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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

Commission File Number 000-24051

UNITED PANAM FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)

3990 Westerly Place

Newport Beach, California 92660

(Address of principal executive offices) (Zip Code)

(949) 224-1917

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value

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

Indicate by check mark 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.  ¨

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

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $59,000,000, based upon the closing sales price of the Common Stock as reported on the Nasdaq National Market on June 30, 2003. 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 February 18, 2004 was 16,123,144 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 2004 Annual Meeting of Shareholders to be held June 22, 2004 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, 2003.

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UNITED PANAM FINANCIAL CORP.

2003 ANNUAL REPORT ON FORM 10-K

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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: loans we made to credit-impaired borrowers; our need for additional sources of financing; concentration of our banking business in California; reliance on operational systems and controls and key employees; competitive pressure we face in the banking industry; changes in the interest rate environment; rapid growth of our businesses; impact of inflation and changing prices; and other risks, some of which may be identified from time to time in our filings with the Securities and Exchange Commission (the “SEC”). See “Item 1. Business—Factors That May Affect Future Results of Operations.”

Item 1.    Business

General

We are a specialty finance company engaged primarily in non-prime automobile finance and insurance premium finance. We provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources. We fund our finance businesses mainly with retail and wholesale bank deposits held by our wholly-owned subsidiary, Pan American Bank, FSB, a federally chartered savings association, or the Bank.

Our automobile finance business is conducted through United Auto Credit Corporation, or UACC, a wholly-owned subsidiary of the Bank. UACC purchases and holds for investment nonprime automobile installment sales contracts, or automobile contracts, originated by independent and franchised dealers of used automobiles. Non-prime lending has been and continues to be an area of lending which has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the Office of Thrift Supervision, or OTS, which supervises the Bank. The OTS has notified us that the Bank is considered by the OTS to have an unacceptable level of risk for a federally insured thrift because we are deemed by the OTS to have an excessive concentration risk in automobile loans, all of which are non-prime in nature. These automobile sales contracts represent approximately 24% of the Bank’s total assets. The balance of the Bank’s assets consists primarily of mortgage-backed securities. Our Board of Directors has decided to implement a plan to exit the Bank’s federal thrift charter because of the increasing regulatory requirements associated with financing our non-prime automobile finance business with insured deposits. We intend to pursue strategic financing and other available alternatives, which will enable us to conduct our non-prime automobile lending business outside a federal thrift charter. In the meantime, we will continue with our planned expansion of our automobile finance branch network and may, from time to time, sell automobile receivables in order to control the amount of non-prime automobile loans in our portfolio and reduce our reliance on insured deposits of the Bank.

Our insurance premium finance business is conducted through a joint venture agreement with BPN Corporation, or BPN. Under this agreement, the Bank finances automobile and small business insurance premiums. BPN markets this financing primarily to independent insurance agents in California.

We are a holding company for PAFI, Inc (or PAFI) and the Bank. PAFI is our wholly owned subsidiary and the Bank is a wholly owned subsidiary of PAFI. The Office of Thrift Supervision, or OTS, which regulates us, PAFI and the Bank, currently categorizes the Bank as being minority-owned.

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Automobile Finance

Business Overview

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

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

At December 31, 2003, UACC had a total of 70 branches, of which four were opened in 1996, five in 1997, five in 1998, six in 1999, eight in 2000, twelve in 2001, fourteen in 2002 and sixteen in 2003. UACC maintains nine branch offices located in California, seven branch offices located in Florida, six branch offices located in Texas, four branch offices located in each state of Arizona, Illinois and New York, three branch offices located in each state of Georgia, Massachusetts, North Carolina, Ohio and Virginia, two branch offices located in each state of Colorado, Indiana, Maryland, Oregon, Tennessee and Washington, and one branch office each in the states of Alabama, Kansas, Kentucky, Michigan, Missouri, Nevada, New Jersey, Pennsylvania and Utah. At December 31, 2003, UACC’s portfolio was composed of over 57,916 automobile contracts in the aggregate gross amount of $405 million.

Non-prime 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 currently compete in this segment of the automobile finance market, but we believe 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, 2003, 2002 and 2001.

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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 automobile contract from the dealer at a discount from face value, which increases the effective yield on such automobile contract.

Sales and Marketing

UACC markets its financing program to both independent and franchised dealers of used automobiles. 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’s 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% of base salary 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 83% based on credit quality, audit performance, profitability and qualitative merits, with only 17% based on contract purchase volume. When a UACC branch decides to begin doing business with a dealer, a dealer profile and investigation worksheet is 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.

In 2003, 15.79% of UACC’s automobile contracts were written by its California branches, compared to 20% in 2002, 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, 2003, no dealer accounted for more than 0.57% of UACC’s portfolio and the ten dealers from which UACC purchased the most automobile accounted for approximately 4.07% of its aggregate portfolio.

Underwriting Standards and Purchase of Automobile 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 has

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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, or Divisional Vice Presidents, or by certain members of our senior management at our corporate offices.

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 automobile contract for purchase. Prior to funding an automobile 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.

Post-Funding Quality Reviews

UACC’s Regional Managers complete quality control reviews of newly originated automobile contracts. These reviews focus on compliance with underwriting standards, the quality of the credit decision and the completeness of automobile contract documentation. Additionally, the Regional Managers complete quarterly branch audits that focus on compliance with UACC’s policies and procedures and the overall quality of branch operations and credit decisions.

Internal Audit Process

Each branch is audited quarterly by the respective Regional Manager, with review by a Divisional Vice President and certain members of our senior management at our corporate offices. Additionally, a sample of branches are audited each year by PriceWaterhouseCoopers, LLP for review of compliance with established policies and procedures.

Servicing and Collection

UACC services at the branch level all of the automobile 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 Divisional Vice President 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 Divisional Vice President.

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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 is charged-off by the end of the month in which the collateral is repossessed. 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 automobile 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 automobile 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 automobile 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 automobile contracts allocated to the allowance for loan losses.

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

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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 October 1998 through June 2003. Contract pools subsequent to June 2003 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 our insurance premium finance business. Under this ongoing agreement, the Bank underwrites and finances consumer automobile and small business, or commercial, insurance premiums. BPN markets this financing primarily to independent insurance agents in California and services such insurance premium loans for the Bank.

BPN markets the automobile insurance financing to drivers who are classified by insurance companies as non-standard or high risk for a variety of reasons, including age, driving record, a lapse in insurance coverage or ownership of high performance automobiles. 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 our insurance premium finance business.

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BPN markets the 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 our insurance premium finance business. On a typical 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 loan 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 loan 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 loan amount. Under the terms of the loan, the insured grants our insurance premium finance business a power of attorney to cancel the policy if the insured defaults on loan payments. Upon cancellation, the insurance company is required by California law to remit the unearned premium to the Bank, which, in turn, offsets this amount against any amounts due from the insured. We do not sell or have the risk of underwriting the underlying insurance policy.

We seek to minimize our credit risks in the financing of commercial insurance premiums by perfecting a security interest in the unearned premium, 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, 2003, we had approximately 37% of our commercial insurance premium loan balances with surplus line insurance companies doing business on a non-admitted basis in California.

In addition to insurance premiums, the insurance premium finance business will also finance broker fees, which are fees paid by the insured to the agent. If a policy cancels, the agent repays any unearned broker fee financed by us. When we agree 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 the insurance premium finance business’ possible losses on broker fees financed. To date, the Bank has not charged-off a broker fee balance.

At December 31, 2003, the aggregate gross amount of insurance premium loans was $41.2 million with 37,676 loans outstanding. Commercial loan balances represented 68.52% of these loan balances at December 31, 2003. During 2003, we originated 58,605 insurance premium loans of which 20,830 or 35.54% were commercial loans.

Relationship with BPN

BPN is headquartered in Chino, California, and at December 31, 2003, had 36 employees.

BPN solicits insurance agents and brokers to submit their clients’ financing requests to the Bank. BPN is responsible for monitoring the agents’ performance and assisting with our compliance with applicable consumer protection, disclosure and insurance laws, and providing us with customer service, data processing and collection services. We pay fees to BPN for these services. The amount of these fees is based on fixed charges, which include a loan service fee per loan and cancellation fees charged by the insurance premium finance business, and the earnings of the loan portfolio, which include 50% of the interest earned on portfolio loans after we subtract a specified floating portfolio interest rate and 50% of late fees and returned check fees charged by our insurance premium finance business. Additionally, BPN and the Bank 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 portfolio.

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

We have entered into an option agreement with BPN and its shareholders whereby we may purchase all of the issued and outstanding shares of BPN, or the Share Option, and all additional shares of any BPN affiliate which may be organized outside of California, or 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 the BPN affiliate’s pre-tax earnings for the twelve-month period prior to exercise.

Insurance Premium Finance Industry

Insurance Finance

We believe that the industry is highly fragmented with no independent insurance premium finance company accounting for a significant share of the market. We believe 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 us.

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, or 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 that provide insurance premium financing. As a result, our policy is to establish limits to the amount of financing of insurance premiums under 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, or CAARP, to which all admitted companies writing private passenger automobile insurance policies must belong. This 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, we believe its terms are not as competitive as those offered by other industry participants and, therefore, many CAARP policies are financed by others. At December 31, 2003, approximately 11.25% of the insurance premiums financed by our insurance premium finance business were pursuant to insurance policies issued under CAARP.

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Operating Summary

The following table presents a summary of the key operating and statistical results of our insurance premium finance business for the years ended December 31, 2003, 2002 and 2001.

Products and Pricing

Our insurance premium finance business generally charges from 16% to 23% annualized interest (depending on the amount financed) and a $40 processing fee for each consumer loan, which we believe is competitive in the insurance premium finance industry. In addition, loans 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 loan, for the payment of a cancellation charge. Certain of these finance charges and fees are shared 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.

Our insurance premium finance business designs its programs so that the unearned premium is equal to or greater than the remaining principal loan amount requiring a down payment and having a contract term shorter than the underlying policy term.

Sales and Marketing

As of December 31, 2003, BPN had insurance premium loans originated by almost 700 insurance agents. Relationships with agents are established by BPN’s marketing representatives. Our insurance premium finance business focuses on providing each agent with up-to-date information on its customers’ accounts, which allows

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the agent to service customers’ needs and minimize the number of policies that are canceled. Many of the largest agents for our insurance premium finance business have computer terminals provided by BPN in their offices, which allow on-line access to customer information. Agents for our insurance premium finance business receive an average producer fee ($20, equal to 50% of the aforementioned $40 processing fee per loan), as collateral against early cancellations. We do not require return of this $20 producer fee for early policy cancellation unless the policy pays off in the first 30 days.

Underwriting Standards

The Bank acts as a secured lender and, upon default, relies on its security interest in the unearned premium held by the insurance company. The Bank can, however, suffer a loss on an insurance premium loan for four reasons: loss of all or a portion of the unearned premium due to its failure to cancel the loan 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 loan. Careful administration of insurance premium loans is critical to protecting our insurance premium finance business 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, our insurance premium finance business does not carry out a credit investigation of a borrower.

Servicing and Collection

Although California law requires the insurance company to refund unearned premiums within 30 days of the cancellation date on personal policies and 60 days on commercial policies, most insurance companies pay on more extended terms. After cancellation, our insurance premium finance business charges certain allowable fees. Although the gross return premium may not fully cover the fees and interest owed 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.

The Bank 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 our allowance for possible losses. This allowance amount is reviewed periodically in light of economic conditions, the status of outstanding insurance premium loans and other factors.

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Pan American Bank, FSB

The Bank is a federally chartered stock savings bank, which was formed in 1994 and has four retail branch offices in California and $498 million in deposits at December 31, 2003. During 2003, the Bank sold one of its retail bank branches in a transaction expected to close in February 2004. The deposits sold were approximately $35 million. 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 our other business units. The business of the Bank is subject to substantial government supervision and regulatory requirement. See “—Regulation—Regulation of the Bank.”

The Bank has been the principal funding source to date for our automobile finance and insurance premium finance businesses primarily through its retail and wholesale deposits. We are currently analyzing financing and other alternatives to decrease our reliance on insured deposits of the Bank as a funding source for both our automobile finance and insurance premium finance businesses as non-prime lending has been and continues to be an area of lending which has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS. The OTS has notified us that the Bank is considered by the OTS to have an unacceptable level of risk for a federally insured thrift because we are deemed by the OTS to have an excessive concentration risk in automobile loans, all of which are non-prime in nature. These automobile sales contracts represent approximately 24% of the Bank’s total assets. The balance of the Bank’s assets consist primarily of mortgage-backed securities. Our Board of Directors has decided to implement a plan to exit the federal thrift charter in light of the increasing regulatory requirements associated with financing our non-prime automobile finance business with insured deposits of the Bank. For more information see “Item I. Business—General.”

Under federal regulatory requirements, the Bank must maintain at least 60% of its assets in mortgage-related securities. The Bank has chosen to meet this requirement by investing solely in AAA-rated, United States Government Agency securities. The mortgage-related securities we purchase are typically adjustable-rate investments, which we finance through similarly indexed adjustable rate repurchase agreements. As of December 31, 2003, we had approximately $2.2 billion in available repurchase contracts, typically one year committed lines, with staggered maturities to reduce our risk of liquidity shortfalls. We manage our investment securities portfolio with an emphasis on preserving capital by locking in a net spread between our asset yields and our cost of funds.

Industry Segments

We have 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 automobile finance and insurance premium finance. Each of our businesses is highly competitive. In our nonprime automobile finance business, we purchase automobile contracts through automobile dealers and compete primarily with other companies specializing in nonprime

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automobile finance and, to a lesser extent, with commercial banks, the captive finance affiliates of auto manufacturers and savings associations. 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 or independent insurance premium 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 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.

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.”

In addition, a number of state attorney generals and state bank commissioners have joined in a lawsuit seeking to limit the ability of federal regulators to preempt state law on behalf of federally chartered banks and thrifts such as the Bank. In the event the suit is successful, the Bank could be subject to additional regulation and compliance costs.

Employees

At December 31, 2003, we had 545 full-time equivalent employees. We believe that we have been successful in attracting quality employees and that our employee relations are satisfactory.

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Website

Our website address is www.upfc.com. None of the information on or hyperlinked from our website is incorporated into this Annual Report on Form 10-K.

Regulation

General

The Bank is a federally chartered savings association insured by the Federal Deposit Insurance Corporation or FDIC, and is subject to extensive regulation by the OTS and the 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 Savings Association Insurance Fund, or SAIF, and not for the benefit of our shareholders. The following information describes certain aspects of that regulation applicable to us 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

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

Our securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or 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.

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 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.

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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 us, the Bank, and their operations.

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:

The new legislation and its implementing regulations will result in increased costs of compliance, including certain outside professional costs.

USA PATRIOT Act of 2001

The USA Patriot Act of 2001 and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws, including:

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Fair and Accurate Credit Transactions Act

In December, 2003, President Bush signed into law the Fair and Accurate Credit Transactions Act (“FACT Act”) which sets new obligations for financial firms to help deter identity theft and give consumers more control of their credit data. It also reauthorizes a federal ban on state laws that interfere with corporate credit granting and marketing practices. The FRB and the Federal Trade Commission (“FTC”) are required to draft regulations to implement the FACT Act. It is not possible at this time to determine the impact of such regulations that are to be drafted; however, the FRB and FTC recently announced that businesses will have until December 1, 2004 to comply with the new initiatives.

Privacy

Federal banking rules 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.

On December 22, 2003, the SEC issued the advance notice of proposed rulemaking along with the federal banking agencies and other government agencies seeking comment on whether they should consider amending current regulations “to allow or require financial institutions to provide alternative types of privacy notices, such as a short privacy notice, that would be easier for consumers to understand.” The concept release lists more than 40 questions regarding which the agencies seek comment from the public, organized in the following categories: goals of a privacy notice, elements of a privacy notice, language of a privacy notice, format of a privacy notice, mandatory and permissible aspects of a privacy notice, costs and benefits of a short notice, and other categories.

In recent years, a number of states have implemented their own versions of privacy laws. For example, in 2003, California adopted standards that are tougher than federal law, allowing bank customers the opportunity to bar financial companies from sharing information with their affiliates.

Interagency Guidance on Response Programs to Protect Against Identity Theft

On August 12, 2003, the federal bank and thrift regulatory agencies requested public comment on proposed guidance that would require financial institutions to develop programs to respond to incidents of unauthorized access to customer information, including procedures for notifying customers under certain circumstances. The proposed guidance

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We are not able at this time to determine the impact of any such proposed guidance on our financial condition or results of operation.

Dividends and Other Transfers of Funds

OTS regulations impose limitations upon all capital distributions by savings associations, such as 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.

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

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

If neither the savings association nor the proposed capital distribution meet 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.

Transactions with Affiliates

The Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, any affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of any affiliates. Such restrictions prevent any affiliates from borrowing from us unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by us to or in any affiliate are limited, individually, to 10.0% of our capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20.0% of our capital and surplus. Some of the entities included in the definition of an affiliate are parent companies; sister banks, sponsored and advised companies, investment companies whereby the Bank or its affiliate serves as investment advisor, and financial subsidiaries of the Bank. Additional restrictions on transactions with affiliates may be imposed on us under the prompt corrective action provisions of federal law. See “— Prompt Corrective Action and Other Enforcement Mechanisms.”

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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 may request OTS permission to make loans in an amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus to develop residential housing, provided:

Notwithstanding the above limitations, a savings association may have total loans and extensions of credit, for any purpose, to one borrower outstanding at one time not to exceed $500,000.

At December 31, 2003, the Bank’s loans-to-one-borrower limit was $9.7 million based upon the 15% of unimpaired capital and surplus measurement.

Qualified Thrift Lender Test

Savings associations must meet a QTL test, which may be met either by maintaining a specified level of assets in qualified thrift investments as specified in the Home Owners Loan Act, or 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 HOLA is 65% of assets while the Code requires investments of 60% of 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, 2003, the Bank was in compliance with its QTL requirements and met the definition of a domestic building and loan association.

Capital Standards

The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk federal banking agencies, to 100% for assets with relatively high credit risk.

The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization’s total capital is divided into tiers. “Tier I capital” consists of (1) common equity, (2) qualifying noncumulative perpetual preferred stock, (3) a limited amount of qualifying cumulative perpetual preferred stock and (4) minority interests in the equity

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accounts of consolidated subsidiaries (including trust-preferred securities), less goodwill and certain other intangible assets. Not more than 25% of qualifying Tier I capital may consist of trust-preferred securities. “Tier II capital” consists of hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, preferred stock that does not qualify as Tier I capital, a limited amount of the allowance for loan and lease losses and a limited amount of unrealized holding gains on equity securities. “Tier III capital” consists of qualifying unsecured subordinated debt. The sum of Tier II and Tier III capital may not exceed the amount of Tier I capital.

The guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier I capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier I capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier I capital to total assets must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

As shown below, the Bank’s regulatory capital exceeded all minimum regulatory capital requirements applicable to it as of December 31, 2003.

The Bank is subject to the Interagency Guidelines on Non-prime Lending. Non-prime lending involves extending credit to individuals with less than perfect credit histories. Our auto lending activities constitute non-prime lending, which the agencies guidelines consider a high-risk activity that is unsafe and unsound if the risks associated with non-prime lending are not properly controlled. Specifically, the guidelines direct examiners to expect regulatory capital one and one-half to three times higher than that typically set aside for prime assets for institutions that:

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Our non-prime automobile loan portfolio represented approximately 388% of our Tier I capital as of December 31, 2003. It has been our strategy to conduct our non-prime automobile finance business in compliance with all applicable rules and regulations and in a manner which satisfies the criteria for classification of the Bank as a “well-capitalized” institution. In that regard, and based upon extensive discussion with the OTS, the Bank has taken various actions in the past to address the perceived risks associated with the Bank’s non-prime automobile contracts by, among other actions, contributing additional equity capital to the Bank, implementing enhanced underwriting criteria and additional analytics, increasing the risk weighting on its non-prime automobile loans from 150% to 200% and increasing its allowances for loan losses through the use of a 12-month loss estimation period instead of a 6-month period, which resulted in a pre-tax charge of $6.4 million in the third quarter of 2003. Certain of these actions have the effect of raising the effective capital level at which the Bank will continue to qualify for classification as “well-capitalized”. We maintain and currently intend to maintain the Bank’s regulatory capital ratios of at least 2 times that which is normally required with respect to our non-prime portfolio. However, any requirement to maintain additional regulatory capital as a result of our non-prime 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 non-prime lending activities, it cannot predict or determine whether or to what extent additional capital requirements will be imposed based upon regulatory supervision and examinations by the OTS. Our Board of Directors has decided to implement a plan to exit the federal thrift charter of the Bank in light of the extraordinary concern and scrutiny of non-prime lending among all of the federal banking regulatory authorities, including the OTS, and the increasing regulatory requirements associated with conducting such business. For more information see “-Regulation of Non-Prime Lending.”

In addition, federal banking regulators may set capital requirements higher than the minimums described above for financial institutions whose circumstances warrant it. For example, a financial institution experiencing or anticipating significant growth may be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets.

Regulation of Non-Prime Lending

Non-prime lending has been and continues to be an area of lending which has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS. The OTS has notified us that the Bank is considered by the OTS to have an unacceptable level of risk for a federally insured thrift because we are deemed by the OTS to have an excessive concentration risk in automobile loans, all of which are non-prime in nature. These automobile sales contracts represent approximately 24% of the Bank’s total assets. The balance of the Bank’s assets consists primarily of mortgage-backed securities. Based upon our continuing dialogue with the OTS, our Board of Directors has decided to implement a plan to exit the federal thrift charter of the Bank in light of the increasing regulatory requirements associated with financing our non-prime automobile finance business with insured deposits of the Bank. We intend to pursue strategic financing and other alternatives which will enable us to conduct both our non-prime automobile finance business and insurance premium finance business outside a federal thrift charter. In the meantime, we will pursue planned expansion in our automobile finance branch network and may, from time to time sell automobile receivables in order to control the amount of non-prime automobile loans in our portfolio and reduce our reliance on insured deposits of the Bank.

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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Federal Reserve Board regulations aimed at curbing such lending significantly widen 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 servicer within a year. Lenders also will be presumed to have violated the law—which says loans shouldn’t 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.

We do not expect these rules and potential state action in this area to have a material impact on our financial condition or results of operation. State action in this area, however, could impact our operations. See “Business—Economic Conditions, Government Policies, Legislation and Regulation.”

Prompt Corrective Action and Other Enforcement Mechanisms

Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2003, the Bank met the required ratios for classification as “well capitalized.”

An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. 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.

Safety and Soundness Standards

The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems

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and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets, (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses, (iii) compare problem asset totals to capital, (iv) take appropriate corrective action to resolve problem assets, (v) consider the size and potential risks of material asset concentrations, and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

Premiums for Deposit Insurance

Through the Bank Insurance Fund, or BIF, the FDIC insures our customer deposits up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.

FDIC-insured depository institutions pay an assessment rate equal to the rate assessed on deposits insured by the SAIF.

The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. Due to continued growth in deposits and some recent bank failures, the BIF is nearing its minimum ratio of 1.25% of insured deposits as mandated by law. If the ratio drops below 1.25%, it is likely the FDIC will be required to assess premiums on all banks. Any increase in assessments or the assessment rate could have a material adverse effect on the company’s earnings, depending on the amount of the increase. Furthermore, the FDIC is authorized to raise insurance premiums under certain circumstances.

The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance for one or more of the company’s subsidiary depository institutions could have a material adverse effect on the company’s earnings, depending on the collective size of the particular institutions involved.

All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the Federal Savings and Loan Insurance Corporation. The FICO assessment rates for the fourth quarter of fiscal 2003 were 1.54 cents for each $100 of assessable deposits. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC’s insurance funds and do not vary depending on a depository institution’s capitalization or supervisory evaluations.

Interstate Banking and Branching

A federal savings association has the ability to establish branches outside its home state. Commercial banks can also branch across state lines, subject to any state law limitations or prohibitions. Competition may increase further as banks branch across state lines and enter new markets.

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Community Reinvestment Act and the Fair Lending Laws

We are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act, or CRA, activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and non-governmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the CRA.

On February 6, 2004, the federal banking agencies proposed amendments to the CRA regulations that would:

A bank’s compliance with its CRA obligations is based a performance-based evaluation system which bases CRA ratings on an institution’s lending service and investment performance. When a bank applies for approval to acquire another bank, the banking regulators will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. The Bank’s most recent CRA exam on October 30, 2001 resulted in a rating of satisfactory.

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank, or 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, 2003, the Bank had $11.6 million in FHLB stock, which was in compliance with this requirement.

A new capital plan of the FHLB-San Francisco was approved by the Federal Housing Finance Board and will be implemented on April 1, 2004. The new capital plan incorporates a single class of stock with a par value of $100 per share, and may be issued, exchanged, redeemed, and repurchased only at par value. Each member is to own stock in an amount equal to the greater of:

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

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We do not believe that the initial implementation of the FHLB-San Francisco 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-San Francisco.

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, 2003, the Bank was in compliance with these requirements.

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 UACC

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 automobile contract. The dealer is obligated to indemnify UACC for any breach of any of the representations and warranties and to repurchase any non-conforming automobile 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 automobile 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.

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

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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 automobile contract, UACC, as the servicer of the automobile contract, is entitled to exercise the remedies of a secured party under the Uniform Commercial Code as adopted in a particular state, or 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.

Taxation

UPFC’s effective tax rate was 40.4% in 2003, as compared to 38.2% in 2002. The change in the overall effective income tax rate from 2002 to 2003 was primarily due to an increase in the effective state income tax rate as a result of the settlement of certain state tax examinations. UPFC files a consolidated federal income tax return and consolidated, combined or separate company state income tax returns as appropriate.

Subsidiaries

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

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.

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 Future 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.

Risks Related to Factors Outside Our Control

Adverse economic conditions, particularly in California, could adversely affect our business.

Each of our businesses is affected directly by changes in general economic conditions, including changes in employment rates, prevailing interest rates and real wages. During periods of economic slowdown or recession,

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we may experience a decrease in demand for our financial products and services, an increase in our servicing costs, a decline in collateral values and an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses. Any sustained period of increased delinquencies, defaults or losses would materially and adversely affect our financial condition, results of operations and business prospects.

The Bank’s retail operations and the insurance premium finance business are especially susceptible to general economic conditions in the state of California. The Bank, which is the principal funding source for our automobile finance and insurance premium finance businesses, has a concentration of deposits in California. Substantially all of the insurance premium finance business’ operations are currently conducted in California. The cost of the Bank’s deposits and the ability of the insurance premium finance business to profitably originate and service insurance premium finance contracts may be adversely affected by the occurrence of adverse economic conditions or natural disasters in California.

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

Our results of operations depend to a large extent upon our net interest income, which is the difference between interest 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. In addition, the interest rates charged on the automobile contracts purchased from dealers are limited by statutory maximums, restricting our opportunity to pass on increased interest costs. 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 loan assets. Accordingly, changes in interest rates could have a material adverse effect on the profitability of our lending activities.

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

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

Risks Related to Our Business

The ownership of our common stock is concentrated, which may result in conflicts of interest and actions that are not in the best interests of all of our shareholders.

As of December 31, 2003, Pan American Financial, L.P. and its general partner, BVG West Corp., together owned 10,050,000 shares of our common stock, representing more than 60% of our total outstanding common stock. Our Chairman and Chief Executive Officer, Guillermo Bron, beneficially owns these shares through his majority ownership of and executive position held at BVG.

As a result our officers and directors, acting together, will have substantial influence over our management and affairs, including the ability to control substantially all matters submitted to our shareholders for approval,

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the election and removal of our Board of Directors, any amendment of our articles of incorporation or bylaws and the adoption of measures that could delay or prevent a change in control or impede a merger. This concentration of ownership could adversely affect the price of our common stock or lessen any premium over market price that an acquirer might otherwise pay.

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

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

A significant portion of our cash flow comes from our second-tier subsidiary UACC. UACC is a wholly owned subsidiary of the Bank. The Bank is subject to limitations upon its ability to pay dividends to us by regulations of the OTS. UACC is indebted to the Bank for approximately $306.2 million of subordinated debentures issued to fund UACC’s operations. The ability of UACC to repay its obligations to the Bank may be impaired by deficiencies in UACC’s automobile finance operations. Furthermore, any amounts owed to other creditors of UACC may impair the Bank’s ability to have funds available for dividend to us.

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 the purchase of automobile contracts and our insurance premium finance business principally through deposits of the Bank. We are currently analyzing different strategic alternatives to decrease our reliance on insured deposits as a funding source for our automobile finance and insurance premium finance businesses as non-prime lending has been and continues to be an area of lending which has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS. The OTS has notified us that the Bank is considered by the OTS to have an unacceptable level of risk for a federally insured thrift because we are deemed by the OTS to have an excessive concentration risk in automobile loans, all of which are non-prime in nature. These automobile sales contracts represent approximately 24% of the Bank’s total assets. The balance of the Bank’s assets consist primarily of mortgage-backed securities. Our Board of Directors has decided to implement a plan to exit the federal thrift charter of the Bank in light of the increasing regulatory requirements associated with financing the non-prime automobile business with insured deposits. We intend to pursue strategic financing and other available alternatives which will enable us to conduct our non-prime automobile lending business outside a federal thrift charter. However, there is no assurance that we will be able to obtain alternative sources of financing or that these financing sources will be on competitive terms. Furthermore, the cost to obtain alternative financing could increase our all-in cost of funds. If we are unable to obtain alternative, competitive sources of financing, our business could be adversely affected.

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We may not be able to generate sufficient operating cash flows to run our automobile finance operations.

Our automobile finance operations require substantial cash to fund growth. Operating cash requirements include funding of new loans, capital expenditures for new branches and ongoing operating costs. Our primary source of operating cash comes from interest and principal payments received on automobile contracts that we hold. The timing and amount of excess cash flows from automobile contracts varies based on a number of factors, including:

Any adverse change in these factors could reduce or eliminate excess cash flows to us. Although UACC currently has positive operating cash flows, we cannot assure you that UACC will continue to generate positive cash flows in the future, which could have a material adverse effect on our financial position, liquidity and results of operations.

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

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

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

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

Our insurance premium finance business would be harmed if we cannot continue to maintain relationships with our independent insurance agents.

Our insurance premium finance business depends primarily on independent insurance agents for the origination of insurance premium finance contracts. These independent insurance agents deal with multiple lenders for each prospective borrower. Our insurance premium finance business competes with these lenders for the independent agents’ business on price, service, loan fees, costs and other factors. Competitors to our insurance premium finance business also seek to establish relationships with such agents, who are not obligated by contract or otherwise to do business with our insurance premium finance business. The loss of a substantial portion of the business of these agents would have a material adverse effect on our financial condition, results of operations and business prospects.

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Defaults on insurance premium finance loans may result in material losses.

Each insurance premium finance loan is designed to ensure that at any point during the term of the underlying insurance policy, the unearned premium under the policy exceeds the unpaid loan principal. However, in the event of a default, the unearned premium may not provide the insurance premium finance business full reimbursement of interest, fees and other charges. In addition, the insurance company may default and fail to remit the unearned premium, and a delay in processing a claim for the return of the unearned premium may cause us to incur a loss. Moreover, any delay in our cancellation of a policy would result in declining collateral protection and increase our risk of loss. Although loan losses on our insurance premium loans to date have not had a material adverse effect on our financial condition, results of operations or business prospects, no assurance can be given that we will not suffer material losses in the future as a result of defaults under insurance premium loans.

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

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

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

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

Competition may adversely affect our performance.

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 us. We compete in the nonprime automobile finance industry primarily with independent companies specializing in nonprime automobile finance and, to a lesser extent, with commercial banks, the captive finance affiliates of automobile manufacturers and savings associations. 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 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 we face. Competitors with lower costs of capital have a competitive advantage over us.

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

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

Our operations have rapidly expanded over the past seven years and we remain vulnerable to a variety of business risks generally associated with rapidly growing companies. If we decrease our reliance on insured deposits of the Bank as a funding source, we intend to pursue growth for the foreseeable future, particularly in our automobile finance business by opening new branches. In addition, we may broaden our product offerings to include additional types of consumer loans or may enter other specialty finance businesses. This growth strategy will require alternative sources of financing other than insured deposits of the Bank, additional capital and human resources as well as improvements to our infrastructure and management information systems, some of which have been designed specifically for our banking, auto finance or insurance premium finance businesses. Our failure to implement our planned growth strategy or the failure of our automated systems, including a failure of data integrity or accuracy, would have a material adverse effect on our financial condition, results of operations and business prospects.

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

We have realized substantial growth in our automobile finance business since its inception in 1996. Of UACC’s 70 branches as of December 31, 2003, 42 opened after January 1, 2001 and the amount of automobile contracts purchased has increased from $233.4 million for 2001 to $314.6 million for 2002 to $442.2 million for 2003. In the future, UACC’s rate of growth will be dependent upon, among other things, the continued success of its efforts to expand the number of branches, attract qualified branch managers, and expand its relationships with independent and franchised dealers of used automobiles. Furthermore, regulatory scrutiny discussed below could significantly impact UACC’s ability to grow within its existing corporate structure.

Non-prime lending has been and continues to be an area of lending that has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS. The OTS has notified us that the Bank is considered by the OTS to have an unacceptable level of risk for a federally insured thrift because we are deemed by the OTS to have an excessive concentration risk in automobile loans, all of which are non-prime in nature. These automobile sales contracts represent approximately 24% of the Bank’s total assets. The balance of the Bank’s assets consist primarily of mortgage-backed securities. Our Board of Directors has decided to implement a plan to exit the Bank’s federal thrift charter because of the increasing regulatory requirements associated with financing UACC’s non-prime automobile finance business with insured deposits of the Bank. We intend to pursue strategic financing and other available alternatives, which will enable us to conduct UACC’s non-prime automobile lending business outside a federal thrift charter. In the meantime, we will continue with our planned expansion of UACC’s automobile finance branch network and may, from time to time, sell automobile receivables in order to control the amount of non-prime automobile loans in our portfolio and reduce UACC’s reliance on insured deposits of the Bank. Accordingly, UACC’s current expansion and future growth will depend to a significant extent our ability to pursue financing and other alternatives and reduce UACC’s reliance on the Bank’s insured deposits. If we are unable to pursue these alternatives, the ability of UACC to grow will be adversely affected.

Risks Related to Regulatory Factors

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

The Bank engages in nonprime lending, which is considered to be a high risk activity by the OTS unless there are sufficient controls. Our nonprime auto loan portfolio represented 388% of our regulatory Tier 1 capital as of December 31, 2003. Because of the high percentage of nonprime assets relative to our Tier 1 capital, the OTS has the authority to impose additional regulatory capital requirements of up to three times higher than the amount normally required even if there are sufficient controls in place. We maintain and currently intend to maintain regulatory capital ratios of at least two times that which is normally required with respect to our nonprime portfolio. If the OTS imposes requirements to maintain higher levels of regulatory capital, it could limit our ability to fund our operations, require us to raise additional capital or sell assets and have an adverse effect on our ability to grow.

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Regulatory requirements restrict our ability to do business.

The Bank is subject to inspection and regulation by the OTS which has the power to enforce the Home Owners Loan Act of 1934, as amended, and its regulations by a variety of actions, ranging from a memorandum of understanding to cease and desist proceedings under the Federal Deposit Insurance Act. We engage in the business of non-prime lending, which has been and continues to be an area of lending that is the subject of extraordinary regulatory concern and scrutiny among all of the banking regulatory authorities including the OTS. The OTS has notified us that the Bank is considered by the OTS to have an excessive concentration risk in automobile loans, all of which are non-prime in nature. Our Board of Directors has decided to implement a plan to exit the Bank’s federal thrift charter because of the increasing regulatory requirements associated with financing our non-prime automobile finance business with insured deposits of the Bank. The OTS has broad powers to, among other things, require us to change our business practices, hold additional capital, change management and adopt or change accounting practices, such as our allowance for loan losses. Any actions by the OTS could have a material adverse impact on our business and may impact the price of our common stock, and our access to the capital markets.

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

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

Under the requirements of the Qualified Thrift Lender test, or QTL test, that is set forth by the OTS, the Bank must maintain 60% of its assets in “qualified thrift investments” which are residential mortgages and related investments such as mortgage-related securities. Under the QTL test, no more than 30% of the Bank’s assets can consist of indirect consumer loans, which include automobile contracts. As of December 31, 2003, the Bank’s indirect consumer loans comprised 22.2% of its assets. If the Bank fails to adjust and manage its sources of funds and assets, it may not meet the QTL test, which means that our automobile finance and insurance premium finance businesses could be limited and our ability to grow would be adversely affected.

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

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

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any of our subsidiaries. Furthermore, as our operations continue to grow, it may be more difficult to comprehensively identify, accurately interpret and properly train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance with these laws and regulations which could have a material adverse effect on our results of operations, financial condition and business prospects.

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

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, 2003, we maintained four branches for our banking business, 70 branches for UACC’s automobile finance business, one location for our insurance premium finance business and one office site for our bank operations. During the three months ended September 30, 2003, the Bank sold one of its retail bank branches in a transaction which closed in February 2004.

All of the properties listed above are leased with lease terms expiring on various dates to 2009, many with options to extend the lease term. The net investment in premises, equipment and leaseholds totaled $3.2 million at December 31, 2003.

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, 2003.

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PART II

Item 5.    Market For Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock has been quoted on the Nasdaq National Market under the symbol “UPFC” since our initial public offering in 1998. The following table shows for the periods indicated the high and low sale prices per share of our common stock.

As of February 18, 2004 we had approximately 1,321 shareholders at record and 16,123,144 outstanding shares of common stock.

During the three months ended September 30, 2003, we issued $10.3 million of subordinated debt to a subsidiary trust, UPFC Trust I. The transaction did not involve any underwriters, underwriting discounts or commissions or public offerings, and we believe that the transaction, if deemed to be a sale of a security, was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof or Regulation D promulgated there under, as a transaction by an issuer not involving a public offering.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our common stock since inception.

We currently anticipate that we will retain all future earnings for use in our business and do not anticipate that we will pay any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements and our general financial condition, general business conditions and contractual restrictions on payment of dividends, if any.

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Item 6.    Selected Financial Data

The following table presents our selected consolidated financial data as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999. The selected consolidated financial data have been derived from our audited consolidated financial statements.

You should read the selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto that are included elsewhere in this Form 10-K.