of declining interest rates and a decrease in the Bank's higher-cost
wholesale deposits and an increase in the Bank's lower-cost retail deposits.

     The decrease in the average cost of interest bearing liabilities was
primarily due to the increase in deposits as a percentage of total interest
bearing liabilities for the three months ended March 31, 1999 compared to the
three months ended March 31, 1998. At March 31, 1999, deposits accounted for
90.4% of interest bearing liabilities compared to 79.6% at March 31, 1998.
Deposits constitute a lower-cost funding source relative to the Company's other
financing sources.

  PROVISION FOR LOAN LOSSES

     Provision for loan losses was $2.6 million for the three months ended March
31, 1999. The provision for loan losses reflects the Company's loan growth over
the past 12 months as well as an increase in specific loss allowances related to
non-performing mortgage loans originated primarily during the first three
quarters of 1998. Non-performing mortgage loans were $17.5 million at March 31,
1999 compared to $8.0 million at March 31, 1998. Of the non-performing mortgage
loans at March 31, 1999, 97% were originated prior to the changes implemented in
the Company's underwriting criteria and practices in October 1998. No assurance
can be given that these changes will impact loan quality or provision for loan
losses. The total allowance for loan losses was $11.4 million at March 31, 1999
compared with $6.9 million at March 31, 1998, representing 6.89% of loans held
for investment at March 31, 1999 and 4.20% at March 31, 1998. Net charge-offs to
average loans were 2.34% for the twelve months ended March 31, 1999 compared
with 0.55% for the twelve months ended March 31, 1998.

     In addition to its provision for losses, the Company's allowance for loan
losses is also increased by its allocation of acquisition discounts related to
the purchase of automobile installment contracts.  The Company allocates the
estimated amount of its acquisition discounts attributable to credit risk to the
allowance for loan losses.
 
     A provision for loan losses is charged to operations based on the Company's
regular evaluation of its loans held for investment and the adequacy of its
allowance for loan losses.  The Company reports its loans held for sale at the
lower of cost or market value, accordingly, loan loss provisions are not
established for this portfolio.  While management believes it has adequately
provided for losses and does not expect any material loss on its loans in excess
of allowances already recorded, no assurance can be given that economic or real
estate market conditions or other circumstances will not result in increased
losses in the loan portfolio.

  NON-INTEREST INCOME

     Non-interest income increased $400,000, from $10.1 million for the three
months ended March 31, 1998 to $10.5 million for the three months ended March
31, 1999. During the three months ended March 31, 1999, the Company securitized
$225 million and sold $36.9 million in mortgage loans on a whole loan primarily
non-recourse basis compared with whole loan sales of $193.8 million during the
comparable

                                                                              15
<PAGE>
 
period in 1998. Net gains on sales of loans, as a percentage of loans
securitized and sold, were 3.89% for the three months ended March 31, 1999
compared with 5.10% for the three months ended March 31, 1998.

     The decline reflects lower loan sale prices for subprime mortgages in
response to disruptions in the global capital markets during the later part of
1998. While loan sale prices for the Company's subprime mortgage loans improved
during the first quarter of 1999, compared with the fourth quarter of 1998,
management does not expect subprime loan sale prices in the near term to return
to the levels prior to the capital market disruptions in the fourth quarter of
1998.

     As part of its March 1999 securitization, the Company recorded a net gain
on sale of $10.1 million and recorded residual interests in securitizations of
$12.2 million consisting of beneficial interests in the form of an interest-only
strip representing the subordinated right to receive cash flows from the pool of
securitized loans after payment of required amounts to the holders of the
securities and certain costs associated with the securitization.

     The Company classifies its residual interests in securitizations as trading
securities and records them at fair market value with any unrealized gains or
losses recorded in the results of operations.

     Valuations of the residual interests in securitizations at each reporting
period are based on discounted cash flow analyses. Cash flows are estimated as
the amount of the excess of the weighted-average coupon on the loans sold over
the sum of the pass-through on the senior certificates, a servicing fee, an
estimate of annual future credit losses and prepayment assumptions and other
expenses associated with the securitization, discounted at an interest rate
which the Company believes is commensurate with the risks involved. The Company
uses prepayment and default assumptions that market participants would use for
similar instruments subject to prepayment, credit and interest rate risks. The
assumptions used by the Company for valuing the residual interests in
securitizations arising from its March securitization included prepayment
assumptions of 5% for the first year increasing to 30%-42% thereafter, an annual
credit loss assumption of 0.95% and a discount rate of 15%. The Company used the
"cash-out" method for valuing the residual interests in securitizations.

     In connection with its securitization transaction, an overcollateralization
amount is required to be maintained which serves as credit enhancement to the
senior certificate holders.  The overcollateralization is required to be
maintained at a specific target level of the principal balance of the
certificates and can be increased as specified in the related securitization
documents.  Cash flows received in excess of the obligations to the senior
certificate holders and certain costs of the securitization are deposited into a
trust account until the overcollateralization target is reached.  Once this
target is reached, distribution of excess cash from the trust account are
remitted to the Company.
 
     Other components of non-interest income include fees and charges for Bank
services and miscellaneous other income.  The total of all of these items
increased $79,000, from $201,000 for the three months ended March 31, 1998 to
$280,000 for the three months ended March 31, 1999.

  NON-INTEREST EXPENSE

     Non-interest expense increased $1.2 million, from $12.8 million for the
three months ended March 31, 1998 to $14.0 million for the three months ended
March 31, 1999. Compared to the first quarter of 1998, non-interest expense for
automobile finance increased $833,000, banking increased $495,000 and insurance
premium finance increased $126,000, while non-interest expense for the mortgage
finance division decreased $224,000.

     The increase in the automobile finance division was driven primarily by
higher salaries, employee benefit costs and occupancy expenses associated with
the planned growth of this business segment. The increase in the insurance
premium finance division was due to amortization expense related to the Coast

                                                                              16
<PAGE>
 
acquisition premium in December 1998. The increase in the banking segment was a
result of higher legal and investor relations costs associated with being a
publicly owned company, higher deposit insurance and operating expenses related
to the increase in retail deposits and increased overhead costs related to
supporting the Company's other business segments. The decrease in the mortgage
finance division was primarily attributed to lower salaries and commissions as a
result of lower loan origination volume in the first quarter of 1999 compared
with the same quarter in 1998.
 
     During the last 12 months, the Company expanded its automobile finance
operations, resulting in an increase from 76 employees in 11 offices, as of
March 31, 1998, to 109 employees in 15 offices, as of March 31, 1999.  During
the same time, the Company consolidated its mortgage finance operations,
resulting in a decrease from 508 employees in 28 offices, as of March 31, 1998,
to 362 employees in 19 offices, as of March 31, 1999.

  INCOME TAXES

     Income taxes decreased $495,000, from $1.1 million for the three months
ended March 31, 1998 to $564,000 million for the three months ended March 31,
1999. This decrease occurred as a result of a $1.1 million decrease in income
before income taxes between the two periods and a decrease in the effective tax
rate from 42.2% for the three months ended March 31, 1998 to 41.3% for the three
months ended March 31, 1999.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31, 1998

     Total assets decreased $3.3 million, from $425.6 million at December 31,
1998 to $422.3 million at March 31, 1999. This decrease occurred primarily as a
result of a $52.9 million decrease in loans, from $348.1 million at December 31,
1998 to $295.2 million as of March 31, 1999. The decrease in loans was comprised
of a $56.9 million decrease in subprime mortgage loans, a $1.2 million decrease
in insurance premium finance loans and a $2.3 million decrease in loans
purchased from the RTC as a result of scheduled principal amortization and
prepayments, offset by a $10.0 million increase (net of unearned finance
charges) in auto contracts.

     Cash and cash equivalents increased $36.4 million, from $52.2 million at
December 31, 1998 to $88.6 million at March 31, 1999, primarily as a result of
an increase in the Company's liquidity due to proceeds from the mortgage loan
securitization.

     Residual interests in securitizations were $12.2 million at March 31, 1999,
which were entirely attributable to the Company's $225 million securitization in
March 1999.  There were no residual interests in securitizations at December 31,
1998.

     Deposits decreased $8.7 million, from $321.7 million at December 31, 1998
to $313.0 million at March 31, 1999, due primarily to the maturity of $10.3
million in brokered CDs during the quarter ended March 31, 1999. Included in
deposits at December 31, 1998 were $10.3 million in brokered CDs. Retail
deposits increased $9.7 million from $248.3 million at December 31, 1998 to
$258.0 million at March 31, 1999, reflecting the continued financing of the
Company's mortgage, automobile and insurance premium finance business segments
through the Bank's five-branch network. Wholesale deposits decreased $18.4
million from $73.4 million at December 31, 1998 to $55.0 million at March 31,
1999 as a result of run-off of higher-rate certificates of deposit.

     Other interest bearing liabilities include the RTC notes payable, which
remained unchanged at $10.9 million between the period ends.  At December 31,
1998 and March 31, 1999, there were no FHLB advances or warehouse line of credit
advances outstanding.

                                                                              17
<PAGE>
 
     Shareholders' equity decreased from $82.9 million at December 31, 1998 to
$81.6 million at March 31, 1999, primarily as a result of the Company's buyback
of 700,000 shares of its common stock for $2.4 million, offset by net income of
$801,000 during the three months ended March 31, 1999.

MANAGEMENT OF INTEREST RATE RISK

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

     The Company's profits depend, in part, on the difference, or "spread,"
between the effective rate of interest received on the loans it originates and
the interest rates paid on deposits and other financing facilities which can be
adversely affected by movements in interest rates. In addition, between the time
the Company originates loans and investors' sales commitments are received, the
Company may be exposed to interest rate risk to the extent that interest rates
move upward or downward during the time the loans are held for sale. The Company
mitigates these risks somewhat by purchasing or originating adjustable rate
mortgages that reprice frequently in an increasing or declining interest rate
environment. Also, the Company sells substantially all of its loans held for
sale on a regular basis, thereby reducing significantly the amount of time these
loans are held by the Company.

     The Bank's interest rate sensitivity is monitored by the Board of Directors
and management through the use of a model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios.  NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet instruments, and "NPV Ratio" is defined as the NPV in that
scenario divided by the market value of assets in the same scenario.  The
Company reviews a market value model (the "OTS NPV model") prepared quarterly by
the Office of Thrift Supervision (the "OTS"), based on the Bank's quarterly
Thrift Financial Reports filed with the OTS.  The OTS NPV model measures the
Bank's interest rate risk by approximating the Bank's NPV under various
scenarios which range from a 400 basis point increase to a 400 basis point
decrease in market interest rates.   The OTS has incorporated an interest rate
risk component into its regulatory capital rule for thrifts.  Under the rule, an
institution whose sensitivity measure, as defined by the OTS, in the event of a
200 basis point increase or decrease in interest rates exceeds 20% would be
required to deduct an interest rate risk component in calculating its total
capital for purposes of the risk-based capital requirement.

     At December 31, 1998, the most recent date for which the relevant OTS NPV
model is available, the Bank's sensitivity measure resulting from (1) a 200
basis point decrease in interest rates was 130 basis points and would result in
a $7.1 million increase in the NPV of the Bank and (2) a 200 basis point
increase in interest rates was 68 basis points and would result in a $3.7
million decrease in the NPV of the Bank.  At December 31, 1998, the Bank's
sensitivity measure was below the threshold at which the Bank could be required
to hold additional risk-based capital under OTS regulations.

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

     The following table shows the NPV and projected change in the NPV of the
Bank at December 31, 1998 assuming an instantaneous and sustained change in
market interest rates of 100, 200, 300 and 400

                                                                              18
<PAGE>
 
basis points ("bp"). This table is based on data prepared by the OTS. The
Company makes no representation as to the accuracy of this data.

               Interest Rate Sensitivity of Net Portfolio Value

<TABLE>
<CAPTION>
                                                                                                    NPV as % of Portfolio
                                                  Net Portfolio Value                                  Value of Assets
                               ------------------------------------------------------     ---------------------------------------
        Change in Rates            $ Amount           $ Change             % Change            NPV Ratio             % Change
        ---------------        ---------------    ----------------     --------------     ------------------    -----------------
                                                                    (Dollars in thousands)
<S>                            <C>                <C>                  <C>                <C>                   <C>
+400 bp                            $42,872           $(11,393)               -21%                9.96%               -220 bp      
+300 bp                             47,398             (6,867)               -13%               10.87%               -129 bp      
+200 bp                             50,532             (3,733)                -7%               11.48%                -68 bp      
+100 bp                             52,427             (1,837)                -3%               11.83%                -33 bp      
0 bp                                54,265                 --                 --                12.16%                    --      
-100 bp                             57,404              3,139                 +6%               12.74%                +58 bp      
-200 bp                             61,339              7,074                +13%               13.46%               +130 bp      
-300 bp                             66,166             11,901                +22%               14.33%               +217 bp      
-400 bp                             70,800             16,535                +30%               15.14%               +298 bp       
</TABLE>
                                                                               
LIQUIDITY AND CAPITAL RESOURCES

  GENERAL

     The Company's primary sources of funds have been deposits at the Bank, FHLB
advances, financing under secured warehouse lines of credit, principal and
interest payments on loans, cash proceeds from the sale or securitization of
loans and, to a lesser extent, interest payments on short-term investments and
proceeds from the maturation of securities.  While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition.  However, the Company has continued to maintain the
required minimum levels of liquid assets as defined by OTS regulations.  This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings.  The required  ratio is currently 4%,  and the
Company  has always met or exceeded this requirement.  Management, through its
Asset and Liability Committee, which meets monthly or more frequently if
necessary, monitors rates and terms of competing sources of funds to use the
most cost-effective source of funds wherever possible.

     On April 23, 1998, the Company's Registration Statement on Form S-1 for the
initial public offering of 5,500,000 shares of its Common Stock at a price of
$11.00 per share was declared effective by the SEC.  The Company received
approximately $56 million from the sale of its common stock after underwriting
discount and expenses associated with the offering.  On May 22, 1998, the
Underwriters' over-allotment option for 825,000 shares of Common Stock was
exercised resulting in $8 million of additional proceeds being received by the
Company, after underwriting discount.  The net proceeds from the initial public
offering were used for general corporate purposes, including financing the
growth of the Company's mortgage and automobile operations, and to repay $2.0
million in indebtedness to certain shareholders.

     Sales and securitizations of loans have been one of the primary sources of
funds for the Company.  Cash flows from sales and securitizations of loans were
$259.7 million during the three months ended March 31, 1999 and $203.0 million
during the three months ended March 31, 1998.

     Another source of funds consists of deposits obtained through the Bank's
five retail branches in California. The Bank offers checking accounts, various
money market accounts, regular passbook accounts, fixed interest rate
certificates with varying maturities and retirement accounts. Deposit account
terms vary by interest rate, minimum balance requirements and the duration of
the account. Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank periodically based on

                                                                              19
<PAGE>
 
liquidity and financing requirements, rates paid by competitors, growth goals
and federal regulations. At March 31, 1999, such retail deposits were $258.0
million or 82.4% of total deposits.

     The Bank uses wholesale and broker-originated deposits to supplement its
retail deposits and, at March 31, 1999, wholesale deposits were $55.0 million or
17.6% of total deposits.  The Bank had no broker-originated deposits at March
31, 1999.  The Bank solicits wholesale deposits by posting its interest rates on
a national on-line service which advertises the Bank's wholesale products to
investors.  Generally, most of the wholesale deposit account holders are
institutional investors, commercial businesses or public sector entities.

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

<TABLE>
<CAPTION>
                                         March 31,                                    December 31,
                                                             --------------------------------------------------------------
                                            1999                                 1998                      1997
                               ---------------------------   --------------------------------------------------------------
                                                Weighted                    Weighted                           Weighted
                                                Average                     Average                            Average
                                 Balance          Rate         Balance       Rate             Balance           Rate
                               ------------  -------------   -----------  -------------    --------------   ---------------
                                                                  (Dollars in thousands)
  <S>                          <C>           <C>             <C>          <C>              <C>              <C>
  Passbook accounts              $ 52,222          4.20%       $ 37,348        4.05%           $ 26,095           3.76%   
  Checking accounts                11,216          1.55%         12,171        1.37%              9,959           1.33%   
  Certificates of deposit                                                                                                 
   Under $100,000                 182,942          5.00%        194,396        5.40%            144,926           5.56%   
   $100,000 and over               66,606          5.83%         77,753        5.32%             52,214           5.89%   
                               ----------                     ----------                     ----------                   
     Total                       $312,986          4.92%       $321,668        5.07%           $233,194           5.25%   
                               ==========                     ==========                     ==========  
</TABLE>

     The following table sets forth the time remaining until maturity for all
CDs at March 31, 1999, December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                          March 31,               December 31,               December 31,
                                                            1999                      1998                       1997
                                                  -----------------------    --------------------      ----------------------
                                                                             (Dollars in thousands)
<S>                                               <C>                        <C>                       <C>
Maturity within one year                                         $222,302                $242,447                    $181,858
Maturity within two years                                          27,220                  29,548                      14,984
Maturity within three years                                            26                     154                         298
                                                  -----------------------    --------------------      ----------------------
Total certificates of deposit                                    $249,548                $272,149                    $197,140
                                                  =======================    ====================      ======================
</TABLE>


     Although the Bank has a significant amount of deposits maturing in less
than one year, the Company believes that the Bank's current pricing strategy
will enable it to retain a significant portion of these accounts at maturity and
that it will continue to have access to sufficient amounts of CDs which,
together with other funding sources, will provide the necessary level of
liquidity to finance its lending businesses. However, as a result of these
shorter-term deposits, the rates on these accounts may be more sensitive to
movements in market interest rates which may result in a higher cost of funds.

     At March 31, 1999, the Bank exceeded all of its regulatory capital
requirements with (1) tangible capital of $37.9 million, or 9.07% of total
adjusted assets, which is above the required level of $6.3 million, or 1.50%;
(2) core capital of $37.9 million, or 9.07% of total adjusted assets, which is
above the required level of $12.6 million, or 3.00%; and (3) risk-based capital
of $29.3 million, or 10.40% of risk-weighted assets, which is above the required
level of $22.6 million, or 8.00%.

     The FDIC Improvement Act of 1991 ("FDICIA") required each federal banking
agency to implement prompt corrective actions for institutions that it
regulates. In response to these requirements, the OTS adopted final rules,
effective December 19, 1992, based upon FDICIA's five capital tiers: (1) well
capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly
undercapitalized, and (5) critically undercapitalized.

                                                                              20
<PAGE>
 
     The rules provide that a savings association is "well capitalized" if its
leverage ratio is 5% or greater, its Tier 1 risk-based capital ratio is 6% or
greater, its total risk-based capital ratio is 10% or greater, and the
institution is not subject to a capital directive.

     As used herein, leverage ratio means the ratio of core capital to adjusted
total assets, Tier 1 risk-based capital ratio means the ratio of core capital to
risk-weighted assets, and total risk-based capital ratio means the ratio of
total capital to risk-weighted assets, in each case as calculated in accordance
with current OTS capital regulations.  Under these regulations, the Bank is
deemed to be "well capitalized" as of March 31, 1999.

     The Company has other sources of liquidity, including FHLB advances,
warehouse lines of credit and its liquidity and short-term investments
portfolio. Through the Bank, the Company can obtain advances from the FHLB,
collateralized by a portion of its portfolio of mortgage loans purchased from
the RTC and the Bank's FHLB stock. The FHLB functions as a central reserve bank
providing credit for thrifts and certain other member financial institutions.
Advances are made pursuant to several programs, each of which has its own
interest rate and range of maturities. Limitations on the amount of advances are
based generally on a fixed percentage of net worth or on the FHLB's assessment
of an institution's credit-worthiness. As of March 31, 1999, the Bank's
available borrowing capacity under this credit facility was $4.0 million.

     The Bank has $300 million in master repurchase agreements under which it
may sell and repurchase at a set price mortgage loans pending the sale or
securitization of such loans. These agreements may be terminated at any time at
the option of either party. At March 31, 1999, there were no balances
outstanding under these warehouse lines of credit.

     Other borrowings of the Company at March 31, 1999 consist of the RTC Notes
Payable (as defined below) which mature in 1999.
 
     The following table sets forth certain information regarding the Company's
short-term borrowed funds (consisting of FHLB advances and its warehouse lines
of credit) at or for the periods ended on the dates indicated.

<TABLE>
<CAPTION>
                                                                  March 31,               December 31,
                                                                                   -------------------------
                                                                     1999              1998           1997
                                                                -------------      ------------   ----------
                                                                           (Dollars in thousands)
<S>                                                             <C>              <C>              <C>
FHLB advances
     Maximum month-end balance                                      $    --             $34,500      $40,900
     Balance at end of period                                            --                  --       28,000
     Average balance for period                                          --              13,057       18,526
   Weighted average interest rate on
     Balance at end of period                                            --%                 --%        7.07%
     Average balance for period                                          --%               5.10%        5.95%
Warehouse line of credit
     Maximum month-end balance                                      $70,000             $95,000      $64,359
     Balance at end of period                                            --                  --        6,237
     Average balance for period                                      25,000              43,759        8,914
  Weighted average interest rate on
     Balance at end of period                                            --%                 --%        6.70%
     Average balance for period                                        5.87%               6.01%        6.10%
</TABLE>

     The Company had no material contractual obligations or commitments for
capital expenditures at March 31, 1999. However, the Company continues to expand
its auto finance operations, which will entail lease commitments and
expenditures for leasehold improvements and furniture, fixtures and equipment.
In addition, the Company may expand its mortgage operations. At March 31, 1999,
the Company had outstanding commitments to originate loans of $28.0 million,
compared to $23.3 million at December 31,

                                                                              21
<PAGE>
 
1998. The Company anticipates that it will have sufficient funds available to
meet its current origination commitments.

  RTC NOTES PAYABLE

     In connection with its acquisition of certain assets from the RTC, the Bank
obtained loans (the "RTC Notes Payable") from the RTC in the aggregate amount of
$10.9 million under the RTC's Minority Interim Capital Assistance Program
provided for in Section 21A(u) of the Federal Home Loan Bank Act, as amended
(the "FHLBA").  The FHLBA gives the RTC authority to provide interim capital
assistance to minority-owned institutions, defined in the FHLBA as more than
fifty percent (50%) owned or controlled by one or more minorities.  The Bank,
PAFI and the RTC entered into an Interim Capital Assistance Agreement on April
29, 1994 with respect to a loan of $6,930,000 and a second Interim Capital
Assistance Agreement on September 9, 1994 with respect to a loan of $4,000,000
(together, the "RTC Agreements").  The RTC Agreements provide for repayment of
the entire principal amount, plus any accrued, previously unpaid interest
thereon, in a single lump sum installment on April 28, 1999 and September 8,
1999, respectively.  The RTC Notes Payable may be prepaid at the option of the
Bank and must be prepaid in the event that PAFI obtains all or any material
portion of its permanent financing prior to maturity of the RTC Notes Payable.
The RTC is entitled to declare the entire principal amount of the RTC Notes
Payable, plus all interest accrued and unpaid thereon, immediately due and
payable upon the occurrence of certain events of default.

     The rate at which interest accrues on the RTC Notes Payable is based on the
RTC's "Cost of Funds," defined in the RTC Agreements at the end of the calendar
quarter Monday auction yield price for 13 week United States Treasury Bills plus
12.5 basis points, and adjusts annually, in the case of the $6.9 million loan
due April 1999, and quarterly, in the case of the $4 million loan due September
1999.  Interest accrues on any amount of principal or interest not paid when due
at the rate of the RTC's Cost of Funds plus 300 basis points, beginning on the
date such unpaid amount became due.

     In connection with the RTC Agreements, PAFI and the RTC have entered into
Stock Pledge Agreements pursuant to which PAFI has pledged to the RTC all of the
issued and outstanding shares of the capital stock of the Bank as security for
the repayment of the RTC Notes Payable.

     The $6,930,000 loan under the first Interim Capital Assistance Agreement
dated April 29, 1994 was repaid on April 28, 1999.

LENDING ACTIVITIES

     To date, the Company has sold most of its loan originations to mortgage
companies and other investors through whole loan packages on a primarily non-
recourse, servicing released basis. As a result, upon sale, risks and rewards of
ownership transfer to the buyer. In December 1997, the Company completed its
first securitization of mortgage loans and in March 1998 sold its residual
interests in this securitization to a third-party. In March 1999, the Company
completed its second mortgage loan securitization for $225 million.

     Summary of Loan Portfolio.  At March 31, 1999, the Company's loan portfolio
constituted $295.2 million, or 69.9% of the Company's total assets, of which
$165.6 million, or 56.1%, were held for investment and $129.6 million, or 43.9%,
were held for sale.  Loans held for investment are reported at cost, net of
unamortized discounts or premiums and allowance for losses.  Loans held for sale
are reported at the lower of cost or market value.

                                                                              22
<PAGE>
 
     The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.


<TABLE>
<CAPTION>
                                                            March 31,               December 31,              December 31,
                                                              1999                      1998                      1997
                                                     --------------------      --------------------      --------------------
<S>                                                  <C>                       <C>                       <C>
MORTGAGE LOANS
Mortgage loans (purchased primarily from RTC)
     Held for sale                                               $     --                  $ 18,289                  $     --
     Held for investment                                           30,031                    14,039                    81,995
                                                     --------------------      --------------------      --------------------
     Total mortgage loans                                        $ 30,031                  $ 32,328                  $ 81,995
                                                     --------------------      --------------------      --------------------
Subprime mortgage loans
     Held for sale                                                129,668                   196,117                   120,002
     Held for investment                                           27,081                    17,570                     5,375
                                                     --------------------      --------------------      --------------------   
     Total subprime mortgage loans                                156,749                   213,687                   125,377
                                                     --------------------      --------------------      --------------------  
     Total mortgage loans                                         186,780                   246,015                   207,372
                                                     --------------------      --------------------      --------------------
CONSUMER LOANS
Automobile installment contracts                                   95,528                    83,921                    40,877
Insurance premium financing                                        43,558                    44,709                    39,990
Other consumer loans                                                1,124                     1,245                       267
                                                     --------------------      --------------------      --------------------
     Total consumer loans                                         140,210                   129,875                    81,134
                                                     --------------------      --------------------      --------------------
     Total loans                                                  326,990                   375,890                   288,506
Unearned discounts and premiums                                    (1,414)                     (212)                   (2,901)
Unearned finance charges                                          (18,944)                  (17,371)                  (10,581)
Allowance for loan losses                                         (11,390)                  (10,183)                   (6,487)
                                                     --------------------      --------------------      --------------------  
     Total loans, net                                            $295,242                  $348,124                  $268,537
                                                     ====================      ====================      ====================
</TABLE>
                                                                               
     Loan Maturities.  The following table sets forth the dollar amount of loans
maturing in the Company's loan portfolio at March 31, 1999 based on scheduled
contractual amortization.  Loan balances are reflected before unearned discounts
and premiums, unearned finance charges and allowance for loan losses.

<TABLE>
<CAPTION>
                                                                               March 31, 1999
                     -------------------------------------------------------------------------------------------------------------
                                      More Than 1    More Than 3    More Than 5    More Than 10                                   
                        One Year or     Year to       Years to       Years to       Years to 20    More Than 20      Total Loans  
                           Less         3 Years        5 Years       10 Years          Years           Years                      
                     -------------------------------------------------------------------------------------------------------------
                                                                 (Dollars in thousands)                                           
<S>                  <C>              <C>            <C>            <C>            <C>             <C>                <C>         
Mortgage loans held                                                                                                               
   for investment         $    14       $   709       $ 1,140         $3,816         $15,274          $ 36,159         $ 57,112   
Mortgage loans held                                                                                                               
   for sale                    --            --           122             --          11,839           117,707          129,668   
Consumer loans             45,703        45,754        47,455          1,298              --                --          140,210   
                     --------------  ------------  ------------  --------------  --------------  ----------------  ---------------
     Total                $45,717       $46,463       $48,717         $5,114         $27,113          $153,866         $326,990   
                     ==============  ============  ============  ==============  ==============  ================  ===============
</TABLE>

  CLASSIFIED ASSETS AND ALLOWANCE FOR LOAN LOSSES

     The Company maintains an asset review and classification process for
purposes of assessing loan portfolio quality and the adequacy of its loan loss
allowances. The Company's Asset Review Committee reviews for classification all
problem and potential problem assets and reports the results of its review to
the Board of Directors quarterly. The Company has incorporated the OTS internal
asset classifications as a part of its credit monitoring systems and in order of
increasing weakness, these designations are "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that some loss will be sustained if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
condition and values, questionable and there is a high possibility of loss. Loss
assets are considered uncollectible and of such little value that continuance as
an asset is not warranted. Assets which do have weaknesses but do not currently
have 

                                                                              23
<PAGE>
 
sufficient risk to warrant classification in one of the categories described
above are designated as "special mention."

     At March 31, 1999, the Company had $5.8 million in assets classified as
special mention, $18.3 million of assets classified as substandard, $54,000 in
assets classified as doubtful and no assets classified as loss.
 
     The following table sets forth the remaining balances of all loans (before
specific reserves for losses) that were more than 30 days delinquent at March
31, 1999, December 31, 1998 and 1997.

<TABLE>
<CAPTION>
Loan                 March 31,          % of Total         December 31,         % of Total       December 31,         % of Total  
----                                                                                                                              
Delinquencies          1999               Loans               1998                Loans             1997               Loans      
-------------    ----------------   ---------------    -----------------   ----------------    ---------------   ---------------   
                                                                (Dollars in thousands)                                            
<S>              <C>                <C>                <C>                  <C>                <C>               <C>               
30 to 59 days             $ 4,639               1.6%             $ 9,743                2.8%            $  356               0.1% 
60 to 89 days               2,865               1.0%               8,161                2.3%               994               0.4% 
90+ days                   14,752               5.0%              11,424                3.3%             7,101               2.6% 
                 ----------------   ---------------    -----------------   ----------------    ---------------   ---------------   
Total                     $22,246               7.6%             $29,328                8.4%            $8,451               3.1% 
                 ================   ===============    =================   ================    ===============   ===============  
</TABLE>

     Nonaccrual and Past Due Loans.  The Company's general policy is to
discontinue accrual of interest on a mortgage loan when it is two payments or
more delinquent. Accordingly, loans are placed on non-accrual status generally
when they are 60-89 days delinquent. A non-mortgage loan is placed on nonaccrual
status when it is delinquent for 120 days or more. When a loan is reclassified
from accrual to nonaccrual status, all previously accrued interest is reversed.
Interest income on nonaccrual loans is subsequently recognized only to the
extent that cash payments are received or the borrower's ability to make
periodic interest and principal payments is in accordance with the loan terms,
at which time the loan is returned to accrual status. Accounts which are deemed
fully or partially uncollectible by management are generally fully reserved or
charged off for the amount that exceeds the estimated fair value (net of selling
costs) of the underlying collateral. The Company does not generally modify,
extend or rewrite loans and at March 31, 1999 had no troubled debt restructured
loans. The following table sets forth the aggregate amount of nonaccrual loans
(net of unearned discounts and premiums and unearned finance charg es) at March
31, 1999, December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                   March 31,                       December 31,
                                                                                   -----------------------------------------
                                                                     1999                   1998                  1997
                                                             ------------------    -------------------    ------------------ 
                                                                                  (Dollars in thousands)
<S>                                                          <C>                   <C>                    <C>
Nonaccrual loans
     Single-family residential                                          $17,289                $19,242                $5,766
     Multi-family residential and commercial                                214                    214                   605
     Consumer and other loans                                             1,010                  1,168                 1,426
                                                             ------------------    -------------------    ------------------ 
          Total                                                         $18,513                $20,624                $7,797
                                                             ==================    ===================    ==================
 
Nonaccrual loans as a percentage of
     Total loans held for investment                                      11.18%                 15.42%                 5.25%
     Total assets                                                          4.38%                  4.85%                 2.51%
Allowance for loan losses as a percentage of
     Total loans held for investment                                       6.89%                  7.62%                 4.37%
     Nonaccrual loans                                                     61.52%                 49.37%                83.20%
</TABLE>
                                                                               
     Real Estate Owned.  Real estate acquired through foreclosure or by deed in
lieu of foreclosure ("REO") is recorded at the lower of cost or fair value at
the time of foreclosure.  Subsequently, an allowance for estimated losses is
established when the recorded value exceeds fair value less estimated selling
costs.  Holding and maintenance costs related to real estate owned are recorded
as expenses in the period incurred.  Real estate owned was $2.2 million at March
31, 1999, $1.9 million at December 31, 1998 and $562,000 at December 31, 1997,
and consisted entirely of one to four family residential properties.

                                                                              24
<PAGE>
 
     Allowance for Loan Losses.  The following is a summary of the changes in
the consolidated allowance for loan losses of the Company for the periods
indicated.

<TABLE>
<CAPTION>
                                                          At or For the                      At or For the
                                                           Three Months                       Year Ended
                                                         Ended March 31,                     December 31,
                                                                             ------------------------------------------ 
                                                               1999                   1998                   1997
                                                        -----------------    -------------------    -------------------
                                                                            (Dollars in thousands)
<S>                                                     <C>                    <C>                    <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period                                    $10,183                $ 6,487                $ 5,356
     Provision for loan losses                                      2,630                  5,853                    507
     Charge-offs
          Mortgage loans                                           (2,172)                (4,536)                  (373)
          Consumer loans                                           (1,036)                (3,793)                (2,101)
                                                        -----------------    -------------------    -------------------
                                                                   (3,208)                (8,329)                (2,474)
     Recoveries
          Mortgage loans                                               --                    452                     77
          Consumer loans                                              115                  1,138                  1,068
                                                        -----------------    -------------------    -------------------  
                                                                      115                  1,590                  1,145
                                                        -----------------    --------------------   -------------------
     Net charge-offs                                               (3,093)                (6,739)                (1,329)
     Acquisition discounts allocated to loss allowance              1,670                  4,582                  1,953
                                                        -----------------    --------------------   ------------------- 
Balance at end of period                                          $11,390                $10,183                $ 6,487
                                                        =================    ===================    ===================
     Annualized net charge-offs to average loans                     3.11%                  1.73%                  0.60%
     Ending allowance to period end loans, net                       6.89%                  7.62%                  4.37%
</TABLE>

     The Company's policy is to maintain an allowance for loan losses to absorb
future losses which may be realized on its loan portfolio.  These allowances
include specific reserves for identifiable impairments of individual loans and
general valuation allowances for estimates of probable losses not specifically
identified.  In addition, the Company's allowance for loan losses is also
increased by its allocation of acquisition discounts related to the purchase of
automobile installment contracts.

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

     The Company's management uses its best judgment in providing for possible
loan losses and establishing allowances for loan losses. However, the allowance
is an estimate which is inherently uncertain and depends on the outcome of
future events. In addition, regulatory agencies, as an integral part of their
examinations process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to increase the allowance based upon their
judgment of the information available to them at the time of their examination.
The Bank's most recent examination by its regulatory agencies was completed in
October 1998 and no adjustments to the Bank's allowance for loan losses was
required.

CASH EQUIVALENTS AND SECURITIES PORTFOLIO

     The Company's cash equivalents and securities portfolios are used primarily
for liquidity purposes and secondarily for investment income.  Cash equivalents
and securities, which generally have maturities of less than 90 days, satisfy
regulatory requirements for liquidity.

                                                                              25
<PAGE>
 
  The following is a summary of the Company's cash equivalents and securities
portfolios as of the dates indicated.

<TABLE>
<CAPTION>
                                                               March 31,                             December 31,
                                                                                   ---------------------------------------------
                                                                   1999                       1998                       1997
                                                            --------------         ------------------             --------------
                                                                                   (Dollars in thousands)
<S>                                                         <C>                    <C>                            <C>
Balance at end of period
     Overnight deposits                                            $42,500                    $47,000                     $4,000
     U.S. agency securities                                             --                         --                      1,002
                                                               -----------                 ----------                  ---------
     Total                                                         $42,500                    $47,000                     $5,002
                                                               ===========                 ==========                  =========
 
Weighted average yield at end of period
     Overnight deposits                                               4.62%                      3.00%                      3.50%
     U.S. agency securities                                             --%                        --%                      6.54%
Weighted average maturity at end of period
     Overnight deposits                                              1 day                      1 day                      1 day
     U.S. agency securities                                             --                         --                  24 months
</TABLE>


FACTORS THAT MAY AFFECT FUTURE RESULTS

  LIMITED OPERATING HISTORY

     The Company purchased certain assets and assumed certain liabilities of Pan
American Federal Savings Bank from the RTC in 1994. In 1995, the Company
commenced its insurance premium finance business through a joint venture with
BPN, and in 1996 the Company commenced its subprime mortgage and automobile
finance businesses. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be based.
See "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations."

  CREDIT-IMPAIRED BORROWERS

     Loans made to borrowers who cannot obtain financing from traditional
lenders generally entail a higher risk of delinquency and default and higher
losses than loans made to borrowers with better credit. Substantially all of the
Company's mortgage and auto loans are made to individuals with impaired or
limited credit histories, limited documentation of income or higher debt-to-
income ratios than are permitted by traditional lenders. If the Company
experiences higher losses than anticipated, the Company's financial condition,
results of operations and business prospects would be materially and adversely
affected.

  NEED FOR ADDITIONAL FINANCING

     The Company's ability to maintain or expand its current level of lending
activity will depend on the availability and terms of its sources of financing.
The Company has funded its operations to date principally through deposits, FHLB
advances, mortgage warehouse lines of credit, loan securitizations, and whole
loan sales. The Bank competes for deposits primarily on the basis of interest
rates and, accordingly, the Bank could experience difficulty in attracting
deposits if it does not continue to offer rates that are competitive with other
financial institutions. Federal regulations restrict the Bank's ability to lend
to affiliated companies and limit the amount of non-mortgage consumer loans that
may be held by the Bank. Accordingly, the growth of the Company's mortgage,
insurance premium and automobile finance businesses will depend to a significant
extent on the availability of additional sources of financing. There can be no
assurance that the Company will be able to develop additional financing sources
on acceptable terms or at all. To the extent the Bank is unable to maintain its
deposits and the Company is unable to develop additional sources of financing,
the Company will have to restrict its lending activities which would materially
and adversely affect the Company's financial condition, results of operations
and business prospects. See "Item 2.

                                                                              26
<PAGE>
 
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

  CONCENTRATION OF BUSINESS IN CALIFORNIA

     The Company's lending activities are concentrated primarily in California
and are likely to remain so for the foreseeable future. The performance of the
Company's loans may be affected by changes in California's economic and business
conditions, including its residential real estate market. The occurrence of
adverse economic conditions or natural disasters in California could have a
material adverse effect on the Company's financial condition, results of
operations and business prospects.

  RELIANCE ON SYSTEMS AND CONTROLS

     The Company depends heavily upon its systems and controls, some of which
have been designed specifically for a particular business, to support the
evaluation, acquisition, monitoring, collections and administration of that
business. There can be no assurance that these systems and controls, including
those specially designed and built for the Company, are adequate or will
continue to be adequate to support the Company's growth. A failure of the
Company's automated systems, including a failure of data integrity or accuracy,
could have a material adverse effect upon the Company's financial condition,
results of operations and business prospects.

  RELIANCE ON KEY EMPLOYEES AND OTHERS
 
     The Company is dependent upon the continued services of its key employees
as well as the key employees of BPN. The loss of the services of any key
employee, or the failure of the Company to attract and retain other qualified
personnel, could have a material adverse effect on the Company's financial
condition, results of operations and business prospects.

  COMPETITION

     Each of the Company's businesses is highly competitive. Competition in the
Company's markets can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and terms of
the loan, loan origination fees and interest rates. Many of the Company's
competitors are substantially larger and have considerably greater financial,
technical and marketing resources than the Company. The Company's competitors in
subprime mortgage finance include other consumer finance companies, mortgage
banking companies, commercial banks, credit unions, savings associations and
insurance companies. The Company competes in the insurance premium finance
business with other specialty finance companies, independent insurance agents
who offer premium finance services, captive premium finance affiliates of
insurance companies and direct bill plans established by insurance companies.
The Company competes in the subprime automobile finance industry with commercial
banks, the captive finance affiliates of automobile manufacturers, savings
associations and companies specializing in subprime automobile finance, many of
which have established relationships with automobile dealerships and may offer
dealerships or their customers other forms of financing, including dealer floor
plan financing and lending, which are not offered by the Company. In attracting
deposits, the Bank competes primarily with other savings institutions,
commercial banks, brokerage firms, mutual funds, credit unions and other types
of investment companies.

     Fluctuations in interest rates and general and localized economic
conditions also may affect the competition the Company faces. Competitors with
lower costs of capital have a competitive advantage over the Company. During
periods of declining interest rates, competitors may solicit the Company's
customers to refinance their loans. In addition, during periods of economic
slowdown or recession, the Company's borrowers may face financial difficulties
and be more receptive to offers of the Company's competitors to refinance their
loans.

                                                                              27
<PAGE>
 
     As the Company expands into new geographic markets, it will face additional
competition from lenders already established in these markets.  There can be no
assurance that the Company will be able to compete successfully with these
lenders.

  CHANGES IN INTEREST RATES

     The Company's results of operations depend to a large extent upon its net
interest income, which is the difference between interest income on interest-
earning assets, such as loans and investments, and interest expense on interest-
bearing liabilities, such as deposits and other borrowings. When interest-
bearing liabilities mature or reprice more quickly than interest-bearing assets
in a given period, a significant increase in market rates of interest could have
a material adverse effect on the Company's net income. Further, a significant
increase in market rates of interest could adversely affect demand for the
Company's financial products and services. Interest rates are highly sensitive
to many factors, including governmental monetary policies and domestic and
international economic and political conditions, which are beyond the Company's
control. The Company's liabilities generally have shorter terms and are more
interest rate sensitive than its assets. Accordingly, changes in interest rates
could have a material adverse effect on the profitability of the Company's
lending activities. See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Management of Interest Rate
Risk."

  MANAGEMENT OF GROWTH

     The Company has experienced rapid growth in each of its businesses and
intends to pursue growth for the foreseeable future, particularly in its
mortgage and automobile finance businesses. In addition, the Company intends to
broaden its product offerings to include additional types of consumer or, in the
case of insurance premium finance, commercial loans. Further, the Company may
enter other specialty finance businesses. This growth strategy will require
additional capital, systems development and human resources. The failure of the
Company to implement its planned growth strategy would have a material adverse
effect on the Company's financial condition, results of operations and business
prospects.

  DEPENDENCE ON LOAN SALE AND SECURITIZATION MARKETS

     The Company generates substantial revenues from whole loan sales and
securitizations. There can be no assurance that whole loan purchasers will
continue to purchase the Company's loans, or that they will continue to purchase
loans at present prices, and failure to do so could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects. Further, adverse conditions in the asset-backed securitization market
could adversely affect the Company's ability to sell or securitize loans at
present prices.

  SECURITIZATIONS

     The Company completed its first securitization of mortgage loans in 
December 1997 and its second in March 1999, and may securitize mortgage loans on
a periodic basis in the future. The Company may, in the future, consider the
securitization of other financial assets. In March 1998, the Company sold its
residual interests from its first securitization for cash in the amount of $8.3
million which exceeded the carrying value of approximately $8.2 million at the
date of sale. The Company has recorded the residual interests from the second
securitization in its March 1999 balance sheet. The Company believes that the
gain on sale from such securitizations could represent a significant portion of
the Company's future revenues and net income. The Company's ability to complete
securitizations will depend on a number of factors, including conditions in the
securities markets generally, conditions in the asset-backed securities market
specifically, the performance of the Company's portfolio of securitized loans
and the Company's ability to obtain credit enhancement for its securitized
loans. If securitizations represented a significant portion of the Company's
revenues and net income and the Company were unable to securitize profitably a
sufficient

                                                                              28
<PAGE>
 
number of loans in a particular quarter, then the Company's revenues for the
quarter could decline, which could result in lower earnings or a loss reported
for the quarter. In addition, delays in closing a securitization could require
the Company to seek additional alternative funding under current and future
credit facilities in order to finance additional loan originations and purchases
and could increase the Company's interest rate risk by increasing the period
during which newly originated loans are held prior to sale and could increase
the Company's interest expense.

     The Company may rely on credit enhancements to guarantee or otherwise
support senior certificates issued in securitizations. If the Company is unable
to obtain credit enhancement in connection with the senior certificates, the
Company might be unable to securitize its loans, which could have a material
adverse effect on the Company's results of operations, financial condition and
business prospects. Although alternative structures to securitizations may be
available, there can be no assurance that the Company will be able to use these
structures or that these structures will be economically viable for the Company.
The Company's ability to obtain credit enhancement for its securitizations also
may be adversely affected by poor performance of the Company's securitizations
or the securitizations of others. The inability of the Company to complete
securitizations for any reason could have a material adverse effect on the
Company's results of operations, financial condition and business prospects.

  CHANGE IN GENERAL ECONOMIC CONDITIONS

     Each of the Company's 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, the
Company may experience a decrease in demand for its financial products and
services, an increase in its 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. Although the Company believes that its underwriting criteria and
collection methods enable it to manage the higher risks inherent in loans made
to such borrowers, no assurance can be given that such criteria or methods will
afford adequate protection against such risks. Any sustained period of increased
delinquencies, defaults or losses would materially and adversely affect the
Company's financial condition, results of operations and business prospects.

  IMPACT OF INFLATION AND CHANGING PRICES

     The financial statements and notes thereto presented herein have been
prepared in accordance with Generally Accepted Accounting Principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.

  YEAR 2000 COMPLIANCE

     Most of the Company's operations are dependent on the efficient functioning
of the Company's computer systems and software. Computer system failures or
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations.

     Many computer programs were designed and developed utilizing only two
digits in date fields, thereby creating the inability to recognize the year 2000
or years thereafter. Beginning in the year 2000, these date codes will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. This year 2000 issue creates risks for the Company from unforeseen or
unanticipated problems in its internal computer systems as well as from computer
systems of the Federal Reserve Bank, correspondent

                                                                              29
<PAGE>
 
banks, customers and suppliers. Failures of these systems or untimely
corrections could have a material adverse effect on the Company's business,
financial condition and results of operations.

     The Company's computer systems and programs are designed and supported by
companies specifically in the business of providing such products and services.
The Company's Year 2000 plan includes evaluating existing hardware, software,
vaults, alarm systems, both internally and externally, establishing a
contingency plan and upgrading hardware and software as necessary. The initial
phase of the project was to assess and identify all internal business processes
requiring modification and to develop comprehensive renovation plans as needed.
This phase was largely completed in 1998. The second phase was to execute those
renovation plans and begin testing systems by simulating Year 2000 data
conditions. This phase was also largely completed in 1998. Testing and
implementation is planned to be completed during the first half of 1999. Failure
to be Year 2000 compliant or incurrence of significant costs to render the
Company Year 2000 compliant could have a material adverse effect on the
Company's business, financial condition and results of operations.

     The Company is evaluating its major customers and suppliers to determine if
they are Year 2000 compliant.  Failure of any material customer or supplier to
be year 2000 compliant could have a material adverse effect on the Company.

  OTHER RISKS

     From time to time, the Company details other risks with respect to its
business and financial results in its filings with the SEC.

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; and Factors That
May Affect Future Results - Dependence on Loan Sale and Securitization Markets"

                                                                              30
<PAGE>
 
                       PART II.        OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.
          ----------------- 

     Not applicable

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.
          ----------------------------------------- 

     Use of proceeds - As discussed in Note 5 to Notes to Consolidated Financial
     Statements under "Item 1. Financial Information" of this Quarterly Report,
     the Company completed an initial public offering of common stock.  In
     connection therewith:

          1.   The effective date of the Company's Registration Statement on
               Form S-1, as amended (File No. 333-39941) ("Registration
               Statement"), was April 23, 1998.

          2.   The offering commenced on April 23, 1998 and was terminated on
               May 28, 1998 with the sale of all of the registered securities at
               a price to the public of $11.00 per share.

          3.   NationsBanc Montgomery Securities LLC and Piper Jaffray Inc.
               acted as managing underwriters for the Company.

          4.   The class of securities registered pursuant to the Registration
               Statement was common stock, no par value per share. The aggregate
               amount of such securities registered and sold was 6,325,000
               shares for an aggregate dollar amount of $69.6 million. There
               were no selling shareholders.

          5.   Expenses incurred by the Company in connection with the sale of
               the shares of common stock, none of which were paid directly or
               indirectly to directors or officers of the Company or their
               associates, included the following (dollars in thousands):


                       Underwriting discounts and commissions   $4,870
                       Finders' fees                                --
                       Expenses paid to or for underwriters         --
                       Other expenses                            1,767
                                                                ------
                                                                $6,637
                                                                ======

          6.   The net offering proceeds to the Company after deduction of the
               above expenses were approximately $62.9 million and were used for
               general corporate purposes, including financing the growth of the
               Company's mortgage and automobile finance operations, and to
               repay $2.0 million in indebtedness to certain shareholders. Such
               use of proceeds did not represent a material change in the use of
               proceeds described in the Company's Registration Statement.

Item 3.   DEFAULTS UPON SENIOR SECURITIES.
          ------------------------------- 

     Not applicable

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

     Not applicable

ITEM 5.   OTHER INFORMATION.
          ----------------- 

     Not applicable

                                                                              31
<PAGE>
 
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.
          -------------------------------- 

     (a)  List of Exhibits

          10.103    Pooling and Servicing Agreement dated as of March 1, 1999,
                    by and among Financial Asset Securities Corp., Pan American
                    Bank, FSB, Fairbanks Capital Corp., and Banker's Trust
                    Company.

          10.104    Mortgage Loan Purchase Agreement dated as of March 1, 1999,
                    by and among Financial Asset Securities Corp. and Pan
                    American Bank, FSB.

          27.1      Financial Data Schedule

     (b)  Reports on Form 8-K

          None

                                                                              32
<PAGE>
 
                                  SIGNATURES

                                        
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.



                                    UNITED PANAM FINANCIAL CORP.



DATE:    May 10, 1999        By:  /s/ Lawrence J. Grill
                                  ------------------------------------
                                  Lawrence J. Grill
                                  President and Chief Executive Officer
                                  (Principal Executive Officer)



         May 10, 1999        By:  /s/ Carol M. Bucci
                                  ------------------------------------
                                  Carol M. Bucci
                                  Senior Vice President
                                  and Chief Financial Officer
                                  (Principal Financial and Accounting
                                    Officer)