##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark one)

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



For the quarterly period ended September 30, 2003



Commission File Number 000-24051



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UNITED PANAM FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)



|California                                                    |  | 94-3211687                            
|------------------------------------------------------------- |  | --------------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification Number)



3990 Westerly Place,
Suite 200

Newport Beach, CA 92660

(Address of principal executive offices) (Zip Code)



(949) 224-1917

(Registrants telephone number, including area code)



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



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



The number of shares outstanding of the Registrants Common Stock as of
October 28, 2003 was 15,903,868.



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##### Table of Contents

UNITED PANAM FINANCIAL CORP.

FORM 10-Q

SEPTEMBER 30, 2003



INDEX



|         |  |                                                                                                                               |  | Page
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I.  |  | FINANCIAL INFORMATION                                                                                                         |  |     
|         |  |                                                                                                                              
|Item 1.  |  | Financial Statements (unaudited)                                                                                              |  |     
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Financial Condition as of September 30, 2003 and December 31, 2002                                 |  | 1   
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and September 30, 2002           |  | 2   
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2003 and September 30, 2002 |  | 3   
|         |  |                                                                                                                              
|         |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and September 30, 2002                     |  | 4   
|         |  |                                                                                                                              
|         |  | Notes to Consolidated Financial Statements                                                                                    |  | 6   
|         |  |                                                                                                                              
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 11  
|         |  |                                                                                                                              
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 26  
|         |  |                                                                                                                              
|Item 4.  |  | Controls & Procedures                                                                                                         |  | 26  
|         |  |                                                                                                                              
|PART II. |  | OTHER INFORMATION                                                                                                             |  | 27  
|         |  |                                                                                                                              
|Item 1.  |  | Legal Proceedings                                                                                                             |  | 27  
|         |  |                                                                                                                              
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                     |  | 27  
|         |  |                                                                                                                              
|Item 3.  |  | Defaults Upon Senior Securities                                                                                               |  | 27  
|         |  |                                                                                                                              
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 27  
|         |  |                                                                                                                              
|Item 5.  |  | Other Information                                                                                                             |  | 27  
|         |  |                                                                                                                              
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                              |  | 27  



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION
|------- | ---------------------



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



United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition

(Unaudited)



|(In thousands, except share and per share data)                                                                            |  | September 30,2003 |           |   | December 31,2002 |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | -
|Assets                                                                                                                     |  |                   |           |   |                  |  
|                                                                                                                           |  |                  
|Cash and due from banks                                                                                                    |  | $                 | 9,266     |   |                  | $
|Short term investments                                                                                                     |  |                   | 24,690    |   |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Cash and cash equivalents                                                                                                  |  |                   | 33,956    |   |                  |  
|Securities available-for-sale, at fair value                                                                               |  |                   | 1,047,989 |   |                  |  
|Loans                                                                                                                      |  |                   | 427,775   |   |                  |  
|Less unearned discount                                                                                                     |  |                   | (11,815   | ) |                  |  
|Less allowance for loan losses                                                                                             |  |                   | (21,099   | ) |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Loans, net                                                                                                                 |  |                   | 394,861   |   |                  |  
|Premises and equipment, net                                                                                                |  |                   | 2,984     |   |                  |  
|Federal Home Loan Bank stock, at cost                                                                                      |  |                   | 11,456    |   |                  |  
|Accrued interest receivable                                                                                                |  |                   | 1,846     |   |                  |  
|Other assets                                                                                                               |  |                   | 16,898    |   |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Total assets                                                                                                               |  | $                 | 1,509,990 |   |                  | $
|                                                                                                                           |  |                   |           |   |                  |  
|Liabilities and Shareholders Equity                                                                                       |  |                   |           |   |                  |  
|                                                                                                                           |  |                  
|Deposits                                                                                                                   |  | $                 | 476,966   |   |                  | $
|Repurchase agreements                                                                                                      |  |                   | 923,685   |   |                  |  
|Trust preferred securities                                                                                                 |  |                   | 10,000    |   |                  |  
|Accrued expenses and other liabilities                                                                                     |  |                   | 1,399     |   |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Total liabilities                                                                                                          |  |                   | 1,412,050 |   |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Common stock (no par value):                                                                                               |  |                   |           |   |                  |  
|Authorized, 30,000,000 shares Issued and outstanding, 15,897,267 at September 30, 2003 and 15,836,725 at December 31,
2002 |  |                   | 65,128    |   |                  |  
|Retained earnings                                                                                                          |  |                   | 32,521    |   |                  |  
|Unrealized gain on securities available-for-sale, net                                                                      |  |                   | 291       |   |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Total shareholders equity                                                                                                 |  |                   | 97,940    |   |                  |  
|                                                                                                                           |  |                   |           |   |                  |  
|Total liabilities and shareholders equity                                                                                 |  | $                 | 1,509,990 |   |                  | $
|                                                                                                                           |  |                   |           |   |                  |  



See accompanying notes to
consolidated financial statements.



1



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|(In thousands, except per share data)                                              |  | Three MonthsEndedSeptember 30, |        | Nine MonthsEndedSeptember 30,
|---------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -----------------------------
|                                                                                   |  | 2003                           |        | 2002                         
|Interest Income                                                                    |  |                                |        |                              
|Loans                                                                              |  | $                              | 22,708 |                              
|Securities                                                                         |  |                                | 4,009  |                              
|                                                                                   |  |                                |        |                              
|Total interest income                                                              |  |                                | 26,717 |                              
|                                                                                   |  |                                |        |                              
|Interest Expense                                                                   |  |                                |        |                              
|Deposits                                                                           |  |                                | 3,399  |                              
|Federal Home Loan Bank advances                                                    |  |                                |       |                              
|Repurchase agreements                                                              |  |                                | 2,409  |                              
|                                                                                   |  |                                |        |                              
|Total interest expense                                                             |  |                                | 5,808  |                              
|                                                                                   |  |                                |        |                              
|Net interest income                                                                |  |                                | 20,909 |                              
|Provision for loan losses                                                          |  |                                | 9,674  |                              
|                                                                                   |  |                                |        |                              
|Net interest income after provision for loan losses                                |  |                                | 11,235 |                              
|                                                                                   |  |                                |        |                              
|Non-interest Income                                                                |  |                                |        |                              
|Net gain on sale of securities                                                     |  |                                | 87     |                              
|Service charges and fees                                                           |  |                                | 204    |                              
|Loan related charges and fees                                                      |  |                                | 70     |                              
|Gain on sale of mortgage residuals                                                 |  |                                |       |                              
|Other income                                                                       |  |                                | 196    |                              
|                                                                                   |  |                                |        |                              
|Total non-interest income                                                          |  |                                | 557    |                              
|                                                                                   |  |                                |        |                              
|Non-interest Expense                                                               |  |                                |        |                              
|Compensation and benefits                                                          |  |                                | 6,762  |                              
|Occupancy                                                                          |  |                                | 1,128  |                              
|Other                                                                              |  |                                | 2,736  |                              
|                                                                                   |  |                                |        |                              
|Total non-interest expense                                                         |  |                                | 10,626 |                              
|                                                                                   |  |                                |        |                              
|Income before income taxes and cumulative effect of change in accounting principle |  |                                | 1,166  |                              
|Income taxes                                                                       |  |                                | 475    |                              
|                                                                                   |  |                                |        |                              
|Income before cumulative effect of change in accounting principle                  |  |                                | 691    |                              
|                                                                                   |  |                                |        |                              
|Cumulative effect of change in accounting principle net of tax                     |  |                                |       |                              
|                                                                                   |  |                                |        |                              
|Net income                                                                         |  | $                              | 691    |                              
|                                                                                   |  |                                |        |                              
|Earnings per share-basic:                                                          |  |                                |        |                              
|                                                                                   |  |                                |        |                              
|Income before cumulative effect of change in accounting principle                  |  | $                              | 0.04   |                              
|                                                                                   |  |                                |        |                              
|Cumulative effect of change in accounting principle                                |  | $                              |       |                              
|                                                                                   |  |                                |        |                              
|Net income                                                                         |  | $                              | 0.04   |                              
|                                                                                   |  |                                |        |                              
|Weighted average shares outstanding                                                |  |                                | 15,892 |                              
|                                                                                   |  |                                |        |                              
|Earnings per share-diluted:                                                        |  |                                |        |                              
|                                                                                   |  |                                |        |                              
|Income before cumulative effect of change in accounting principle                  |  | $                              | 0.04   |                              
|                                                                                   |  |                                |        |                              
|Cumulative effect of change in accounting principle                                |  | $                              |       |                              
|                                                                                   |  |                                |        |                              
|Net income                                                                         |  | $                              | 0.04   |                              
|                                                                                   |  |                                |        |                              
|Weighted average shares outstanding                                                |  |                                | 19,043 |                              
|                                                                                   |  |                                |        |                              



See accompanying notes to
consolidated financial statements



2



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



|(Dollars in thousands)                                  |  | Three MonthsEndedSeptember 30, |      | Nine MonthsEndedSeptember 30, |     
|------------------------------------------------------- |  | ------------------------------ | ---- | ----------------------------- | ----
|                                                        |  | 2003                           |      |                               | 2002
|Net income                                              |  | $                              | 691  |                               |     
|Other comprehensive income, net of tax:                 |  |                                |      |                               |     
|Unrealized gain (loss) on securities available for sale |  |                                | (263 | )                             |     
|                                                        |  |                                |      |                               |     
|Comprehensive income                                    |  | $                              | 428  |                               |     
|                                                        |  |                                |      |                               |     



See accompanying notes to
consolidated financial statements



3



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|(Dollars in thousands)                                                            |  | Nine MonthsEnded September 30, |           
|--------------------------------------------------------------------------------- |  | ------------------------------ | ----------
|                                                                                  |  | 2003                           |           
|Cash Flows from Operating Activities                                              |  |                                |           
|Net income                                                                        |  | $                              | 8,707     
|                                                                                  |  |                               
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |           
|Gain on sale of securities                                                        |  |                                | (402      
|Provision for loan losses                                                         |  |                                | 12,304    
|Depreciation and amortization                                                     |  |                                | 815       
|FHLB stock dividend                                                               |  |                                |          
|Decrease in accrued interest receivable and other assets                          |  |                                | 383       
|Decrease in deferred tax asset                                                    |  |                                | 3,289     
|Increase (decrease) in accrued expenses and other liabilities                     |  |                                | (7,146    
|Amortization of premiums (discounts) on securities                                |  |                                | (100      
|                                                                                  |  |                                |           
|Net cash provided by operating activities                                         |  |                                | 17,850    
|                                                                                  |  |                                |           
|Cash Flows from Investing Activities                                              |  |                                |           
|Proceeds from maturities of investment securities                                 |  |                                | 545,608   
|Purchase of investment securities                                                 |  |                                | (1,039,924
|Proceeds from sales of securities                                                 |  |                                | 46,162    
|Repayments of mortgage loans                                                      |  |                                |          
|Originations and purchases, net of repayments, of non-mortgage loans              |  |                                | (96,154   
|Purchase of premises and equipment                                                |  |                                | (1,099    
|Proceeds from sale (purchase) of FHLB stock, net                                  |  |                                | (9,781    
|                                                                                  |  |                                |           
|Net cash used in investing activities                                             |  |                                | (555,188  
|                                                                                  |  |                                |           
|Cash Flows from Financing Activities                                              |  |                                |           
|Issuance of common stock                                                          |  |                                | 171       
|Net (decrease) increase in deposits                                               |  |                                | 8,508     
|Issuance of trust preferred stock                                                 |  |                                | 10,000    
|Repayment, net of proceeds, from FHLB advances                                    |  |                                |          
|Proceeds, net of repayments, from repurchase agreements                           |  |                                | 539,061   
|                                                                                  |  |                                |           
|Net cash provided by financing activities                                         |  |                                | 557,740   
|                                                                                  |  |                                |           
|Net (decrease) increase in cash and cash equivalents                              |  |                                | 20,402    
|                                                                                  |  |                               
|Cash and cash equivalents at beginning of period                                  |  |                                | 13,554    
|                                                                                  |  |                                |           
|Cash and cash equivalents at end of period                                        |  | $                              | 33,956    
|                                                                                  |  |                                |           



See accompanying notes to
consolidated financial statements



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United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

(Unaudited)



|(Dollars in thousands)                            |  | Nine MonthsEnded September 30,
|------------------------------------------------- |  | ------------------------------
|                                                  |  | 2003                          
|Supplemental Disclosures of Cash Flow Information |  |                               
|                                                  |  |                               
|Cash paid for:                                    |  |                               
|Interest                                          |  | $                             
|                                                  |  |                               
|Income Taxes                                      |  | $                             
|                                                  |  |                               



See accompanying notes to
consolidated financial statements



5



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Three and Nine Months Ended September 30, 2003 and 2002

(Unaudited)



|1. | Organization
|-- | ------------



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



|2. | Basis of Presentation
|-- | ---------------------



The accompanying unaudited consolidated financial statements include the accounts of United PanAm Financial Corp., Pan American Financial, Inc. and Pan
American Bank, FSB and its subsidiaries. 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 September 30,
2003 and December 31, 2002. Significant inter-company accounts and transactions have been eliminated in consolidation.



These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Companys financial condition and results of operations for the interim periods presented in this Form 10-Q
have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



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



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|3. | Earnings Per Share
|-- | ------------------



Basic EPS and diluted EPS are calculated as follows for the three and nine months ended September 30, 2003 and 2002:



|(In thousands, except per share amounts)                             |  | Three MonthsEndedSeptember 30, |        | Nine MonthsEndedSeptember 30,
|-------------------------------------------------------------------- |  | ------------------------------ | ------ | -----------------------------
|                                                                     |  | 2003                           |        | 2002                         
|Earnings per sharebasic:                                            |  |                                |        |                              
|Income before cumulative effect of change in accounting principle    |  | $                              | 691    |                              
|Net Income                                                           |  | $                              | 691    |                              
|                                                                     |  |                                |        |                              
|Average common shares outstanding                                    |  |                                | 15,892 |                              
|                                                                     |  |                                |        |                              
|Per share before cumulative effect of change in accounting principle |  | $                              | 0.04   |                              
|                                                                     |  |                                |        |                              
|Earnings per share                                                   |  | $                              | 0.04   |                              
|                                                                     |  |                                |        |                              
|Earnings per sharediluted:                                          |  |                                |        |                              
|Income before cumulative effect of change in accounting principle    |  | $                              | 691    |                              
|Net Income                                                           |  | $                              | 691    |                              
|                                                                     |  |                                |        |                              
|Average common shares outstanding                                    |  |                                | 15,892 |                              
|Add: Stock options                                                   |  |                                | 3,151  |                              
|                                                                     |  |                                |        |                              
|Average common shares outstandingdiluted                            |  |                                | 19,043 |                              
|                                                                     |  |                                |        |                              
|Per share before cumulative effect of change in accounting principle |  | $                              | 0.04   |                              
|                                                                     |  |                                |        |                              
|Earnings per share                                                   |  | $                              | 0.04   |                              
|                                                                     |  |                                |        |                              



|4. | Stock-Based Compensation
|-- | ------------------------



At September 30, 2003 and 2002, the Company has issued stock options to certain of its employees and directors. The Company accounts for these options
under the recognition and measurement principles of APB Opinion No. 25; Accounting for Stock issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted had an
exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation cost for the Companys stock option plan been determined based on the fair value consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Companys net income and income per share would have been reduced to the pro forma amounts indicated below for the three months and nine months ended September 30, 2003 and 2002:



|(In thousands, except per share amounts)                                                                        |  | Three MonthsEndedSeptember 30, |      | Nine Months EndedSeptember 30,
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---- | ------------------------------
|                                                                                                                |  | 2003                           |      | 2002                          
|Net Income as reported                                                                                          |  | $                              | 691  |                               
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards |  | $                              | 363  |                               
|                                                                                                                |  |                                |      |                               
|Net Incomepro forma                                                                                            |  | $                              | 328  |                               
|                                                                                                                |  |                                |      |                               
|Net Income per share as reportedbasic                                                                          |  | $                              | 0.04 |                               
|                                                                                                                |  |                                |      |                               
|Net Income per sharepro formabasic                                                                            |  | $                              | 0.02 |                               
|                                                                                                                |  |                                |      |                               
|Net Income per share as reportedfully diluted                                                                  |  | $                              | 0.04 |                               
|                                                                                                                |  |                                |      |                               
|Net Income per sharepro formafully diluted                                                                    |  | $                              | 0.02 |                               
|                                                                                                                |  |                                |      |                               





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|5. | Allowance for Loan Losses
|-- | -------------------------



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



After consultation with the
Office of Thrift Supervision (OTS), commencing January 1, 2003, the Bank has elected to allocate the purchase price entirely to auto contracts and unearned income at the date of purchase. The unearned income will be accreted as an
adjustment to yield over the life of the contract. An allowance for credit losses will be established through provisions for losses recorded in income as necessary to provide for estimated contract losses (net of remaining unearned income) at each
reporting date. The Company policy was to maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 6 months for loans purchased after January 1, 2003. The Company believed this was an adequate allowance,
in light of its historical experience, managements assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of non-performing loans, current and prospective economic conditions and other factors. In
the third quarter of 2003, the OTS recommended the Company change its policy to maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 12 months. This change in accounting estimate is included in the
Companys $9.7 million charge to earnings in the third quarter of 2003 to increase the allowance for loan losses to the required level.



The total allowance for loan losses was $21.1 million at September 30, 2003 compared with $21.8 million at September 30, 2002, representing 5.07% of loans
at September 30, 2003 and 6.88% at September 30, 2002. Additionally, unearned discounts on loans totaled $11.8 million at September 30, 2003 compared with zero at September 30, 2002, representing 2.84% of loans at September 30, 2003.



|6. | Trust Preferred Securities
|-- | --------------------------



During the three months ended September 30, 2003, the Company issued $10 million of Trust Preferred securities through a subsidiary UPFC Trust1. The
Company will pay interest on these funds at a rate equal to 3 month LIBOR plus 3.05%, variable quarterly, currently 4.16%. The final maturity of these securities is 30 years, however, they can be called at par any time after 5 years, at the option
of the Company.



|7. | Recent Accounting Developments
|-- | ------------------------------



Consolidation of Variable Interest Entities



In January 2003, the FASB issued Interpretation 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 (FIN
46), which requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or is entitled to receive a majority of the
entitys residual returns or both. Prior to FIN 46, a company included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidated requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidated
requirements apply to older entities in the first fiscal year or interim period after September 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest
entity was established. The FASB deferred the effective date for applying the provision of FIN 46 for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003 until the
end of the first interim or annual period after December 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN
46 did not have a material impact on the Companys financial statements.



8



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##### Table of Contents

Amendment of FASB Statement 133



On April 30, 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (FAS 149). The purpose of FAS 149 is to amend and clarify financial accounting and reporting for derivative instruments and hedging activities under Statement 133. FAS 149 amends Statement
133 for decisions made:



| |  | As part of the Derivatives Implementation Group (DIG) process that require amendment to Statement 133,
| | - | ------------------------------------------------------------------------------------------------------



| |  | In connection with other FASB projects dealing with financial instruments, and
| | - | ------------------------------------------------------------------------------



| |  | In connection with the implementation issues raised related to the application of the definition of a derivative.
| | - | -----------------------------------------------------------------------------------------------------------------



These amendments clarify the definition of a derivative, expand the nature of exemptions from
Statement 133, clarify the application of hedge accounting when using certain instruments, clarify the application of paragraph 13 of Statement 133 to embedded derivative instruments in which the underlying is an interest rate, and modify the cash
flow presentation of derivative instruments that contain financing elements. Certain DIG issues, once approved, required amendment to Statement 133. These amendments are reflected in FAS 149. Certain other DIG issues have been amended by FAS 149.
FAS 149 is effective for derivative transactions and hedging relationships entered into or modified after June 30, 2003. The adoption of FAS 149 did not have a material impact on the Companys financial statements.



Financial Instruments with Characteristics of Liabilities and Equity



On May 15, 2003, the FASB issued Statement of Financial
Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (FAS 150). FAS 150 requires issuers to classify as liabilities (or assets in some circumstances)
three classes of freestanding financial instruments that embody obligations for the issue.



Generally, FAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after September 15, 2003. The
Company adopted the provisions of FAS 150 on July 1, 2003. The adoption of FAS 150 did not have a material impact on the Companys financial statements.



|7. | Operating Segments
|-- | ------------------



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



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



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



9



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##### Table of Contents

|                               |  | At or For Three Months Ended September 30, 2003
|------------------------------ |  | -----------------------------------------------
|(In thousands)                 |  | AutoFinance                                    
|Net interest income            |  | $                                              
|Provision for loan losses      |  |                                                
|Non-interest income            |  |                                                
|Non-interest expense           |  |                                                
|                               |  |                                                
|Segment profit, pre-tax        |  | $                                              
|                               |  |                                                
|Total assets                   |  | $                                              
|                               |  |                                                
|                               | 
|                               |  | At or For Three Months Ended September 30, 2002
|(In thousands)                 |  | AutoFinance                                    
|Net interest income            |  | $                                              
|Provision for loan losses      |  |                                                
|Non-interest income            |  |                                                
|Non-interest expense           |  |                                                
|                               |  |                                                
|Segment profit, pre-tax        |  | $                                              
|                               |  |                                                
|Total assets                   |  | $                                              
|                               |  |                                                
|                               | 
|                               |  | At or For Nine Months Ended September 30, 2003 
|(In thousands)                 |  | AutoFinance                                    
|Net interest income            |  | $                                              
|Provision for loan losses      |  |                                                
|Non-interest income            |  |                                                
|Non-interest expense           |  |                                                
|                               |  |                                                
|Segment profit, pre-tax        |  | $                                              
|                               |  |                                                
|Total assets                   |  | $                                              
|                               |  |                                                
|                               | 
|                               |  | At or For Nine Months Ended September 30, 2002 
|(In thousands)                 |  | AutoFinance                                    
|Net interest income            |  | $                                              
|Provision for loan losses      |  |                                                
|Non-interest income            |  |                                                
|Non-interest expense           |  |                                                
|                               |  |                                                
|Segment profit (loss), pre-tax |  | $                                              
|                               |  |                                                
|Total assets                   |  | $                                              
|                               |  |                                                



10



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##### Table of Contents

During 2002, funds provided to the Companys auto and insurance premium finance segments were charged utilizing a
fixed 7.0% transfer rate. During 2003 the transfer rate was adjusted to 4.6% to reflect the expected cost of borrowings and operations at the banking segment. If the funds had been transferred in 2002 on this same basis, the transfer rate utilized
would have been 5.5% and the segment reporting would have been as follows:



|                          |  | Proforma At or For Three Months Ended September 30, 2002
|------------------------- |  | --------------------------------------------------------
|                          |  | AutoFinance                                             
|Net interest income       |  | $                                                       
|Provision for loan losses |  |                                                         
|Non-interest income       |  |                                                         
|Non-interest expense      |  |                                                         
|                          |  |                                                         
|Segment profit, pre-tax   |  | $                                                       
|                          |  |                                                         
|Total assets              |  | $                                                       
|                          |  |                                                         
|                          | 
|                          |  | Proforma At or For Nine Months Ended September 30, 2002 
|                          |  | AutoFinance                                             
|Net interest income       |  | $                                                       
|Provision for loan losses |  |                                                         
|Non-interest income       |  |                                                         
|Non-interest expense      |  |                                                         
|                          |  |                                                         
|Segment profit, pre-tax   |  | $                                                       
|                          |  |                                                         
|Total assets              |  | $                                                       
|                          |  |                                                         



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



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



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



General



The Company



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



11



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##### Table of Contents

The Company commenced operations in 1994 by purchasing from the Resolution Trust Corporation (RTC)
certain assets and assuming certain liabilities of the Banks predecessor, Pan American Federal Savings Bank. The Company has used the Bank as a base for expansion into its current specialty finance businesses. In 1995, the Company commenced
its insurance premium finance business through an agreement with BPN Corporation (BPN) and in 1996, the Company commenced its automobile finance business by establishing UACC as a subsidiary of the Bank.



Automobile Finance



The Company entered the nonprime automobile finance business in February
1996 by establishing UACC. UACC purchases auto contracts primarily from dealers in used automobiles, approximately 75% from independent dealers and 25% from franchisees of automobile manufacturers. UACCs borrowers are classified as nonprime
because they typically have limited credit histories or credit histories that preclude them from obtaining loans through traditional sources. UACCs business strategy includes controlled growth through a national retail branch network. As UACC
provides all marketing, origination, underwriting and servicing activities for its loans, income is generated from a combination of spread and non-interest income and is used to cover all operating costs, including compensation, occupancy and
systems expense.



Insurance Premium Finance



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



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



The Bank



The Bank is a federally chartered stock savings bank, which was formed in 1994. It is the largest Hispanic-controlled savings association in California
with four retail branch offices in the state and $477.0 million in deposits at September 30, 2003. The Bank has been the principal funding source to date for our insurance premium and automobile finance businesses primarily through its retail and
wholesale deposits and FHLB advances. The Bank has focused its branch marketing efforts on building a middle-income customer base, including some efforts targeted at local Hispanic communities. In addition to operating its retail banking business
through its branches, the Bank provides, subject to appropriate cost sharing arrangements, compliance, risk management, executive, financial, facilities and human resources management to other business units of UPFC.



Average Balance Sheets



The following table sets forth information relating to the Company for the
three and nine-month periods ended September 30, 2003 and 2002. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities allocated to continuing operations, respectively, for the periods shown.
The yields and costs include fees, which are considered adjustments to yields.



12



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##### Table of Contents

|                                                                 |  | Three Months Ended September 30, |          
|---------------------------------------------------------------- |  | -------------------------------- | ---------
|                                                                 |  | 2003                             |          
|(Dollars in thousands)                                           |  | AverageBalance(1)                |          
|Assets                                                           |  |                                  |          
|Interest earning assets                                          |  |                                  |          
|Securities                                                       |  | $                                | 1,011,821
|Mortgage loans, net(2)                                           |  |                                  |         
|IPF loans, net(3)                                                |  |                                  | 42,332   
|Automobile installment Contracts, net(4)                         |  |                                  | 343,577  
|                                                                 |  |                                  |          
|Total interest earning assets                                    |  |                                  | 1,397,730
|                                                                 |  |                                  |          
|Non-interest earning assets                                      |  |                                  | 42,678   
|                                                                 |  |                                  |          
|Total assets                                                     |  | $                                | 1,440,408
|                                                                 |  |                                  |          
|Liabilities and Equity                                           |  |                                  |          
|Interest bearing liabilities                                     |  |                                  |          
|Deposits                                                         |  | $                                | 473,195  
|FHLB advances                                                    |  |                                  |         
|Repurchase Agreements                                            |  |                                  | 855,523  
|                                                                 |  |                                  |          
|Total interest bearing liabilities                               |  |                                  | 1,328,718
|                                                                 |  |                                  |          
|Non-interest bearing liabilities                                 |  |                                  | 12,947   
|                                                                 |  |                                  |          
|Total liabilities                                                |  |                                  | 1,341,665
|Equity                                                           |  |                                  | 98,743   
|                                                                 |  |                                  |          
|Total liabilities and equity                                     |  | $                                | 1,440,408
|                                                                 |  |                                  |          
|Net interest income before provision for loan losses             |  |                                  |          
|                                                                 |  |                                  |          
|Net interest rate spread(5)                                      |  |                                  |          
|Net interest margin(6)                                           |  |                                  |          
|Ratio of interest earning assets to interest bearing liabilities |  |                                  |          

---

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

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

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

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

|(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.
|--- | ----------------------------------------------------------------------------------------------



|                                                                 |  | Nine Months Ended September 30, |          
|---------------------------------------------------------------- |  | ------------------------------- | ---------
|                                                                 |  | 2003                            |          
|(Dollars in thousands)                                           |  | AverageBalance(1)               |          
|Assets                                                           |  |                                 |          
|Interest earning assets                                          |  |                                 |          
|Securities                                                       |  | $                               | 860,313  
|Mortgage loans, net(2)                                           |  |                                 |         
|IPF loans, net(3)                                                |  |                                 | 37,936   
|Automobile installment contracts, net(4)                         |  |                                 | 314,513  
|                                                                 |  |                                 |          
|Total interest earning assets                                    |  |                                 | 1,212,762
|                                                                 |  |                                 |          
|Non-interest earning assets                                      |  |                                 | 40,586   
|                                                                 |  |                                 |          
|Total assets                                                     |  | $                               | 1,253,348
|                                                                 |  |                                 |          
|Liabilities and Equity                                           |  |                                 |          
|Interest bearing liabilities                                     |  |                                 |          
|Deposits                                                         |  | $                               | 471,249  
|FHLB advances                                                    |  |                                 |         
|Repurchase agreements                                            |  |                                 | 677,707  
|                                                                 |  |                                 |          
|Total interest bearing liabilities                               |  |                                 | 1,148,956
|                                                                 |  |                                 |          
|Non-interest bearing liabilities                                 |  |                                 | 9,215    
|                                                                 |  |                                 |          
|Total liabilities                                                |  |                                 | 1,158,171
|Equity                                                           |  |                                 | 95,177   
|                                                                 |  |                                 |          
|Total liabilities and equity                                     |  | $                               | 1,253,348
|                                                                 |  |                                 |          
|Net interest income before provision for loan losses             |  |                                 |          
|                                                                 |  |                                 |          
|Net interest rate spread(5)                                      |  |                                 |          
|Net interest margin(6)                                           |  |                                 |          
|Ratio of interest earning assets to interest bearing liabilities |  |                                 |          

---

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

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

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

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

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

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



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Comparison of Operating Results for the Three Months Ended September 30, 2003 and September 30, 2002



General



For the three months ended September 30, 2003, the Company reported income
of $691,000 or $0.04 per diluted share; a decrease of $2.64 million from $3.34 million or $.19 per diluted share for the three months ended September 30, 2002.



The decrease in net income was due primarily to a $9.6 million increase in the provision for loan losses and a $2.0 million increase in non-interest
expense, partially offset by a $7.3 million increase in net interest margin. For further information seeProvision for Loan Losses on Page 15.



Auto contracts purchased, including unearned finance charges, increased $30.4 million to $114.1 million from $83.7 million for the three months ended
September 30, 2002, as a result of our planned growth in the auto finance business. Insurance premium finance originations increased $6.3 million to $32.0 million from $25.7 million for the three months ended September 30, 2002.



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##### Table of Contents

Interest Income



Interest income increased to $26.7 million from $18.9 million for the three months ended September 30, 2002, due primarily
to a $530.3 million increase in average interest earning assets, partially offset by a 1.06% decrease in yield on earning assets. The largest growth components in average interest earning assets were in investment securities, which increased by
$429.5 million and automobile installment contracts, which increased by $99.0 million. The increase in investment securities reflects the need to increase assets to meet the 30% qualified thrift lender requirement of the Office of Thrift Supervision
(OTS) while the increase in auto contracts resulted from the purchase of additional dealer contracts in existing and new markets consistent with planned growth.



The decline in net interest margin was due primarily to an increased concentration of lower yielding securities in the three
months ended September 30, 2003 compared to the three months ended September 30, 2002. The yield on the average balance of short-term investments and investment securities decreased to 1.57% from 2.60% for the 3-month periods ending September 30,
2003 and 2002, respectively.



Interest Expense



Interest expense increased to $5.8 million for the three
months ended September 30, 2003 from $5.3 million for the three months ended September 30, 2002, due to a $517.0 million increase in average interest bearing liabilities, partially offset by a general decline in market interest rates. The largest
components of average interest bearing liabilities were deposits of $473.2 million and repurchase agreements of $855.5 million. Average repurchase agreements increased to $855.5 million from $376.0 million for the three months ended of September 30,
2002 as a result of a corresponding increase in investment securities. The average cost of liabilities decreased to 1.73% for the three months ended September 30, 2002 from 2.57% for the comparable period in 2002, generally as a result of a decrease
in market interest rates and an increased concentration of lower cost repurchase agreements.



Provision for Loan Losses



The provision for loan losses was $9.7 million for the three months ended September 30, 2003 compared to $51,000 for the three months ended September 30, 2002. The provision for loan losses in 2002 reflects only estimated losses associated
with the Companys insurance premium finance business. The provision for 2003 reflects a provision expense of $9.6 million in UACC and a provision expense of $52,000 in IPF.



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



After consultation
with the OTS, commencing January 1, 2003, the Bank elected to allocate the purchase price entirely to auto contracts and unearned income at the date of purchase. The unearned income is being accreted as an adjustment to yield over the life of the
contract. An allowance for credit losses is being established through provisions for losses recorded in income as necessary to provide for estimated contract losses (net of remaining unearned income) at each reporting date. The Company determined to
maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 6 months for loans purchased after January 1, 2003. The Company believed this policy resulted in an adequate allowance, in light of its historical
experience, managements assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of non-performing loans, current and prospective



15



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##### Table of Contents

economic conditions and other factors. In the third quarter of 2003, the OTS recommended the Company change its policy to maintain an allowance for all loans
in its portfolio to cover estimated net charge-offs for the next 12 months. This change in accounting estimate is included in the Companys $9.7 million charge to earnings in the third quarter of 2003 to increase the allowance for loan losses
to the required level.



The total allowance for loan losses was
$21.1 million at September 30, 2003 compared with $21.8 million at September 30, 2002, representing 5.07% of loans at September 30, 2003 and 6.88% at September 30, 2002. Additionally, unearned discounts on loans totaled $11.8 million at September
30, 2003 compared with zero at September 30, 2002, representing 2.84% of loans at September 30, 2003.



Annualized net charge-offs to average loans were 5.58% for the three months ended September 30, 2003 compared with 5.9% for the three months ended
September 30, 2002.



Non-interest Income



Non-interest income increased to $557,000 from $519,000 for the three months
ended September 30, 2003.



Non-interest Expense



Non-interest expense increased $2.0 million to $10.6
million from $8.6 million for the three months ended September 30, 2002. The increase in non-interest expense was driven primarily by an increase in salaries, employee benefit costs and occupancy expenses associated with the planned growth of the
auto finance business segment. During the last year, the Company expanded its automobile finance operations, resulting in an increase to 440 employees in 65 offices, as of September 30, 2003 from 334 employees in 51 offices, as of September 30,
2002.



Income Taxes



Income taxes decreased $1.7 million to $475,000 for the three months ended
September 30, 2003 from $2.2 million for the three months ended September 30, 2002. This increase occurred as a result of a $4.3 million decrease in income before income taxes between the two periods. The effective tax rate was 40.7% for the three
months ended September 30, 2003 and 39.4% for the three months ended September 30, 2003. This increase was primarily a result of an increase in state taxes.



Comparison of Operating Results for the Nine Months Ended September 30, 2003 and September 30, 2002



General



For the nine months ended September 30, 2003, the Company reported income of $8.7 million or $0.48 per diluted share. This compares with income of $9.0
million or $0.51 per diluted share, for the comparable period a year ago.



The decrease in net income was due primarily to a $12.1 million increase in provision for loan losses and a $5.6 million increase in non-interest expense, partially offset by a $16.3 million increase in net interest
income for the first nine months of 2003, compared with the first nine months of 2002.



Auto contracts purchased, including unearned finance charges, increased $104.3 million to $337.0 million for the nine months ended September 30, 2003 from $232.7 million for the nine months ended September 30, 2002,
as a result of our planned growth in the auto finance business, while insurance premium finance originations increased $2.8 million to $86.8 million for the nine months ended September 30, 2003 from $84.0 million for the nine months ended September
30, 2003



16



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##### Table of Contents

Interest Income



Interest income increased to $71.3 million from $51.8 million for the nine months ended September 30, 2002, due primarily to
a $503.0 million increase in average interest earning assets, partially offset by a 1.9% decrease in yield on earning assets. The largest growth components in average interest earning assets were in investment securities, which increased by $415.8
million and automobile installment contracts, which increased by $89.6 million. The increase in investment securities reflects the need to increase assets to meet the 30% qualified thrift lender requirement of the OTS, while the increase in auto
contracts resulted from the purchase of additional dealer contracts in existing and new markets consistent with planned growth.



The decline in net interest margin was due primarily to an increased concentration of lower yielding securities in the nine months ended September 30,
2003 compared to the nine months end September 30, 2002. The yield on the average balance of short-term investments and investment securities decreased to 1.84% from 2.89% for the nine-month periods ending September 30, 2003 and 2002, respectively.



Interest Expense



Interest expense increased to $16.9 million from $13.7 million for the nine
months ended September 30, 2002 due to a $494.1 million increase in average interest bearing liabilities, partially offset by a 0.83% decline in average cost of liabilities. The largest components of average interest bearing liabilities are Bank
deposits, which increased to $471.2 million from an average balance of $385.9 million during the nine months ended September 30, 2002, and repurchase agreements, which increased to $677.7 million from $217.0 million for the nine months ended
September 30, 2002 The average cost of liabilities decreased to 1.97% for the nine months ended September 30, 2003 from 2.80% for the comparable period in 2003 generally as a result of a decrease in market interest rates.



Provision and Allowance for Loan Losses



The provision for loan losses was $12.3 million for the nine months ended
September 30, 2003 compared to $234,000 for the nine months ending September 30, 2002. The provision for loan losses in 2002 reflects only estimated losses associated with the Companys insurance premium finance business. The provision for 2003
reflects a provision expense of $12.4 million in UACC, partially offset by an $88,000 recovery of expense in IPF. The recovery of expense in IPF reflects a substantial reduction in loan losses in the first half of 2003 and in probable incurred
losses. This change in losses resulted from a change in loan mix in IPF from auto insurance premium loans to commercial insurance premium loans, which have lower expected losses.



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



After consultation
with the OTS, commencing January 1, 2003, the Bank elected to allocate the purchase price entirely to auto contracts and unearned income at the date of purchase. The unearned income is being accreted as an adjustment to yield over the life of the
contract. An allowance for credit losses is being established through provisions for losses recorded in income as necessary to provide for estimated contract losses (net of remaining unearned income) at each reporting date. The Company determined to
maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 6 months for loans purchased after January 1, 2003. The Company believed policy resulted in an adequate allowance, in light of its historical
experience, managements assessment of the credit risk inherent in the portfolio,



17



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##### Table of Contents

prior loss experience, the levels and trends of non-performing loans, current and prospective economic conditions and other factors. In the third quarter of
2003, the OTS recommended the Company change its policy to maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 12 months. This change in accounting estimate is included in the Companys $12.3
million charge to earnings for the nine-months ended September 30, 2003 to increase the allowance for loan losses to the required level.



The total allowance for loan losses was $21.1 million at September 30, 2003 compared with $21.8 million at September 30, 2002, representing 5.07% of loans
at September 30, 2003 and 6.88% at September 30, 2002. Additionally, unearned discounts on loans totaled $11.8 million at September 30, 2003 compared with zero at September 30, 2002, representing 2.84% of loans at September 30, 2003.



Annualized net charge-offs to average loans were 5.46% for the nine months
ended September 30, 2003 compared with 5.45% for the nine months ended September 30, 2002. The allowance for loan losses for 2003 was favorably impacted by the recovery of $537,000 from the State of California for refund of sales taxes on
repossessed autos.



Non-interest Income



Non-interest income increased to $2.5 million from $1.2 million for the nine
months ended September 30, 2002 as a result of a $716,000 gain on the sale of all remaining mortgage related assets and a $402,000 gain on the sale of investment securities.



Non-interest Expense



Non-interest expense increased $5.5 million to $30.0 million from $24.5 million for the nine months ended September 30, 2002. The increase in non-interest
expense was driven primarily by an increase in salaries, employee benefit costs and occupancy expenses associated with the planned growth of the auto finance business. During the last year, the Company expanded its automobile finance operations,
resulting in an increase to 440 employees in 65 offices, as of September 30, 2003, from 334 employees in 51 offices, as of September 30, 2002.



Income Taxes



Income taxes increased $200,000; to $5.9 million for the nine months ended September 30, 2003 from $5.7 million for the nine months ended September 30,
2002.



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



Total assets increased $558.7 million to
$1,510.0 million, from $951.3 million at December 31, 2002. This increase occurred primarily as a result of a $96.5 million increase in loans to $427.8 million from $331.3 million at December 31, 2002 and a $444.7 million increase in the securities
to $1,048.0 million, from $603.3 million at December 31, 2002.



Deposits increased $8.5 million to $477.0 million from $468.5 million at December 31, 2002. Retail deposits increased $28.0 million to $340.8 million from $312.8 million at December 31, 2002. Brokered deposits decreased $19.5 million to
$136.2 million from $155.7 million at December 31, 2002.



18



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##### Table of Contents

During the 3 months ended September 30, 2003, the Company sold the deposits of one of the Retail bank
branches. The deposits sold are approximately $35 million and the transaction is expected to close in January 2004.



Repurchase agreements increased $539.1 million to $923.7 million at September 30, 2003 from $384.6 million at December 31, 2002. The increase was in LIBOR
based floating rate borrowings used to fund LIBOR based floating rate securities.



During the three months ended September 30, 2003, the Company issued $10 million of Trust Preferred securities through a subsidiary UPFC Trust1. The Company will pay interest on these funds at a rate equal to 3 month
LIBOR plus 3.05%, variable quarterly, currently 4.16%. The final maturity of these securities is 30 years, however, they can be called at par any time after 5 years, at the option of the Company.



Shareholders equity increased to $97.9 million at September 30, 2003
from $89.7 million at December 31, 2002, primarily as a result of net income of $8.7 million during the nine months ended September 30, 2002.



Management of Interest Rate Risk



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



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



The
Banks interest rate sensitivity is monitored by the Board of Directors and management through the use of a model, which estimates the change in the Banks net portfolio value (NPV) over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets and liabilities, and NPV Ratio is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The Company utilizes a market value model based on
the Banks quarterly financial information.



At June 30,
2003, the most recent date for which the relevant NPV model is available, the Banks sensitivity measure resulting from a 200 basis point decrease in interest rates was 89 basis points and would result in a $14 million increase in the NPV of
the Bank, and from a 200 basis point increase in interest rates was -90 basis points and would result in a $14 million decrease in the NPV of the Bank.



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



The following
table shows the NPV and projected change in the NPV of the Bank at June 30, 2003 assuming an instantaneous and sustained change in market interest rates of 100, 200 and 300 basis points (bp).



19



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##### Table of Contents

Interest Rate Sensitivity of Net Portfolio Value



|                |  | Net Portfolio Value    |         |          | NPV as % of PortfolioValue of Assets
|--------------- |  | ---------------------- | ------- | -------- | ------------------------------------
|Change in Rates |  | $ Amount               |         | $ Change |                                     
|                |  | (Dollars in thousands)
|+300 bp         |  | $                      | 112,310 |          | $                                   
|+200 bp         |  |                        | 119,364 |          |                                     
|+100 bp         |  |                        | 126,407 |          |                                     
|0 bp            |  |                        | 133,438 |          |                                     
|-100 bp         |  |                        | 140,457 |          |                                     
|-200 bp         |  |                        | 147,690 |          |                                     
|-300 bp         |  |                        | 152,619 |          |                                     



Liquidity and Capital Resources



General



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



The major source of funds consists of deposits obtained through the Banks four retail branches in California. The Bank offers checking accounts,
various money market accounts, regular passbook accounts, fixed interest rate certificates with varying maturities and retirement accounts. Deposit account terms vary by interest rate, minimum balance requirements and the duration of the account.
Interest rates paid, maturity terms, service fees and withdrawal penalties are established by the Bank periodically based on liquidity and financing requirements, rates paid by competitors, growth goals and federal regulations. At September 30, 2003
retail deposits were $340.7 million or 71.4% of total deposits.



The Bank also uses broker-originated deposits to supplement its retail deposits and, at September 30, 2003, brokered deposits totaled $136.2 million or 28.6% of total deposits. Brokered deposits are originated through major dealers
specializing in such products.



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



|                        |  | September 30, 2003     |         |                     | December 31, |     
|----------------------- |  | ---------------------- | ------- | ------------------- | ------------ | ----
|                        |  |                        | 2002    |                     |              | 2001
|                        |  | Balance                |         | WeightedAverageRate |              |     
|                        |  | (Dollars in thousands) |        
|Passbook accounts       |  | $                      | 70,061  |                     | 1.54         | %   
|Checking accounts       |  |                        | 20,652  |                     | 0.77         | %   
|Certificates of deposit |  |                        |         |                     |              |     
|Under $100,000          |  |                        | 291,090 |                     | 3.24         | %   
|$100,000 and over       |  |                        | 95,163  |                     | 2.57         | %   
|                        |  |                        |         |                     |              |     
|Total                   |  | $                      | 476,966 |                     | 2.75         | %   
|                        |  |                        |         |                     |              |     





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##### Table of Contents

The following table sets forth the time remaining until maturity for all CDs at September 30, 2003,
December 31, 2002 and 2001.



|                              |  | September 30,2003      |         | December 31,2002 |   | December 31, 2001
|----------------------------- |  | ---------------------- | ------- | ---------------- | - | -----------------
|                              |  | (Dollars in thousands)
|Maturity within one year      |  | $                      | 170,967 |                  | $ | 185,295          
|Maturity within two years     |  |                        | 78,936  |                  |   | 58,852           
|Maturity within three years   |  |                        | 43,958  |                  |   | 41,628           
|Maturity over three years     |  |                        | 92,392  |                  |   | 112,918          
|                              |  |                        |         |                  |   |                  
|Total certificates of deposit |  | $                      | 386,253 |                  | $ | 398,693          
|                              |  |                        |         |                  |   |                  



The Bank has made
significant progress in extending maturities of its deposits. However, the Bank has a significant amount of deposits maturing in less than one year. The Company believes the Banks current pricing strategy will enable it to retain a significant
portion of these accounts at 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 September 30, 2003, the Bank exceeded all of its regulatory capital requirements with tangible capital of $97.5 million,
or 6.46% of total adjusted assets, which is above the required level of $22.6 million, or 1.5%; core capital of $97.5 million, or 6.46% of total adjusted assets, which is above the required level of $45.3 million, or 3.0%; and risk-based capital of
$102.2 million, or 18.82% of risk-weighted assets, which is above the required level of $43.4 million, or 8.0%.



As used herein, leverage ratio means the ratio of core capital to adjusted total assets, Tier 1 risk-based capital ratio means the ratio of core capital
to risk-weighted assets, and total risk-based capital ratio means the ratio of total capital to risk-weighted assets, in each case as calculated in accordance with current OTS capital regulations. Under the Federal Deposit Insurance Corporation Act
of 1991 (FDICIA), the Bank is deemed to be well capitalized as of September 30, 2003.



The Company has other sources of liquidity, including FHLB advances, repurchase agreements and its liquidity and securities portfolio. Through the Bank,
the Company can obtain advances from the FHLB, collateralized by its securities and enter into repurchase agreements utilizing its securities. The FHLB functions as a central reserve bank providing credit for thrifts and certain other member
financial institutions. Advances are made pursuant to several programs, each of which has its own interest rate and range of maturities. Limitations on the amount of advances are based generally on a fixed percentage of total assets or on the
FHLBs assessment of an institutions credit-worthiness. As of September 30, 2003, the Banks total borrowing capacity under this credit facility was $453.0 million of which $231.5 million was utilized to fund repurchase agreements
and $221.5 million was available.



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



|                                                             |  | Nine Monthsended September 30,2003 |         |   | December 31, |     
|------------------------------------------------------------ |  | ---------------------------------- | ------- | - | ------------ | ----
|                                                             |  |                                    | 2001    |   |              | 2002
|                                                             |  | (Dollars in thousands)             |        
|FHLB advances                                                |  |                                    |         |   |              |     
|Maximum month-end balance                                    |  | $                                  |        |   |              | $   
|Balance at end of period                                     |  |                                    |        |   |              |     
|Average balance for period                                   |  |                                    |        |   |              |     
|Weighted average interest rate on balance at end of period   |  |                                    |        | % |              |     
|Weighted average interest rate on average balance for period |  |                                    |        | % |              |     
|Repurchase agreements                                        |  |                                    |         |   |              |     
|Maximum month end balance                                    |  | $                                  | 923,685 |   |              |     
|Balance at end of period                                     |  |                                    | 923,685 |   |              |     
|Average balance for period                                   |  |                                    | 677,707 |   |              |     
|Weighted average interest rate on balance at end of period   |  |                                    | 1.12    | % |              |     
|Weighted average interest rate on average balance for period |  |                                    | 1.24    | % |              |     



21



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##### Table of Contents

The Company had no material contractual obligations or commitments for capital expenditures at September
30, 2003.



Lending Activities



Summary of Loan Portfolio. At September 30, 2003, the Companys
net loan portfolio constituted of $394.9 million, or 26% of the Companys total assets.



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



|(Dollars in thousands)           |  | September 31,2003 |         |   | December 31,2002 |   |         | December 31, 2001 | 
|-------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | ----------------- | 
|Consumer Loans                   |  |                   |         |   |                  |   |         |                   | 
|Automobile installment contracts |  | $                 | 383,185 |   |                  | $ | 298,345 |                   | 
|Insurance premium finance        |  |                   | 15,670  |   |                  |   | 17,922  |                   | 
|Other consumer loans             |  |                   | 53      |   |                  |   | 80      |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Total consumer loans             |  |                   | 398,908 |   |                  |   | 316,347 |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Mortgage Loans                   |  |                   |         |   |                  |   |         |                   | 
|Subprime mortgage loans          |  |                   |        |   |                  |   |        |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Total mortgage loans             |  |                   |        |   |                  |   |         |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Commercial Loans                 |  |                   |         |   |                  |   |         |                   | 
|Insurance premium finance        |  |                   | 28,867  |   |                  |   | 18,400  |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Total commercial loans           |  |                   | 28,867  |   |                  |   | 18,400  |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Total loans                      |  |                   | 427,775 |   |                  |   | 334,747 |                   | 
|Unearned discounts               |  |                   | (11,815 | ) |                  |   |        |                   | 
|Unearned finance charges         |  |                   |        |   |                  |   | (3.490  | )                 | 
|Allowance for loan losses        |  |                   | (21,099 | ) |                  |   | (23,179 | )                 | 
|                                 |  |                   |         |   |                  |   |         |                   | 
|Total loans, net                 |  | $                 | 394,861 |   |                  | $ | 308,078 |                   | 
|                                 |  |                   |         |   |                  |   |         |                   | 



Loan
Maturities. The following table sets forth the dollar amount of loans maturing in the Companys loan portfolio at September 30, 2003 based on final maturity. Loan balances are reflected before unearned discounts and premiums, unearned
finance charges and allowance for loan losses.



22



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##### Table of Contents

|(Dollars in thousands) |  | One Yearor Less |        | More Than1 Year to3 Years |   | More Than3 Years to5 Years |  | More Than 5Years to10 Years |         | TotalLoans
|---------------------- |  | --------------- | ------ | ------------------------- | - | -------------------------- |  | --------------------------- | ------- | ----------
|Commercial loans       |  |                 | 28,867 |                           |   |                           |  |                             |        |           
|Consumer loans         |  |                 | 25,058 |                           |   | 130,004                    |  |                             | 242,426 |           
|                       |  |                 |        |                           |   |                            |  |                             |         |           
|Total                  |  | $               | 53,925 |                           | $ | 130,004                    |  | $                           | 242,426 |           
|                       |  |                 |        |                           |   |                            |  |                             |         |           



Classified Assets
and Allowance for Loan Losses



The Companys policy
is to maintain an allowance for loan losses to absorb inherent losses, which may be realized on its loan portfolio. These allowances are general valuation allowances for estimates for probable losses not specifically identified. Historically, the
Bank has accounted for the purchase of auto contracts, purchased through its subsidiary UACC, by recording the auto contract at face value, and allocating the remainder to the allowance for credit losses and unearned income. This method resulted in
estimated expected credit losses over the life of the contract being provided at the date of purchase and the credit-adjusted yield being recorded as interest income over the life of the contract. At December 31, 2002, the Company was allocating
11.5% of the net loan amount of all new auto loans to the allowance for loan losses.



After consultation with the OTS, commencing January 1, 2003, the Bank elected to allocate the purchase price entirely to auto contracts and unearned income at the date of purchase. The unearned income is being
accreted as an adjustment to yield over the life of the contract. An allowance for credit losses is being established through provisions for losses recorded in income as necessary to provide for estimated contract losses (net of remaining unearned
income) at each reporting date. The Company determined to maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 6 months for loans purchased after January 1, 2003. The Company believed this policy
resulted in an adequate allowance, in light of its historical experience, managements assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of non-performing loans, current and prospective
economic conditions and other factors. In the third quarter of 2003, the OTS recommended the Company change its policy to maintain an allowance for all loans in its portfolio to cover estimated net charge-offs for the next 12 months. This change in
accounting estimate is included in the Companys $9.7 million charge to earnings in the third quarter of 2003 to increase the allowance for loan losses to the required level.



The total allowance for loan losses was $21.1 million at September 30, 2003 compared with $21.8 million at September 30,
2002, representing 5.07% of loans at September 30, 2003 and 6.88% at September 30, 2002. Additionally, unearned discounts on loans totaled $11.8 million at September 30, 2003 compared with zero at September 30, 2002, representing 2.84% of loans at
September 30, 2003.



For IPF loans, management established a
level of allowance for loan losses based on recent trends in delinquencies and historical charge offs, currently 0.65% of loans, that it feels adequate for the risk in the portfolio. Each month an amount necessary to reach that level is charged
against current earnings and added to allowance for loan losses. The level of allowance for loan losses was reduced from 1.25% of loans at December 31, 2002 to the current 0.65% of loans at September 30, 2003 because of a substantial reduction in
loan losses in the first quarter of 2003. This reduction in losses resulted primarily from a change in the loan mix from automobile insurance premium loans to commercial insurance premium loans, which have lower expected losses.



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



23



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##### Table of Contents

The Companys management uses its best judgment in providing for possible loan losses and
establishing allowances for loan losses. However, the allowance is an estimate, which is inherently uncertain and depends on the outcome of future events. In addition, regulatory agencies, as an integral part of their examination process,
periodically review the Banks allowance for loan losses. Such agencies may require the Bank to increase the allowance based upon their judgment of the information available to them at the time of their examination. The Banks most recent
examination by its regulatory agencies was completed in July 2003 and the adjustment to the Banks allowance for loan losses previously discussed was required.



The following table sets forth the remaining balances of all loans that were more than 30 days delinquent at September 30,
2003, December 31, 2002 and 2001.



|LoanDelinquencies |  | September 30,2003      |       | % of TotalLoans |    |   | December 31,2002 |   | % of TotalLoans |  |     | December 31,2001 |  | % of Total Loans |      
|----------------- |  | ---------------------- | ----- | --------------- | -- | - | ---------------- | - | --------------- |  | --- | ---------------- |  | ---------------- | -----
|                  |  | (Dollars in thousands) |      
|30 to 59 days     |  | $                      | 2,079 |                 | .5 | % |                  | $ | 1,778           |  | 0.5 | %                |  | $                | 1,368
|60 to 89 days     |  |                        | 937   |                 | .3 | % |                  |   | 808             |  | 0.3 | %                |  |                  | 776  
|90+ days          |  |                        | 511   |                 | .1 | % |                  |   | 480             |  | 0.1 | %                |  |                  | 942  
|                  |  |                        |       |                 |    |   |                  |   |                 |  |     |                  |  |                  |      
|Total             |  | $                      | 3,527 |                 | .9 | % |                  | $ | 3,066           |  | 0.9 | %                |  | $                | 3,086
|                  |  |                        |       |                 |    |   |                  |   |                 |  |     |                  |  |                  |      



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



The following table sets forth the aggregate amount of nonaccrual loans (net
of unearned discounts, premiums and unearned finance charges) at September 30, 2003, December 31, 2002 and 2000.



|                                                         |  | September 30,2003      |      |   | December 31, |     
|-------------------------------------------------------- |  | ---------------------- | ---- | - | ------------ | ----
|                                                         |  |                        | 2002 |   |              | 2001
|                                                         |  | (Dollars in thousands) |     
|Nonaccrual loans                                         |  |                        |      |   |              |     
|Single-family residential                                |  | $                      |     |   |              | $   
|Multi-family residential and commercial                  |  |                        |     |   |              |     
|Consumer and other loans                                 |  |                        | 128  |   |              |     
|                                                         |  |                        |      |   |              |     
|                                                         |  | $                      | 128  |   |              | $   
|                                                         |  |                        |      |   |              |     
|Nonaccrual loans as a percentage of total loans          |  |                        | 0.03 | % |              |     
|Allowance for loan losses as a percentage of total loans |  |                        | 5.07 | % |              |     



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##### Table of Contents

Allowance for Loan Losses. The following is a summary of the changes in the consolidated allowance
for loan losses of the Company for the period indicated. See page 8 for description of changes in allowance for loan losses.



|                                                  |  | At or For the NineMonths EndedSeptember 30,2003 |         |   | At or For theYear EndedDecember 31, |     
|------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ----------------------------------- | ----
|                                                  |  |                                                 | 2002    |   |                                     | 2001
|                                                  |  | (Dollars in thousands)                          |        
|Allowance for Loan Losses                         |  |                                                 |         |   |                                     |     
|Balance at beginning of period                    |  | $                                               | 23,179  |   |                                     | $   
|Provision for loan losses                         |  |                                                 | 12,304  |   |                                     |     
|Charge-offs                                       |  |                                                 |         |   |                                     |     
|Mortgage loans                                    |  |                                                 |        |   |                                     |     
|Consumer loans                                    |  |                                                 | (15,950 | ) |                                     |     
|                                                  |  |                                                 |         |   |                                     |     
|                                                  |  |                                                 | (15,950 | ) |                                     |     
|Recoveries                                        |  |                                                 |         |   |                                     |     
|Mortgage loans                                    |  |                                                 |        |   |                                     |     
|Consumer loans                                    |  |                                                 | 1,566   |   |                                     |     
|                                                  |  |                                                 |         |   |                                     |     
|                                                  |  |                                                 | 1,566   |   |                                     |     
|                                                  |  |                                                 |         |   |                                     |     
|Net charge-offs                                   |  |                                                 | (14,384 | ) |                                     |     
|Acquisition discounts allocated to loss allowance |  |                                                 |        |   |                                     |     
|                                                  |  |                                                 |         |   |                                     |     
|Balance at end of period                          |  | $                                               | 21,099  |   |                                     | $   
|                                                  |  |                                                 |         |   |                                     |     
|Annualized net charge-offs to average loans       |  |                                                 | 5.46    | % |                                     |     
|Ending allowance to period end loans              |  |                                                 | 5.07    | % |                                     |     



Cash Equivalents and Securities
Portfolio



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



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



|                                           |  | September 30,2003      |            |   | December 31, |     
|------------------------------------------ |  | ---------------------- | ---------- | - | ------------ | ----
|                                           |  |                        | 2002       |   |              | 2001
|                                           |  | (Dollars in thousands) |           
|Balance at end of period                   |  |                        |            |   |              |     
|Overnight deposits                         |  | $                      | 24,690     |   |              | $   
|U.S. agency securities                     |  |                        | 94,686     |   |              |     
|U.S. mortgage backed securities            |  |                        | 953,303    |   |              |     
|Mutual funds                               |  |                        |           |   |              |     
|                                           |  |                        |            |   |              |     
|Total                                      |  | $                      | 1,072,679  |   |              | $   
|                                           |  |                        |            |   |              |     
|Weighted average yield at end of period    |  |                        |            |   |              |     
|Overnight deposits                         |  |                        | 0.99       | % |              |     
|U.S. agency securities                     |  |                        | 1.80       | % |              |     
|U.S. mortgage backed securities            |  |                        | 1.65       | % |              |     
|Mutual funds (mortgage backed securities)  |  |                        |           | % |              |     
|Weighted average maturity at end of period |  |                        |            |   |              |     
|Overnight deposits                         |  |                        | 1 day      |   |              |     
|U.S. agency securities                     |  |                        | 55 months  |   |              |     
|U.S. mortgage backed securities            |  |                        | 321 months |   |              |     
|Mutual funds (mortgage backed securities)  |  |                        |           |   |              |     



25



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##### Table of Contents

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



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



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



|(a) | Evaluation of Disclosure Controls and Procedures
|--- | ------------------------------------------------



As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company evaluated the effectiveness of the design and operation of
its disclosure controls and procedures (Disclosure Controls). This evaluation (the Controls Evaluation) was done under the supervision and with the participation of management, including our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO). The effectiveness of the Companys disclosure controls and procedures, as determined by this evaluation, is disclosed in the Chief Executive Officers Certification of Report
on Form 10-Q for the Quarter Ending September 30, 2003, filed as Exhibit 31.1 hereto, and the Chief Financial Officers Certification Report on Form 10-Q for the Quarter Ending September 30, 2003, filed as Exhibit 31.2 hereto, (together,
Certifications).



Disclosure Controls are
procedures that are designed with the objective of ensuring that information required to be disclosed in the Companys reports filed under the Exchange Act, such as this Quarterly Report is recorded, processed summarized and reported within the
time periods specified in the SECs rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to management included the CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure.



The
Companys management, including the CEO and CFO, does not expect that the Companys Disclosure Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.



The overall goal of the evaluation activities is to monitor the Companys Disclosure Controls and to make modifications as necessary. The
Companys intent in this regard is that the Disclosure Controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.



26



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##### Table of Contents

Based upon the Controls Evaluation, The Companys CEO and CFO have concluded that, subject to the
limitations noted above, The Companys Disclosure Controls are effective to ensure that material information relating to UPFC and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the
period when periodic reports are being prepared, and that The Companys Internal Controls are effective to provide reasonable assurance that its financial statements are fairly presented in conformity with GAAP.



|(B) | Changes in Internal Controls
|--- | ----------------------------



In accord with SEC requirements, and as disclosed in the Certifications, during the quarter ended September 30, 2003, there have been no significant
changes in internal controls over financial reporting or in other factors that has materially affected or is reasonably likely to materially affect, such controls.



|PART II. | OTHER INFORMATION
|-------- | -----------------



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



Not applicable



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



Not applicable



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



Not applicable



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



None



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



Not applicable



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



| | (a) | List of Exhibits
| | --- | ----------------



Exhibit 3.1 Articles of Incorporation of United PanAm Financial Corp., as amended



Exhibit 4.1 Indenture dated July 31, 2003 for Trust
Preferred Securities



Exhibit 4.2 Guarantee
Agreement dated July 31, 2003 for Trust Preferred Securities



Exhibit 4.3 Amended and Restated Declaration of Trust dated July 31, 2003



Exhibit 10.113 Addendum to the Employment Agreement between Pan American Bank, FSB and John J. Warren



Exhibit 31.1 Rule 13a-14(a) / 15d-14(a) Certification



Exhibit 31.2 Rule 13a-14(a) / 15d-14(a)
Certification



Exhibit 32.1 Section 1350
Certification



Exhibit 32.2 Section 1350
Certification



27



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##### Table of Contents

| | (b) | Reports on Form 8-K
| | --- | -------------------



Form 8-K filed September 18, 2003



Form 8-K filed October 22, 2003



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



|                        |  | United PanAm Financial Corp.                                                                               
|----------------------- |  | -----------------------------------------------------------------------------------------------------------
|                        | 
|Date: November 12, 2003 |  | /s/    Guillermo Bron                                                                                      
|                        |  | Guillermo Bron Chairman and Chief Executive Officer (Principal Executive Officer)                          
|                        | 
|Date: November 12, 2003 |  | /s/    Garland W. Koch                                                                                     
|                        |  | Garland W. Koch Sr. Vice President and Chief Financial Officer (Principal Financial and Accounting
Officer)



28