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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K      x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $29,000,000, based upon the closing sales price of the Common Stock as reported on the Nasdaq National Market on December 31, 2002.  Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates.  Such determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the Registrant’s Common Stock as of March 1, 2003 was 15,869,666 shares.

Documents Incorporated by Reference

Portions of the Registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2003 Annual Meeting of Shareholders to be held June 24, 2003 are incorporated by reference in PART III hereof.  Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2002.

UNITED PANAM FINANCIAL CORP.

2002 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

          Certain statements in this Annual Report on Form 10-K, including statements regarding United PanAm Financial Corp.’s (“UPFC”) strategies, plans, objectives, expectations and intentions, may include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements.  Such risks and uncertainties include, but are not limited to, the following factors: our limited operating history; loans we made to credit-impaired borrowers; our need for additional sources of financing; concentration of our banking business in California; reliance on operational systems and controls and key employees; competitive pressure we face in the banking industry; changes in the interest rate environment; rapid growth of our businesses; general economic conditions; impact of inflation and changing prices; and other risks, some of which may be identified from time to time in our filings with the Securities and Exchange Commission (the “SEC”).  See “Item 1.  Business – Factors That May Affect Future Results of Operations.”

Item 1.           Business

      General

          UPFC is a holding company for Pan American Financial, Inc. (“PAFI”) and Pan American Bank, FSB (the “Bank”). PAFI is a wholly owned subsidiary of UPFC and the Bank is a wholly owned subsidiary of PAFI. The Bank is the largest Hispanic-controlled savings association in California. The Office of Thrift Supervision (“OTS”), which regulates UPFC, PAFI and the Bank, categorizes UPFC, PAFI and the Bank as being minority owned.

          UPFC is a specialty finance company engaged primarily in originating and acquiring, for investment, retail automobile installment sales contracts and insurance premium finance contracts. We market to customers who generally cannot obtain financing from traditional lenders.  These customers usually pay higher loan fees and interest rates than those charged by traditional lenders to gain access to consumer financing. We fund our operations principally through retail and wholesale deposits, Federal Home Loan Bank (“FHLB”) advances and repurchase agreements. All of our revenues are attributed to customers located in the United States of America.

          We have used the Bank as a base for expansion into our current specialty auto finance and insurance premium finance business. We commenced our automobile finance business in 1996 through United Auto Credit Corporation (“UACC”), a wholly owned subsidiary of the Bank. We commenced our insurance premium finance business in 1994, through an agreement with BPN Corporation (“BPN”). For more information about our direct and indirect subsidiaries see “Item 1, Business Subdivisions.”

     History

          Our predecessor, United PanAm Financial Corp., a Delaware corporation, 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 on April 29, 1994. UPFC was incorporated in California on April 19, 1998 for the purpose of reincorporating in California through the merger of the Delaware Corporation into UPFC. Unless the context indicates otherwise, all references to UPFC include the previous Delaware Corporation.

          UPFC was originally organized as a holding company for PAFT and the Bank. PAFI was the obligor on loans obtained from the RTC in connection with the Minority Interim Capital Assistance Program provided under the Federal Home Loan Bank Act. These loans were paid off in 1999. Originally, UPFC was a subprime mortgage lender, but in December 1999, we closed our subprime mortgage operations to focus on our lending and insurance premium finance business. 

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      Automobile Finance

          Business Overview

          UPFC entered the nonprime automobile finance business in February 1996 by establishing UACC as a subsidiary of the Bank.  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.  At December 31, 2002, UACC had a total of 54 branches, of which four were opened in 1996, five in 1997, five in 1998, six in 1999, eight in 2000, twelve in 2001 and fourteen in 2002.  UACC maintains nine branch offices located in California, six branch offices located in Florida, five branch offices located in Texas, three branch offices located in Georgia, Arizona, Virginia, Ohio and North Carolina, two branch offices located in each of Washington, Illinois, and Tennessee and one each in Colorado, Maryland, Missouri, Oregon, Utah, Kansas, Kentucky, Michigan, Indiana, New Jersey, Massachusetts, Alabama, and New York.  At December 31, 2002, UACC’s portfolio contained 42,572 auto contracts in the aggregate gross amount of $298.3 million, including unearned finance charges of $3.5 million.

          Nonprime Automobile Finance Industry

          Automobile financing is one of the largest consumer finance markets in the United States. The automobile finance industry can be divided into two principal segments: a prime credit market and a nonprime credit market.  Traditional automobile finance companies, such as commercial banks, savings institutions, credit unions and captive finance companies of automobile manufacturers, generally lend to the most creditworthy, or so-called prime, borrowers.  The nonprime automobile credit market, in which UACC operates, provides financing to borrowers who generally cannot obtain financing from traditional lenders.

          Historically, traditional lenders have not serviced the nonprime market or have done so only through programs that were not consistently available.  Independent companies specializing in nonprime automobile financing and subsidiaries of larger financial services companies have entered this segment of the automobile finance market, but it remains highly fragmented, with no company having a significant share of the market.

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          Operating Summary for Automobile Finance Business

          The following table presents a summary of UACC’s key operating and statistical results for the years ended December 31, 2002 and 2001.

          Products and Pricing

          UACC’s business is focused on transactions, which involve a used automobile with an average age of four to six years and an average original contract term of 45 to 50 months.

          The target profile of a UACC borrower includes average time on the job of four to five years, average time at current residence of four to five years, an average ratio of total debt to total income of 33% to 35% and an average ratio of total monthly automobile payments to total monthly income of 12% to 15%.

          The automobile purchaser applies for and enters into a contract with the dealer.  UACC purchases the auto contract from the dealer at a discount from face value, which increases the effective yield on such contract. At December 31, 2002, we were allocating 11.5% of the net contract amount of new contracts to the allowance for loan losses compared with 10.5% at December 31, 2001.  Management periodically reviews the percentage of net contracts allocated to the allowance for loan losses.

          Commencing January 1, 2003, after consultation with the OTS, 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. Management expects that future results will reflect higher yields and provisions for credit losses being recorded from purchased auto contracts.

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          Sales and Marketing

          UACC markets its financing program to both independent and franchised automobile dealers.  UACC’s marketing approach emphasizes scheduled calling programs, marketing materials and consistent follow-up.  UACC uses facsimile software programs to send marketing materials to established dealers and potential dealers on a twice-weekly basis in each branch market.  UACC’s experienced local staff seeks to establish strong relationships with dealers in their vicinity.

          UACC solicits business from dealers through its branch managers who meet with dealers and provide information about UACC’s programs, train dealer personnel in UACC’s program requirements and assist dealers in identifying consumers who qualify for UACC’s programs.   In order to both promote asset growth and achieve required levels of credit quality, UACC compensates its branch managers on the basis of a salary with a bonus of up to 20% that recognizes the achievement of low delinquency ratios, low charge-off percentages, volume and return on average assets targets established for the branch, as well as satisfactory audit results.  The bonus calculation stresses loan quality with only 17% based on volume and 83% based on quality, return and management. When a UACC branch decides to begin doing business with a dealer, a dealer profile and investigation worksheet are completed.  UACC and the dealer enter into an agreement that provides UACC with recourse to the dealer in cases of dealer fraud or a breach of the dealer’s representations and warranties.  Branch management periodically monitors each dealer’s overall performance and inventory to ensure a satisfactory quality level, and regional managers regularly conduct audits of the overall branch performance as well as individual dealer performance.

          For the year ended December 31, 2002, 20% of UACC’s auto contracts were written by its California branches, compared to 29% in 2001 and 41% in 2000.  In addition to diversifying its geographic concentrations, UACC maintains a broad dealer base to avoid dependence on a limited number of dealers.  At December 31, 2002, no dealer accounted for more than 0.8% of UACC’s portfolio and the ten dealers from which UACC purchased the most contracts accounted for approximately 5.5% of its aggregate portfolio.

          Underwriting Standards and Purchase of Contracts

          Underwriting Standards and Purchase Criteria.  Dealers submit credit applications directly to UACC’s branches.  UACC uses credit bureau reports in conjunction with information on the credit application to make a final credit decision or a decision to request additional information.  Only credit bureau reports that have been obtained directly by UACC from the credit bureaus are acceptable.

          UACC’s credit policy places specific accountability for credit decisions directly within the branches.  The branch manager or assistant branch manager reviews all credit applications.  In general, no branch manager will have credit approval authority for contracts greater than $15,000.  Any transaction that exceeds a branch manager’s approval limit must be approved by one of UACC’s Regional Managers, Division Managers, the Vice President of Operations or the President.

          Verification.  Upon approving or conditioning any application, all required stipulations are presented to the dealer and must be satisfied before funding.

          All dealers are required to provide UACC with written evidence of insurance in force on a vehicle being financed when submitting the contract for purchase.  Prior to funding a contract, the branch must verify by telephone with the insurance agent the customer’s insurance coverage with UACC as loss payee.  If UACC receives notice of insurance cancellation or non-renewal, the branch will notify the customer of his or her contractual obligation to maintain insurance coverage at all times on the vehicle.  However, UACC will not “force place” insurance on an account if insurance lapses and, accordingly, UACC bears the risk of an uninsured loss in these circumstances.

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          Post-Funding Quality Reviews.  UACC’s Regional Managers and Operations Manager complete quality control reviews of the newly originated auto contracts.  These reviews focus on compliance with underwriting standards, the quality of the credit decision and the completeness of auto contract documentation.  Additionally, UACC’s Regional Managers complete regular branch audits that focus on compliance with UACC’s policies and procedures and the overall quality of branch operations and credit decisions.

          Audit Process.  Each branch is audited quarterly by the respective Regional Manager with review by Division Managers and senior management. Additionally, a sample of branches are audited each year by Price Waterhouse Coopers LLP for review of compliance with established policies and procedures.

          Servicing and Collection

          UACC services at the branch level all of the auto contracts it purchases.

          Billing Process.  UACC sends each borrower a coupon book.  All payments are directed to the customer’s respective UACC branch.  UACC also accepts payments delivered to the branch by a customer in person.

          Collection Process.  UACC’s collection policy calls for the following sequence of actions to be taken with regard to all problem loans: call the borrower at one day past due; immediate follow-up on all broken promises to pay; branch management review of all accounts at ten days past due; and Regional Manager or Division Manager review of all accounts at 45 days past due.

          UACC will consider extensions or modifications in working a collection problem.  All extensions and modifications require the approval of branch management and are monitored by the Regional Manager and Division Manager.

          Repossessions.  It is UACC’s policy to repossess the financed vehicle only when payments are substantially in default, the customer demonstrates an intention not to pay or the customer fails to comply with material provisions of the contract.  All repossessions require the prior approval of the branch manager.  In certain cases, the customer is able to pay the balance due or bring the account current, thereby redeeming the vehicle.

          When a vehicle is repossessed and sold at an automobile auction or through a private sale, the sale proceeds are subtracted from the net outstanding balance of the loan with any remaining amount recorded as a loss.  UACC generally pursues all customer deficiencies.

          Allowance for Loan Losses.  UACC’s policy is to charge-off accounts delinquent in excess of 120 days or place them on nonaccrual.  The remaining balance of accounts where the collateral has been repossessed and sold is charged-off by the end of the month in which the collateral is sold and the proceeds collected. When a loan is placed on nonaccrual, all previously accrued but unpaid interest on such accounts is reversed. Accounts are not returned to accrual status until they are brought current.

          Historically, allowances for expected losses over the life of the contract were established when each contract was purchased from the dealer.  The allowance was provided from the dealer discount that was taken on each transaction and an adjustment to yield of the contract.  Loss allowance analyses are performed regularly to determine the adequacy of current allowance levels.  At December 31, 2002, we allocated 11.5% of the net contract amount of loan purchased to the allowance for loan losses.  The loss allowances recorded at the time of purchase represented an estimate of expected losses for these loans.  If actual experience exceeded estimates, an additional provision for losses was established as a charge against earnings.  Management periodically reviewed the percentage of net contracts allocated to the allowance for loan losses.

          Commencing January 1, 2003, after consultation with the OTS, 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. Management expects that future results will reflect higher yields and provisions for credit losses being recorded from purchased auto contracts.

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          The following table reflects UACC’s cumulative losses (i.e., net charge-offs as a percent of original net contract balances) for contract pools (defined as the total dollar amount of net contracts purchased in a six-month period) purchased from April 1997 through September 2001.  Contract pools subsequent to September 2001 were not included in this table because the loan pools were not seasoned enough to provide a meaningful comparison with prior periods. 

      Insurance Premium Finance

          Business Overview

          In May 1995, we entered into an agreement with BPN relating to an insurance premium finance business under the name “ClassicPlan” (such business is referred to herein as “IPF”).  Under this ongoing agreement, which commenced operations in September 1995, the Bank underwrites and finances private passenger automobile and small business (“commercial”) insurance premiums in California.  BPN markets this financing primarily to independent insurance agents and, thereafter, services such loans for the Bank.

          IPF markets its automobile insurance financing to drivers who are classified by insurance companies as non-standard or high risk for a variety of reasons, including age, driving record, a lapse in insurance coverage or ownership of high performance automobiles.  Insurance companies that underwrite insurance for such drivers, including those participating in the assigned risk programs established by California law, generally either do not offer financing of insurance premiums or do not offer terms as flexible as those offered by IPF.

          IPF markets its commercial insurance financing to small businesses for property/casualty and specialty classes of insurance on an excess or surplus lines basis, including commercial multi-peril, other liability, commercial automobile liability/comprehensive, fire and product liability.

          Customers are directed to BPN through a non-exclusive network of insurance brokers and agents who sell automobile or commercial insurance and offer financing through programs like those offered by IPF.  On a typical

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twelve-month insurance policy, the borrower makes a cash down payment of 15% to 25% of the premium (plus certain fees) and the balance is financed under a contract that contains a payment period of shorter duration than the policy term.  In the event that the insured defaults on the loan, the Bank has the right to obtain directly from the insurance company the unearned insurance premium held by the insurance company, which can then be applied to the outstanding loan balance (premiums are earned by the insurance company over the life of the insurance policy).  Each contract is designed to ensure that, at any point during the term of the underlying policy, the unearned premium under the insurance policy exceeds the unpaid principal amount due under the contract.  Under the terms of the contract, the insured grants IPF a power of attorney to cancel the policy if the insured defaults under the contract.  Upon cancellation, the insurance company is required by California law to remit the unearned premium to IPF, which, in turn, offsets this amount against any amounts due from the insured.  IPF does not sell or have the risk of underwriting the underlying insurance policy.  IPF seeks to minimize its credit risk by perfecting a security interest in the unearned premium, avoiding concentrations of policies with insurance companies that are below certain industry ratings, and doing automobile premium financing to date only in California which maintains an insurance guaranty fund that protects consumers and insurance premium finance companies against losses from failed insurance companies.

          IPF seeks to minimize its credit risks in the financing of commercial insurance policies by perfecting a security interest in the unearned premium, obtaining premium verifications on policies over $5,000, avoiding concentrations of policies with insurance companies that are below certain ratings and limiting the amount of surplus lines business which is not covered by California’s guaranty fund.  At December 31, 2002, IPF had approximately 13.88% of its commercial loan balances with surplus line insurance companies doing business on a non-admitted basis in California.

          In addition to insurance premiums, IPF will also finance broker fees (i.e., fees paid by the insured to the agent).  If a policy cancels, the agent repays any unearned broker fee financed by IPF.  Broker fee financing represents approximately 0.63% of total loans outstanding.  At December 31, 2002, approximately 7.00% of all broker fee financing was to a single insurance agency.  When IPF agrees to finance an agent’s broker fees, a credit limit is established for the agent.  Agents are required to maintain deposits with the Bank to mitigate IPF’s possible losses on broker fees financed.  To date, the Bank has not charged-off a broker fee balance.

          At December 31, 2002, the aggregate gross amount of insurance premium finance contracts was $36.3 million with 47,682 contracts outstanding.  Commercial loan balances represented 51% of these loan balances at December 31, 2002.  During 2002, IPF originated 83,906 insurance premium finance contracts of which 15,840 or 18.9% were commercial loan contracts.

          Relationship with BPN

          BPN is headquartered in Chino, California, and markets our insurance premium finance program under the trade name “ClassicPlan.” At December 31, 2002, BPN had 30 employees.

          BPN solicits insurance agents and brokers to submit their clients’ financing requests to IPF.  BPN is responsible for monitoring the agents’ performance and assisting with IPF’s compliance with applicable consumer protection, disclosure and insurance laws, and providing customer service, data processing and collection services to IPF.  IPF pays fees to BPN for these services.  The amount of these fees is based on fixed charges, which include a loan service fee per contract and cancellation fees charged by IPF, and the earnings of the loan portfolio, which include 50% of the interest earned on portfolio loans after IPF subtracts a specified floating portfolio interest rate and 50% of late fees and returned check fees charged by IPF.  Additionally, BPN and IPF share equally certain collection and legal expenses which may occur from time-to-time, all net loan losses experienced on the insurance premium loan portfolio and all net losses up to $375,000 experienced on the broker fees loan portfolio.  BPN bears losses over $375,000 experienced on the broker fees loan portfolio.

          The shareholders of BPN have entered into certain guaranty agreements in favor of IPF whereby they agree to pay any sums owed to IPF and not paid by BPN.  The total potential liability of the guarantors to IPF is limited to $2,000,000 plus any amounts by which BPN is obligated to indemnify IPF.  Under these guaranties, all debts of BPN to the guarantors are subordinated to the full payment of all obligations of BPN to IPF.

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          UPFC has entered into an option agreement with BPN and its shareholders whereby we may purchase all of the issued and outstanding shares of BPN (the “Share Option”) and all additional shares of any BPN affiliate which may be organized outside of California (the “Affiliate Share Option”).  The option period expires March 31, 2005 and to exercise this option, the Bank must pay a $750,000 noncompete payment to certain shareholders and key employees of BPN plus the greater of $3,250,000 or four times BPN’s pre-tax earnings for the twelve complete consecutive calendar months immediately preceding the date of exercise less the noncompete payment of $750,000.  The Affiliate Share Option may not be exercised independently of the Share Option.  The exercise price of the Affiliate Share Option will equal the sum of four times BPN Affiliate’s pre-tax earnings for the twelve-month period prior to exercise.

          Automobile Insurance Premium Finance Industry

          Insurance Finance.  Although reliable data concerning the size and composition of the personal lines premium finance market is not available, we believe that the industry is highly fragmented with no independent insurance premium finance company accounting for a significant share of the market.  UPFC believes that the insurance premium finance industry in California is somewhat more concentrated than elsewhere in the nation, with several long-established competitors.  In addition, insurance companies offering direct bill payment programs and direct sales of insurance policies to the consumer are providing significant competition to UPFC.

          California Insurance Laws.  Under current law, automobiles in the state of California cannot be registered without providing proof of insurance or posting required bonds with the Department of Motor Vehicles.

          In California, as in most states, insurance companies fall into two categories, admitted or non-admitted.  All insurance companies licensed to do business in California are required to be members of the California Insurance Guarantee Association (“CIGA”), and are classified as “admitted” companies.  CIGA was established to protect insurance policyholders in the event the company that issued a policy fails financially, and to establish confidence in the insurance industry.  Should an insurance company fail, CIGA is empowered to raise money by levying member companies.  CIGA pays claims against insurance companies, which protects both the customer and the premium financiers should an admitted insurance company fail.  In such event, CIGA will refund any unearned premiums.  This provides protection to companies, such as IPF, that provide insurance premium financing.  As a result, IPF’s policy is to establish limits to the amount of financing of insurance policies issued by non-admitted carriers.

          Because insurance companies will not voluntarily insure drivers whom they consider to be excessively high risk, California has a program called the California Automobile Assigned Risk Program (“CAARP”), to which all admitted companies writing private passenger automobile insurance policies must belong.  This 45-year-old program is an insurance plan for high risk, accident-prone drivers who are unable to purchase insurance coverage from regular insurance carriers.  CAARP policies are distributed to the admitted companies in proportion to their share of California’s private passenger automobile insurance market.  The companies participating in CAARP do not have any discretion in choosing the customers they insure under the program.  The customers are arbitrarily assigned to them by CAARP.  Although CAARP offers financing of its policy premiums, its terms are not as competitive as those offered by the insurance premium finance companies and, therefore, many CAARP policies are financed by others.  At December 31, 2002, approximately 11.89% of the insurance policies financed by IPF were issued under CAARP.

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Operating Summary

          The following table presents a summary of IPF’s key operating and statistical results for the years ended December 31, 2002 and 2001.

          Products and Pricing

          IPF generally charges from 16% to 23% annualized interest (depending on the amount financed) and a $40 processing fee for each consumer contract, which we believe is competitive in IPF’s industry.  In addition, contracts provide for the payment by the insured of a delinquency charge and, if the default results in cancellation of any insurance policy listed in the contract, for the payment of a cancellation charge.  Certain of these finance charges and fees are shared with BPN.  See “Relationship with BPN.”  The insured makes a minimum 15% down payment on an annual policy and pays the remainder in a maximum of ten monthly payments.

          IPF designs its programs so that the unearned premium is equal to or greater than the remaining principal amount due on the contract by requiring a down payment and having a contract term shorter than the underlying policy term.

          Sales and Marketing

          IPF currently markets its insurance premium finance program through a network of over 1,300 agents, located throughout California.  Relationships with agents are established by BPN’s marketing representatives.  IPF focuses on providing each agent with up-to-date information on its customers’ accounts, which allows the agent to service customers’ needs and minimize the number of policies that are canceled.  Many of IPF’s largest agents have computer terminals provided by BPN in their offices, which allow on-line access to customer information.  Agents for IPF receive an average producer fee ($20, equal to 50% of the aforementioned $40 processing fee per contract), as collateral against early cancellations.  IPF does not require return of this $20 producer fee for early policy cancellation unless the policy pays off in the first 30 days.

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          Underwriting Standards

          IPF is a secured lender, and upon default, relies on its security interest in the unearned premium held by the insurance company.  IPF can, however, suffer a loss on an insurance premium finance contract for four reasons: loss of all or a portion of the unearned premium due to its failure to cancel the contract on a timely basis; an insolvency of the insurance company holding the unearned premium not otherwise covered by CIGA; inadequacy of the unearned premium to cover charges in excess of unpaid principal amount; and cost of collection and administration, including the time value of money, exceeding the unpaid principal and other charges due under the contract. Careful administration of contracts is critical to protecting IPF against loss.

          Credit applications are taken at the insurance agent’s office.  Given the secondary source of repayment on unearned premiums due from the insurance company on a canceled policy, and in most cases, access to CIGA, IPF does not carry out a credit investigation of a borrower.

          Servicing and Collection

          Billing Process.  A customer’s monthly payments are recorded in BPN’s computer system on the date of receipt.  BPN’s computer system is designed to provide protection against principal loss by automatically canceling a defaulted policy no later than 18days after the customer’s latest payment due date.  If a payment is not received within 6 days following its due date, BPN’s computer system automatically prints a notice of intent to cancel and assesses a late fee which is mailed to the insured and his or her insurance agent stating that payment must be received within 18days after the due date or IPF will cancel the insurance policy.  If payment is received within the 18 day period, BPN’s computer system returns the account to normal status.

          Collections Process.  If IPF does not receive payment within the statutory period set forth in the notice of intent to cancel, BPN’s computer system will automatically generate a cancellation notice on the next business day, instructing the insurance company to cancel the insured’s insurance policy and refund any unearned premium directly to IPF for processing.

          Although California law requires the insurance company to refund unearned premiums within 30 days of the cancellation date, most insurance companies pay on more extended terms.  After cancellation, IPF charges certain allowable fees.  Although the gross return premium may not fully cover the fees and interest owed to IPF by the insured, principal generally is fully covered.  Policies, which are canceled in the first two months, generally have a greater risk of loss of fees.

          IPF charges against income a general provision for possible losses on finance receivables in such amounts as management deems appropriate.  Case-by-case direct write-offs, net of recoveries on finance receivables, are charged to IPF’s allowance for possible losses.  This allowance amount is reviewed periodically in light of economic conditions, the status of outstanding contracts and other factors.

          Insurance Company Failure.  One of the principal risks involved in financing insurance premiums is the possible insolvency of an insurance company.  Another risk is that an insurance company’s financial circumstances cause it to delay its refunds of unearned premiums.  Either event can adversely affect the yield to an insurance premium finance company on a contract.  Despite the protection afforded by CIGA, IPF also reviews the insurance company financial statements or the ratings assigned to the insurance companies by A.M. Best, an insurance company rating agency.  To minimize its exposure to risks resulting from the insolvency of an insurance company, IPF limits the number of policies financed that are issued by insurance companies rated “B” or lower by A.M. Best.

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      Pan American Bank, FSB

          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 $468.5 million in deposits at December 31, 2002.  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.  The business of the Bank is subject to substantial government supervision and regulatory requirement.  See “Regulation – Regulation of the Bank.”

      Industry Segments

          UPFC has three reportable segments: auto finance, insurance premium finance and banking. Information regarding industry segments is set forth in Footnote Number 18 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

      Competition

          We are involved in banking, nonprime auto finance and insurance premium finance. Each of our businesses is highly competitive. In our nonprime auto finance business, we purchase automobile contracts through automobile dealers and compete with commercial banks, the captive finance affiliates of auto manufacturers, savings associations and other companies specializing in nonprime automobile finance. In order to compete with other providers, we rely on offering improved service, including consistent decisions, quick funding and personal contact with the dealers. In our banking business, the Bank competes primarily with other savings institutions, commercial banks, brokerage firms, mutual funds, credit unions and other types of investment companies to attract deposits. Our goal is to provide exceptional service to our depositors to differentiate ourselves from the competition. We compete in the insurance premium finance business with other specialty finance companies, independent insurance agents who offer premium finance services, captive premium finance affiliates of insurance companies and direct bill plans established by insurance companies. In order to compete, we rely on establishing long-term, consistent relationships with insurance agents who offer our products to the insurance buyers.

      Economic Conditions, Government Policies, Legislation, and Regulation

          UPFC’s profitability, like most financial institutions, is primarily dependent on interest rate differentials.  In general, the difference between the interest rates paid by the Bank on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Bank on its interest-earning assets, such as loans extended to its clients and securities held in its investment portfolio, comprise the major portion of UPFC’s earnings.  These rates are highly sensitive to many factors that are beyond the control of UPFC and the Bank, such as inflation, recession and unemployment, and the impact which future changes in domestic and foreign economic conditions might have on UPFC and the Bank cannot be predicted.

          The business of the Bank is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).  The Federal Reserve Board implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions.  The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities.  The nature and impact on UPFC and the Bank of any future changes in monetary and fiscal policies cannot be predicted.

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          From time to time, legislation, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers.  Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies.  This legislation may change banking statutes and the operating environment of UPFC and its subsidiaries in substantial and unpredictable ways.  If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.  UPFC cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of UPFC or any of its subsidiaries.  See “Business – Regulation.”

      Employees

          At December 31, 2002, UPFC had 430 full-time equivalent employees.  We believe that we have been successful in attracting quality employees and that our employee relations are satisfactory.

      Regulation

          General

          The Bank is a federally chartered savings association insured under the Savings Association Insurance Fund (“SAIF”) and subject to extensive regulation by the OTS and the Federal Deposit Insurance Corporation (“FDIC”). 

          Savings and loan holding companies and savings associations are extensively regulated under both federal and state law.  This regulation is intended primarily for the protection of depositors and the SAIF and not for the benefit of shareholders of UPFC.  The following information describes certain aspects of that regulation applicable to UPFC and the Bank, and does not purport to be complete.  The discussion is qualified in its entirety by reference to all particular statutory or regulatory provisions.

          Regulation of UPFC

          General.  UPFC, as well as its subsidiary PAFI, is a unitary savings and loan holding company subject to regulatory oversight by the OTS.  As such, UPFC is required to register and file reports with the OTS and is subject to regulation and examination by the OTS.  In addition, the OTS has enforcement authority over UPFC and its subsidiaries, which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association.

          The company’s securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such the Company is subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act.

          Activities Restriction Test.  As a unitary savings and loan holding company, UPFC generally is not subject to activity restrictions, provided the Bank satisfies the Qualified Thrift Lender (“QTL”) test or meets the definition of a domestic building and loan association pursuant to the Internal Revenue Code of 1986, as amended (the “Code”). UPFC presently intends to continue to operate as a unitary savings and loan holding company.  Recent legislation terminated the “unitary thrift holding company exemption” for all companies that apply to acquire savings associations after May 4, 1999.  Since UPFC is grandfathered, its unitary holding company powers and authorities were not affected.  See “Financial Services Modernization Legislation.” However, if UPFC acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of UPFC and any of its subsidiaries (other than the Bank or any other SAIF-insured savings association) would become subject to restrictions applicable to bank holding companies unless such other associations each also qualify as a QTL or domestic building and loan association and were acquired in a

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supervisory acquisition.  Furthermore, if UPFC were in the future to sell control of the Bank to any other company, such company would not succeed to UPFC grandfathered status under and would be subject to the same business activity restrictions.  See “Regulation of the Bank - Qualified Thrift Lender Test.”

          Restrictions on Acquisitions.  UPFC must obtain approval from the OTS before acquiring control of any other SAIF-insured association.  Such acquisitions are generally prohibited if they result in a multiple savings and loan holding company controlling savings associations in more than one state.  However, such interstate acquisitions are permitted based on specific state authorization or in a supervisory acquisition of a failing savings association.

          Federal law generally provides that no “person,” acting directly or indirectly or through or in concert with one or more other persons, may acquire “control,” as that term is defined in OTS regulations, of a federally-insured savings association without giving at least 60 days prior written notice to the OTS and providing the OTS an opportunity to disapprove the proposed acquisition.  In addition, no company may acquire control of such an institution without prior OTS approval.  These provisions also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of a savings and loan holding company, from acquiring control of any savings association not a subsidiary of the savings and loan holding company, unless the acquisition is approved by the OTS.  For additional restrictions on the acquisition of a unitary thrift holding company, see “Financial Services Modernization Legislation.”

          The Sarbanes-Oxley Act of 2002

          On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. This new legislation addresses accounting oversight and corporate governance matters, including:

We are currently evaluating what impacts the new legislation and its implementing regulations will have upon our operations, including a likely increase in certain outside professional costs.

          USA Patriot Act of 2001  

          On October 26, 2001, President Bush signed the USA Patriot Act of 2001. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws in addition to current requirements and requires various regulations, including:

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          On July 23, 2002, the Treasury proposed regulations requiring institutions to incorporate into their written money laundering plans, a board approved customer identification program implementing reasonable procedures for:

Implementation of the Patriot Act has not had a material adverse effect on the operations of the Bank.

Financial Services Modernization Legislation

          General.  On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the “GLB”). The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the Bank Holding Company Act framework to permit a holding company system to engage in a full range of financial activities through a new entity know as a “Financial Holding Company.” “Financial activities” is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

          The GLB provides that no company may acquire control of an insured savings association unless that company engages, and continues to engage, only in the financial activities permissible for a Financial Holding Company, unless grandfathered as a unitary savings and loan holding company.  The GLB grandfathers any company that was a unitary savings and loan holding company on May 4, 1999 or became a unitary savings and loan holding company pursuant to an application pending on that date.  Such a company may continue to operate under present law as long as the company continues to meet two tests:  it controls only one savings institution, excluding supervisory acquisitions, and each such institution meets the QTL test.  Such a grandfathered unitary savings and loan holding company also must continue to control at least one savings association, or a successor institution, that it controlled on May 4, 1999.

          The GLB also permits national banks to engage in expanded activities through the formation of financial subsidiaries.  A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a Financial Holding Company.  Financial activities include all activities permitted under new sections of the Bank Holding Company Act or permitted by regulation.

          While the GLB has not had a material adverse effect on the operations of UPFC and the Bank in the near term, to the extent that the act permits banks, securities firms, and insurance companies to affiliate, the financial services industry may experience further consolidation. The GLB is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis and which unitary savings and loan holding companies already possess.  Nevertheless, the GLB may have the result of increasing the amount of competition that UPFC and the Bank face from larger institutions and other types of companies offering financial

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products, many of which may have substantially more financial resources than UPFC and the Bank.  In addition, because UPFC may only be acquired by other unitary savings and loan holding companies or Financial Holding Companies, the legislation may have an anti-takeover effect by limiting the number of potential acquirers or by increasing the costs of an acquisition transaction by a bank holding company that has not made the election to be a Financial Holding Company under the GLB.

          Privacy.  Under the GLB, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules financial institutions must provide:

These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Bank has implemented its privacy policies in accordance with the law.

     Regulation of Insurance Premium Finance Companies

          The insurance premium finance industry is subject to state regulations.  The regulatory structure of each state places certain restrictions on the terms of loans made to finance insurance premiums.  These restrictions, among other things, generally provide that the lender must provide certain cancellation notices to the insured and the insurer in order to exercise an assigned right to cancel an insurance policy in the event of a default under an insurance premium finance agreement and to obtain in connection therewith a return from the insurer of any unearned premiums that have been assigned by the insured to the lender.  Such state laws also require that certain disclosures be delivered by the insurance agent or broker arranging for such credit to the insured regarding the amount of compensation to be received by such agent or broker from the lender.

     Regulation of Nonprime Automobile Lending

          UACC’s automobile lending activities are subject to various federal and state consumer protection laws, including Truth in Lending, Equal Credit Opportunity Act, Fair Credit Reporting Act, the Federal Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Federal Reserve Board’s Regulations B and Z, and state motor vehicle retail installment sales acts. Retail installment sales acts and other similar laws regulate the origination and collection of consumer receivables and impact UACC’s business.  These laws, among other things, require UACC to obtain and maintain certain licenses and qualifications, limit the finance charges, fees and other charges on the contracts purchased, require UACC to provide specified disclosures to consumers, limit the terms of the contracts, regulate the credit application and evaluation process, regulate certain servicing and collection practices, and regulate the repossession and sale of collateral.  These laws impose specific statutory liabilities upon creditors who fail to comply with their provisions and may give rise to a defense to payment of the consumer’s obligation.  In addition, certain of the laws make the assignee of a consumer installment contract liable for the violations of the assignor.

          Each dealer agreement contains representations and warranties by the dealer that, as of the date of assignment, the dealer has compiled with all applicable laws and regulations with respect to each contract.  The dealer is obligated to indemnify UACC for any breach of any of the representations and warranties and to repurchase any non-conforming contracts.  UACC generally verifies dealer compliance with usury laws, but does not audit a dealer’s full compliance with applicable laws.  There can be no assurance that UACC will detect all dealer violations or that individual dealers will have the financial ability and resources either to repurchase contracts or indemnify UACC against losses.  Accordingly, failure by dealers to comply with applicable laws, or with their representations and warranties under the dealer agreement could have a material adverse affect on UACC.

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          UACC believes it is currently in compliance in all material respects with applicable laws, but there can be no assurance that UACC will be able to maintain such compliance.  The failure to comply with such laws, or a determination by a court that UACC’s interpretation of any such law was erroneous, could have a material adverse effect upon UACC.  Furthermore, the adoption of additional laws, changes in the interpretation and enforcement of current laws or the expansion of UACC’s business into jurisdictions that have adopted more stringent regulatory requirements than those in which UACC currently conducts business, could have a material adverse affect upon UACC.

          If a borrower defaults on a contract, UACC, as the servicer of the contract, is entitled to exercise the remedies of a secured party under the Uniform Commercial Code as adopted in a particular state (the “UCC”), which typically includes the right to repossession by self-help unless such means would constitute a breach of the peace.  The UCC and other state laws regulate repossession and sales of collateral by requiring reasonable notice to the borrower of the date, time and place of any public sale of collateral, the date after which any private sale of the collateral may be held and the borrower’s right to redeem the financed vehicle prior to any such sale, and by providing that any such sale must be conducted in a commercially reasonable manner.  Financed vehicles repossessed generally are resold by UACC through unaffiliated wholesale automobile networks or auctions, which are attended principally by used automobile dealers.

Regulation of the Bank

     General.  As a federally chartered, SAIF-insured savings association, the Bank is subject to extensive regulation by the OTS and the FDIC.  Lending activities and other investments of the Bank must comply with various statutory and regulatory requirements.  The Bank is also subject to certain reserve requirements promulgated by the Federal Reserve Board.

          The OTS, in conjunction with the FDIC, regularly examines the Bank and prepares reports for the consideration of the Bank’s Board of Directors on any deficiencies found in the operations of the Bank.  The relationship between the Bank and depositors and borrowers is also regulated by federal and state laws, especially in such matters as the ownership of savings accounts and the form and content of documents utilized by the Bank.

          The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions.  This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the SAIF and depositors.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.  Any change in such regulations, whether by the OTS, the FDIC, or the Congress could have a material adverse impact on the Company, the Bank, and their operations.

     Insurance of Deposit Accounts. The SAIF, as administered by the FDIC, insures the Bank’s deposit accounts up to the maximum amount permitted by law. The FDIC may terminate insurance of deposits upon a finding that the institution:

The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to its deposit insurance fund. Under this system as of December 31, 2002, SAIF members pay within a range of 0 cents

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to 27 cents per $100 of domestic deposits, depending upon the institution’s risk classification. This risk classification is based on an institution’s capital group and supervisory subgroup assignment. In addition, all FDIC-insured institutions are required to pay assessments to the FDIC at an annual rate for the fourth quarter of 2002 at approximately $0.0170 per $100 of assessable deposits to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017.

     Regulatory Capital Requirements.  OTS capital regulations require savings associations to meet three capital standards:

The Bank must meet each of these standards in order to be deemed in compliance with OTS capital requirements.  In addition, the OTS may require a savings association to maintain capital above the minimum capital levels.

          These capital requirements are viewed as minimum standards by the OTS, and most institutions are expected to maintain capital levels well above the minimum.  In addition, the OTS regulations provide that minimum capital levels higher than those provided in the regulations may be established by the OTS for individual savings associations, upon a determination that the savings association’s capital is or may become inadequate in view of its circumstances.  The OTS regulations provide that higher individual minimum regulatory capital requirements may be appropriate in circumstances where, among others:

The Bank is not subject to any such individual minimum regulatory capital requirement. 

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As shown below, the Bank’s regulatory capital exceeded all minimum regulatory capital requirements applicable to it as of December 31, 2002.

          The federal regulatory agencies have issued interagency guidelines providing examination guidance for the supervision of subprime lending activities.  The term “subprime” refers to the credit characteristics of individual borrowers.  Subprime borrowers typically have weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments and bankruptcies.  Subprime loans are loans to borrowers displaying one or more of these characteristics at the time of origination of the loan.  Our auto lending activities constitute subprime lending which the interagency guidelines consider to be a high-risk activity unless the risks associated with such subprime lending are properly controlled.  The interagency guidelines permit examiners to impose additional regulatory capital requirements of 1½ to 3 times higher than that typically set aside for prime assets in any situation where an institution has subprime assets equal to or greater than 25% or more of its tier 1 capital or has subprime portfolios experiencing rapid growth or adverse performance trends or which are administered by inexperienced management or have inadequate or weak controls.  Our subprime auto loan portfolio represented approximately 371% of our tier 1 capital as of December 31, 2002.  We customarily seek to maintain regulatory capital ratios of 1½ times that which is normally required with respect to our subprime portfolio.  However, any requirement to maintain additional regulatory capital as a result of our subprime lending activities could have an adverse effect on our future prospects and operations and may restrict our ability to grow.  Although management believes that it maintains appropriate controls and sufficient regulatory capital for its subprime lending activities, it cannot predict or determine whether or to what extent additional capital requirements will be imposed based upon regulatory supervision and examination.

          The HOLA permits savings associations not in compliance with the OTS capital standards to seek an exemption from certain penalties or sanctions for noncompliance.  Such an exemption will be granted only if certain strict requirements are met, and must be denied under certain circumstances.  If an exemption is granted by the OTS, the savings association still may be subject to enforcement actions for other violations of law or unsafe or unsound practices or conditions.

          Predatory Lending.  The term “predatory lending,” much like the terms “safety and soundness” and “unfair and deceptive practices,” is far-reaching and covers a potentially broad range of behavior. As such, it does not lend itself to a concise or a comprehensive definition. But typically predatory lending involves at least one, and perhaps all three, of the following elements:

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          On October 1, 2002, FRB regulations aimed at curbing such lending became effective. The rule significantly widens the pool of high-cost home-secured loans covered by the Home Ownership and Equity Protection Act of 1994, a federal law that requires extra disclosures and consumer protections to borrowers. The following triggers coverage under the act:

In addition, the regulation bars loan flipping by the same lender or loan services within a year. Lenders also will be presumed to have violated the law, which says loans should not be made to people unable to repay them, unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.

          Prompt Corrective Action.  The prompt corrective action regulation of the OTS requires certain mandatory actions and authorizes certain other discretionary actions to be taken by the OTS against a savings association that falls within certain undercapitalized capital categories specified in the regulation.

The regulation establishes five categories of capital classification:

Under the regulation, the risk-based capital, leverage capital, and tangible capital ratios are used to determine an institution’s capital classification.  At December 31, 2002, the Bank met the capital requirements of a “well capitalized” institution under applicable OTS regulations.

          In general, the prompt corrective action regulation prohibits an insured depository institution from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person if, following the distribution or payment, the institution would be within any of the three undercapitalized categories.  In addition, adequately capitalized institutions may accept brokered deposits only with a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on such deposits.  Undercapitalized institutions may not accept, renew, or roll-over brokered deposits.

          If the OTS determines that an institution is in an unsafe or unsound condition, or if the institution is deemed to be engaging in an unsafe and unsound practice, the OTS may, if the institution is well capitalized, reclassify it as adequately capitalized; if the institution is adequately capitalized but not well capitalized, require it to comply with restrictions applicable to undercapitalized institutions; and, if the institution is undercapitalized, require it to comply with certain restrictions applicable to significantly undercapitalized institutions.  Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized , without the express permission of the institution’s primary regulator.

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          Loans-to-One Borrower Limitations.  Savings associations generally are subject to the lending limits applicable to national banks.  With certain limited exceptions, the maximum amount that a savings association or a national bank may lend to any borrower (including certain related entities of the borrower) at one time may not exceed 15% of the unimpaired capital and surplus of the institution, plus an additional 10% of unimpaired capital and surplus for loans fully secured by readily marketable collateral.  Savings associations are additionally authorized to make loans to one borrower, for any purpose, in an amount not to exceed $500,000 or, by order of the Director of OTS, in an amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus to develop residential housing, provided:

          At December 31, 2002, the Bank’s loans-to-one-borrower limit was $8.2 million based upon the 15% of unimpaired capital and surplus measurement.

          Qualified Thrift Lender Test. Savings associations must meet the QTL test, which test may be met either by maintaining a specified level of assets in qualified thrift investments as specified in the Home Owners Loan Act (“HOLA”) or by meeting the definition of a “domestic building and loan association” in the Code.  Qualified thrift investments are primarily residential mortgages and related investments, including certain mortgage-related securities.  The required percentage of investments under the HOLA is 65% of assets while the Code requires investments of 60% of assets. Additionally, HOLA limits indirect consumer loans to 30% of total assets. As of December 31, 2002 the Bank’s indirect consumer loans comprised 29% of total assets. An association must be in compliance with the QTL test or the definition of domestic building and loan association on a monthly basis in nine out of every 12 months.  Associations that fail to meet the QTL test will generally be prohibited from engaging in any activity not permitted for both a national bank and a savings association. This requirement may adversely affect our ability to grow. The Bank intends to adjust and manage its sources of funds and control the growth and mix of its assets to ensure that it meets the requirements of the QTL test going forward.  As of December 31, 2002, the Bank was in compliance with its QTL requirements and met the definition of a domestic building and loan association.

          Affiliate Transactions. Transactions between a savings association and its “affiliates” are quantitatively and qualitatively restricted under the Federal Reserve Act. Affiliates of a savings association include, among other entities, the savings association’s holding company and companies that are under common control with the savings association. In general, a savings association or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

          In addition, a savings association and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the savings association or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

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          In addition, under the OTS regulations:

          Regulations generally exclude all non-bank and non-savings association subsidiaries of savings associates from treatment as affiliates, except for:

          Capital Distribution Limitations. OTS regulations impose limitations upon all capital distributions by savings associations, like cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The OTS recently adopted an amendment to these capital distribution limitations. Under the new rule, a savings association in some circumstances may:

          The OTS regulations require a savings association to file an application if:

In addition, a savings association must give the OTS notice of a capital distribution if the savings association is not required to file an application, but:

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          If neither the savings association nor the proposed capital distribution meets any of the above listed criteria, the OTS does not require the savings association to submit an application or give notice when making the proposed capital distribution. The OTS may prohibit a proposed capital distribution that would otherwise be permitted if the OTS determines that the distribution would constitute an unsafe or unsound practice.  Further, a federal savings association, like the Bank, cannot distribute regulatory capital that is needed for its liquidation account.

          Community Reinvestment Act and the Fair Lending Laws.  Savings associations have a responsibility under the Community Reinvestment Act and related regulations of the OTS to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities and the denial of applications. In addition, an institution’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in the OTS, other federal regulatory agencies as well as the Department of Justice taking enforcement actions.  Based on an examination conducted October 30, 2001, the Bank received a satisfactory rating under both the Community Reinvestment Act and Fair Lending Laws.

          Effective January 1, 2002, the OTS raised the dollar amount limit in the definition of small business loans from $500,000 to $2.0 million, if used for commercial, corporate, business or agricultural purposes.  Furthermore, the rule raises the aggregate level that a thrift can invest directly in community development funds, community centers and economic development initiatives in its communities from the greater of a quarter of one percent of total capital or $100,000 to one percent of total capital or $250,000.

          Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank (“FHLB”) system. Among other benefits, each FHLB serves as a reserve or central bank for its members within its assigned region. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. As an FHLB member, the Bank is required to own capital stock in an FHLB in an amount equal to the greater of:

At December 31, 2002, the Bank had $1.7 million in FHLB stock, which was in compliance with this requirement.

          The GLB Act made significant reforms to the FHLB system, including:

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The new capital plan of the FHLB-San Francisco was approved by the Federal Housing Finance Board on June 12, 2002. The FHLB-SF has not yet established an implementation date for the new capital plan, with such implementation required by June 2005. The Bank will receive at least 240 days written notice of the implementation date. The new capital plan incorporates a single class of stock and requires each member to own stock in amount equal to the greater of:

The new capital stock is redeemable on five years written notice, subject to certain conditions.

We do not believe that the initial implementation of the FHLB-SF new capital plan as approved will have a material impact upon our financial condition, cash flows, or results of operations. However, the Bank could be required to purchase as much as 50% additional capital stock or sell as much as 50% of its proposed capital stock requirement at the discretion of the FHLB-SF.

          Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. At December 31, 2002, the Bank was in compliance with these requirements.

          Activities of Subsidiaries. A savings association seeking to establish a new subsidiary, acquire control of an existing company or conduct a new activity through a subsidiary must provide 30 days prior notice to the FDIC and the OTS and conduct any activities of the subsidiary in compliance with regulations and orders of the OTS. The OTS has the power to require a savings association to divest any subsidiary or terminate any activity conducted by a subsidiary that the OTS determines to pose a serious threat to the financial safety, soundness or stability of the savings association or to be otherwise inconsistent with sound banking practices.

      Taxation

          UPFC’s effective tax rate was 38.2% in 2002, as compared to 39.0% in 2001. The change in the overall effective income tax rate from 2001 to 2002 was primarily due to a decrease in the effective state income tax rate as a result of the opening of UACC branches in states with lower income tax rates than the states in which business activities were previously conducted. UPFC files a consolidated federal income tax return and consolidated, combined or separate company state income tax returns as appropriate. 

      Subsidiaries

          PAFI, a wholly-owned subsidiary of UPFC, acts as the parent company of the Bank.

          WorldCash is a wholly-owned subsidiary of UPFC and is presently inactive. 

          The Bank, a wholly-owned subsidiary of PAFI, is the primary operating subsidiary of UPFC and is a federally-chartered savings bank.

          UACC, a wholly-owned subsidiary of the Bank, holds for investment and services nonprime retail automobile installment sales contracts.

          United PanAm Mortgage Corporation is a wholly-owned subsidiary of the Bank and is presently inactive.

          Pan American Service Corporation, a wholly-owned subsidiary of the Bank and is presently inactive.

          UAC Investment Corporation is a wholly-owned subsidiary of the Bank and is presently inactive. 

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Factors That May Affect Future Results of Operations

          This Annual Report on Form 10-K contains forward-looking statements, including statements regarding UPFC’s strategies, plans, objectives, expectations and intentions, which are subject to a variety of risks and uncertainties.  UPFC’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the “Factors That May Affect Results of Operations” and elsewhere in this Annual Report.  The cautionary statements made in this Annual Report should be read as being applicable to all related forward-looking statements wherever they appear in this Annual Report.

          The following discusses certain factors, which may affect our financial results and operations and should be considered in evaluating UPFC.

          Because we have a limited operating history, we cannot predict our future operating results.

          We have been operating less than 10 years. We commenced our banking operations in 1994.  In 1995, we commenced our insurance premium finance business through an agreement with BPN, and in 1996, we commenced our mortgage and automobile finance businesses.  Accordingly, we have only a limited operating history upon which an evaluation of UPFC and its prospects can be based.  For more information, see “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

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

          We may have to restrict our lending activities if we are unable to maintain or expand our sources of financing.

          Our ability to maintain or expand our current level of lending activity will depend on the availability and terms of our sources of financing.  We fund our operations principally through deposits, FHLB advances and repurchase agreements.  The Bank competes for deposits primarily on the basis of interest rates and, accordingly, the Bank could experience difficulty in attracting deposits if it does not continue to offer rates that are competitive with other financial institutions.  Federal regulations restrict the Bank’s ability to lend to affiliated companies and limit the amount of non-mortgage consumer loans that may be held by the Bank.  Accordingly, the growth of our insurance premium and automobile finance businesses will depend to a significant extent on the availability of additional sources of financing.  There can be no assurance that we will be able to develop additional financing sources on acceptable terms or at all.  To the extent the Bank is unable to maintain its deposits and we are unable to develop additional sources of financing, we may have to restrict our lending activities, which would materially and adversely affect our financial condition, results of operations and business prospects.  For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

          The Bank’s California business focus and economic conditions in California could adversely affect our operations.

          The Bank, which is the principal funding source for our auto finance and insurance premium finance businesses, has a concentration of deposits in California.  The cost of our deposits may be affected by changes in California’s economic and business conditions.  The occurrence of adverse economic conditions or natural disasters in California could have a material adverse effect on our financial condition, results of operations and business prospects.

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          UPFC depends heavily upon its systems and controls, some of which have been designed specifically for our banking, auto finance or insurance premium finance businesses, to support the evaluation, acquisition, monitoring, collection and administration of that business.  There can be no assurance that these systems and controls, including those specially designed and built for UPFC, are adequate or will continue to be adequate to support our growth.  A failure of our automated systems, including a failure of data integrity or accuracy, could have a material adverse effect upon our financial condition, results of operations and business prospects.

          UPFC is dependent upon the continued services of its key employees as well as the key employees of BPN.  The loss of the services of any key employee, or the failure of UPFC to attract and retain other qualified personnel, could have a material adverse effect on our financial condition, results of operations and business prospects.

          Competition may adversely affect our performance.

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

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

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

          Changes in interest rates may adversely affect our performance.

          UPFC’s results of operations depend to a large extent upon its net interest income, which is the difference between interest income on interest-earning assets, such as loans and investments, and interest expense on interest-bearing liabilities, such as deposits and other borrowings.  When interest-bearing liabilities mature or reprice more quickly than interest-bearing assets in a given period, a significant increase in market rates of interest could have a material adverse effect on our net interest income.  Further, a significant increase in market rates of interest could adversely affect demand for our financial products and services.  Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions, which are beyond our control.  Our liabilities generally have shorter terms and are more interest rate sensitive than our assets.   Accordingly, changes in interest rates could have a material adverse effect on the profitability of our lending activities.  For more information, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Interest Rate Risk.”

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

          Changes in general economic conditions may adversely affect our performance.

          Each of our businesses is affected directly by changes in general economic conditions, including changes in employment rates, prevailing interest rates and real wages.  During periods of economic slowdown or recession, we may experience a decrease in demand for our financial products and services, an increase in our servicing costs, a decline in collateral values and an increase in delinquencies and defaults.  A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses.  Although we believe that our underwriting criteria and collection methods enable us to manage the higher risks inherent in loans made to such borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks.  Any sustained period of increased delinquencies, defaults or losses would materially and adversely affect our financial condition, results of operations and business prospects.

          Continuing qualification as a qualified thrift lender may adversely affect our growth and performance.

          In order to meet the requirements of the QTL test, the Bank maintains 60% of its assets in ‘qualified thrift investments” which are residential mortgages and related investments such as mortgage-related securities. Under the QTL test, indirect consumer loans are limited to 30% of assets. As of December 31, 2002, the Bank’s indirect consumer loans comprised 29% of its assets. If the Bank fails to adjust and manage it sources of funds and assets it may not meet the QTL test, which means that its activities could be limited and our ability to grow would be adversely affected.

          Because we engage in a high level of “subprime” lending, we may be forced to meet higher capital requirements.

          The Bank engages in subprime lending, which is considered to be a high risk activity by the OTS unless there are sufficient controls. Our subprime auto loan portfolio represented 371% of our Tier 1 capital as of December 31 2002. Because of the high percentage of subprime assets that comprise our Tier 1 capital, the OTS has the authority to impose additional regulatory capital requirements of up to 3 times higher than that normally required. The OTS may impose higher requirements even if there are sufficient controls in place. If the OTD imposes requirements to maintain high levels of regulatory capital, it could limit our ability to fund our operations and have an adverse effect on our ability to grow.

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         We may face other risks.

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

Item 2.           Properties

          Our principal executive offices consisting of approximately 13,300 square feet are located at 3990 Westerly Place, Suite 200, Newport Beach, California 92660.  As of December 31, 2002, UPFC maintained four branches for its banking business, 54 branches for its automobile finance business, one location for its insurance premium finance business and one office site for bank operations. 

          All of our leased properties are leased for terms expiring on various dates to 2007, many with options to extend the lease term.  The net investment in premises, equipment and leaseholds totaled $2.7 million at December 31, 2002 compared to $2.1 million at December 31, 2001.

Item 3.          Legal Proceedings

          UPFC is a party from time to time in legal proceedings incidental to the conduct of its businesses.  Management of UPFC believes that the outcome of such proceedings will not have a material effect upon its financial condition.

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

          There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2002.

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  PART II

Item 5.           Market For Registrant’s Common Equity And Related Shareholder Matters

          The Common Stock has been traded on the Nasdaq National Market under the symbol “UPFC” since UPFC completed its initial public offering on April 23, 1998.  As of March 1, 2003 we had approximately 750shareholders of record and 15,869,666 outstanding shares of common stock.  The following table sets forth the high and low sales prices per share of Common Stock as reported on the Nasdaq National Market for the periods indicated.

          UPFC has never paid a cash dividend on its Common Stock and we do not anticipate paying cash dividends on the Common Stock in the foreseeable future.  The payment of dividends is within the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions on the payment of dividends and general business conditions.  Federal regulations restrict the Bank’s ability to declare or pay any dividends to UPFC. For more information, see “Item 1.  Business – Regulation – Regulation of the Bank – Capital Distribution Limitations.”

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Item 6.           Selected Financial Data

          The following table presents selected consolidated financial data for UPFC and is derived from and should be read in conjunction with the Consolidated Financial Statements of UPFC and the Notes thereto, which are included in this Annual Report on Form 10-K for the years ended December 31, 2002, 2001 and 2000.  The selected consolidated financial data for the years ended December 31, 1999 and 1998 has been derived from our audited financial statements, which are not presented in this Annual Report.