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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, 2004

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  x    No  ¨

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $98,000,000, based upon the closing sales price of the Common Stock as reported on the Nasdaq National Market on June 30, 2004. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. Such determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the Registrant’s Common Stock as of March 16, 2005 was 16,539,313 shares.

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UNITED PANAM FINANCIAL CORP.

2004 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: our recent shift of the funding source of our business; our dependence on securitizations; our need for substantial liquidity to run our business; loans we made to credit-impaired borrowers; reliance on operational systems and controls and key employees; competitive pressure we face; changes in the interest rate environment; rapid growth of our businesses; general economic conditions; and other risks, some of which may be identified from time to time in our filings with the Securities and Exchange Commission (the “SEC”). See “Item 1. Business—Factors That May Affect Future Results of Operations.”

Item 1.    Business.

General

We are a specialty finance company engaged in non-prime automobile finance, which includes the purchase, warehousing, securitization and servicing of non-prime automobile installment sales contracts originated by independent and franchised dealers of used automobiles. We provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources. We conduct our automobile finance business through our wholly-owned subsidiary United Auto Credit Corporation, or UACC, which was established in 1996. Since entering the non-prime automobile finance business, we have expanded to 87 offices throughout the United States.

Historically, we have also provided retail banking services through our wholly-owned subsidiary, Pan American Bank, FSB, a federally chartered savings association, or the Bank, and have operated an insurance premium finance business. However, because of the increasing regulatory requirements associated with financing our non-prime automobile finance business mainly with insured deposits, we caused the Bank to exit its federal thrift charter and dissolve effective February 11, 2005. In connection with the dissolution of the Bank, and in order to concentrate our efforts on our non-prime automobile finance business, we also elected to discontinue our insurance premium finance business in September 2004. As a result, beginning with the quarterly period ended September 30, 2004, our insurance premium finance business and certain of our banking operations are treated as discontinued operations.

Retail and wholesale deposits of the Bank have historically been the primary funding source for our automobile finance business. However, as part of our plan to exit the Bank’s federal thrift charter, we shifted the funding source of our automobile finance business to the public capital markets through securitizations and warehouse facilities. In addition, and as part of the Bank’s plan of dissolution, we completed the sale of all three branches of the Bank during the third quarter of 2004, and distributed all of the Bank’s non-cash assets and excess capital, including the automobile finance business, to us and PAFI, Inc., or PAFI.

PAFI is a direct wholly-owned subsidiary of UPFC, UACC is a direct wholly-owned subsidiary of PAFI, and UPFC Auto Receivables Corporation and UPFC Funding Corporation are direct wholly-owned subsidiaries of UACC. At December 31, 2004, and until the Bank was dissolved on February 11, 2005, the Bank was a direct wholly-owned subsidiary of PAFI, and UACC was a direct wholly-owned subsidiary of the Bank. Following the dissolution of the Bank, UACC became a direct wholly-owned subsidiary of PAFI. We intend to merge PAFI into us, which will result in UACC becoming a direct wholly-owned subsidiary of us.

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Automobile Finance

Business Overview

We entered the non-prime 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 network of automobile finance offices, and these branch offices 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, 2004, UACC had a total of 87 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, sixteen in 2003, and seventeen in 2004. UACC maintains eleven branch offices located in California, nine branch offices located in each of Florida and Texas, five branch offices located in Arizona, four branch offices located in each of Illinois, Missouri, New York and Ohio, three branch offices located in each of Georgia, Massachusetts, North Carolina, Tennessee and Virginia, two branch offices located in each of Alabama, Colorado, Indiana, Maryland, Oregon, Pennsylvania and Washington and one branch office in each of Kansas, Kentucky, Michigan, Nevada, New Hampshire, New Jersey, Oklahoma and Utah. At December 31, 2004, UACC’s portfolio was composed of over 74,825 automobile contracts in the aggregate gross amount of $529 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 non-prime 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 non-prime 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 non-prime market or have done so only through programs that were not consistently available. Independent companies specializing in non-prime 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, 2004, 2003 and 2002.

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Products and Pricing

UACC’s business is focused on transactions that involve a used automobile with an average age of four to six years and an average original contract term of 48 to 52 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 32% 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 an automobile installment 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 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 internal audit results. The bonus calculation stresses loan quality with 83% based on credit quality, internal audit performance, profitability and qualitative merits, and with 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 internal audits of the overall branch performance as well as individual dealer performance.

In 2004, 14% of UACC’s automobile contracts were written by its California branches, compared to 16% in 2003, and 20% in 2002. 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, 2004, no dealer accounted for more than 0.45% of UACC’s portfolio and the ten dealers from which UACC purchased the most automobile contracts accounted for approximately 3.28% 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 internal 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 has been audited each year by PriceWaterhouseCoopers, LLP for review of compliance with established policies and procedures. These audit processes will continue and will be conducted by McGladrey and Pullen, LLC in the future.

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. The net outstanding balance of the loan is the loan balance less any unaccreted discount and warranty refunds.

Allowance for Loan Losses

UACC’s policy is to charge-off accounts delinquent in excess of 120 days. 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.

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 as an adjustment to yield of the automobile contract. Loss allowance analyses were performed regularly to determine the adequacy of current allowance levels. The loss allowances recorded at the time of purchase represented an estimate of expected losses over the lives of these automobiles contracts. We accounted for such contracts by static pool, stratified into six-month buckets, so that the credit risk in each individual static pool could be evaluated independently, on a periodic basis, in order to estimate the future losses within each pool. Additional provisions for credit losses were recognized immediately for pools whereby the remaining amount of the initial discount set aside was determined to be insufficient to cover losses expected to be incurred.

As of January 1, 2003, we began to allocate the purchase price entirely to automobile contracts and unearned income at the date of purchase. The unearned income is accreted as an adjustment to yield over the life of the contract. An allowance for credit losses is now established through provisions for losses recorded in income as necessary to provide for estimated contract losses in the next 12 months (net of remaining unearned income) at each reporting date. We expect that future results will reflect higher yields and provisions for credit losses being recorded from purchased automobile contracts. We accounted for such contracts by static pool, stratified into six-month buckets, so that the credit risk in each individual static pool could be evaluated independently, on a periodic basis, in order to estimate the future losses within each pool. This method of recording allowance for loan loss for the expected losses over the losses over the next 12 months instead of for the life of the loan will ultimately result in a decline in our allowance for loan loss as a percentage of loans outstanding over the next few years as the percentage of loans included at the 12 month estimate increases.

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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 1999 through June 2004. Contract pools subsequent to June 2004 were not included in this table because the loan pools were not seasoned enough to provide a meaningful comparison with prior periods.

Financing and Sale of Automobile Installment Contracts

During the first three quarters of 2004, we financed the acquisition of automobile installment contracts primarily with insured deposits of the Bank. During the third quarter of 2004, however, we shifted the funding source of our business and implemented our strategy to complete securitizations of automobile installment contracts on a regular basis and to use warehouse credit facilities to fund the purchase of automobile installment contracts prior to securitizations. Accordingly, in September 2004 we began financing the acquisition of automobile installment contracts primarily through a $200 million warehouse facility described below.

Warehouse Facility

As of December 31, 2004, our primary source of operating cash comes from a $200 million warehouse facility. This facility is used to purchase automobile installment contracts. Under the terms of the facility, our indirect subsidiary, UPFC Funding Corp., may obtain advances on a revolving basis by issuing notes to

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participating lenders and pledging for each advance a portfolio of automobile receivables. UPFC Funding Corp. purchases the automobile receivables from UACC and UACC services the automobile receivables, which are held by a custodian. We have agreed to provide an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UACC under the warehouse facility. The operations of this indirect subsidiary are included in our consolidated financial statements.

We finance our daily operations principally through this warehouse facility and also finance operations with cash from operating activities and from our securities portfolio. The warehouse facility contains affirmative, negative and financial covenants typical of such credit facilities. We were in compliance with these covenants as of December 31, 2004.

Securitizations and Interest Rate Risk Management

We intend to securitize our automobile installment contracts on a regular basis. During the third quarter of 2004, we completed our first securitization composed of a $420 million offering of automobile receivable backed securities. We used the net proceeds of the securitization to fund the sale of the Bank’s deposit liabilities. We intend to use net proceeds from future securitizations to pay down outstanding indebtedness incurred under our warehouse credit facility and to create the availability of funds to purchase additional automobile installment contracts. We rely on our ability to aggregate and pledge receivables to securitization trusts and sell securities in the asset-backed securities market to generate cash proceeds for repayment of our automobile warehouse credit facility.

Regular contract securitizations are an integral part of our business plan for the future so we will increase our liquidity and reduce risks associated with interest rate fluctuations. We are developing a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. Our first securitization utilized credit enhancement in the form of a financial guaranty insurance policy in order to achieve the “AAA/Aaa” rating. The policy was issued by AMBAC Insurance Corporation. This form of credit enhancement reduces the cost of the securitizations relative to alternative forms of credit enhancement currently available to us and enhances the marketability of these transactions to investors in asset-backed securities. We expect that in future securitizations, we will sell automobile receivables to a newly formed trust, which will issue securities in an amount equal to the aggregate receivables. The operations of these trusts are included in our consolidated financial statements and therefore do not require the recognition of gain on sale or servicing assets.

Investment and Banking

Prior to its dissolution, the Bank was a federally chartered stock savings bank which historically had been the primary funding source for our automobile finance business. During 2004, we announced a plan for the Bank to exit its federal thrift charter and we also reduced our reliance on insured deposits of the Bank by shifting the funding source of our business to securitizations and warehouse funding. During the third quarter of 2004, we closed our first securitization composed of a $420 million offering of automobile receivable backed securities and also closed a $200 million automobile finance warehouse facility. We believe that this securitization and warehouse facility (and future securitizations and warehouse facilities) will fund our ongoing business operations.

In July 2004, the Bank adopted a plan of voluntary dissolution to dissolve and ultimately exit its federal thrift charter. The OTS conditionally approved the plan in August 2004, subject to the Bank satisfying certain conditions imposed by the OTS. In September 2004, pursuant to the Bank’s plan of voluntary dissolution, we completed the sale of the Bank’s three retail branches located in California with aggregate deposits of $213.5 million and the Bank’s brokered deposits of $184.3 million. As part of the sale of these deposits, we recognized a one time net gain, after associated costs, of $3.1 million after tax. At December 31, 2004, we held $71.9 million in internet originated certificates of deposit. On February 5, 2005, we completed the sale of the Bank’s

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outstanding internet certificates of deposit for an aggregate purchase price of $67.9 million. On March 7, 2005, we received confirmation that the FDIC terminated the insured status of the Bank effective February 7, 2005. On March 8, 2005, we received confirmation from the OTS that the Bank’s federal charter was cancelled effective February 11, 2005. In connection with the Bank’s plan of voluntary dissolution and to facilitate its dissolution, we irrevocably guaranteed all of the Bank’s remaining obligations.

Prior to its dissolution, the business of the Bank was subject to substantial government supervision and regulatory requirement. See “Regulation-General.” Under federal regulatory requirements known as the “Qualified Thrift Lender,” or QTL, test, the Bank was required to maintain at least 60% of its assets in mortgage-related securities on a monthly basis in nine out of every 12 months. The Bank had historically met this requirement by investing solely in AAA-rated, United States Government Agency securities. The mortgage-related securities the Bank had purchased were typically adjustable-rate investments, which the Bank financed through similarly indexed adjustable rate repurchase agreements. As part of the Bank’s plan of voluntary dissolution, during the third quarter of 2004, the Bank’s investment securities and all related repurchase agreement liabilities were transferred from the Bank to us. Accordingly, as of December 31, 2004, we had approximately $1.7 billion in available repurchase contracts, typically one year committed lines, with staggered maturities to reduce our risk of liquidity shortfalls. As of December 31, 2004 the Bank had $798 million in investment securities. 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.

During 2004, the Bank entered into derivative contracts to offset the risk of rising interest rates between the time we entered into an agreement to securitize our automobile loans and the time of finally setting the fixed rates on the securitization. Subsequently, interest rates fell and the derivatives lost value. This loss in value of $2.2 million was charged against current income. The charge will be offset in the future by lower fixed rates on our automobile loan securitizations resulting in lower inherent cost and higher net income in future periods.

At December 31, 2004 we had no derivative contracts outstanding and currently we do not plan to engage in any other derivative transactions.

Discontinued Operations

Overview

Historically, we have engaged in three reportable segments: automobile finance, insurance premium finance and banking. As a result of changes in our funding sources during this year and the cancellation of the Bank’s federal thrift charter, we have discontinued our insurance premium finance business and have also discontinued certain of our banking operations. The end result is that we now have two reportable segments: (1) automobile finance and (2) investment. Additionally, our insurance premium finance business and certain of our banking operations have been treated as discontinued operations in our consolidated financial statements.

Insurance Premium Finance

From May 1999 through September 2004, one of our primary business segments was insurance premium finance. In September 2004, following the sale of all of the branches of our retail banking operation, we decided to discontinue our insurance premium finance operations to concentrate our efforts on our other businesses. Because of our decision to discontinue our insurance premium finance operations, related operating activity for the insurance premium finance business was reclassified and reported as discontinued operations in our consolidated financial statements beginning with the quarterly period ended September 30, 2004. The Bank subsequently sold its portfolio of insurance premium finance loans on November 17, 2004.

We entered into the insurance premium finance business through a management agreement, as amended, originally dated May 1995 with BPN Corporation, or BPN. Under the management agreement, the Bank would

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finance automobile and small business insurance premiums and BPN would market this financing primarily to independent insurance agents in California and serviced such insurance premium loans for the Bank. The shareholders of BPN had entered into certain guaranty agreements in favor of the Bank whereby they agreed to pay any sums owed to the Bank and not paid by BPN. The total potential liability of the guarantors to the Bank was 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 were subordinated to the full payment of all obligations of BPN to the Bank.

At the same time we entered into the management agreement with BPN, we also entered into an option agreement with BPN and its shareholders whereby we had the option, exercisable on or before March 31, 2005, to 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. To exercise the Share Option, the Bank would have had to 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 could not be exercised independently of the Share Option. The exercise price of the Affiliate Share Option equaled the sum of four times the BPN affiliate’s pre-tax earnings for the twelve-month period prior to exercise.

On November 17, 2004, the Bank sold the portfolio of insurance premium finance loans to ClassicPlan Premium Financing, Inc., or ClassicPlan, pursuant to a Loan Sale Agreement dated November 17, 2004 by and among the Bank, ClassicPlan and BPN. The Bank sold the portfolio of loans at a nominal premium over par. As part of the Loan Sale Agreement, the Bank and BPN agreed that the management agreement was novated and that ClassicPlan was substituted for the Bank in the management agreement, except that any indemnification rights and obligations of each of the Bank and BPN under the management agreement were preserved with respect to any act, error or omission occurring or arising before November 17, 2004. The novation of the management agreement, in effect, caused the novation of the guaranty agreements entered into by the shareholders of BPN.

In addition, we and the Bank entered into a mutual general release effective as of November 17, 2004 with BPN and ClassicPlan. Under the release, ClassicPlan and BPN released us and the Bank from all claims, orders, contracts or agreements, including the management agreement. We and the Bank entered into this same release for the benefit of ClassicPlan and BPN. In addition, we and the Bank released ClassicPlan and BPN from the Share Option and the Affiliate Share Option. However, neither party released the other from obligations arising under the Loan Sale Agreement or any indemnification obligation under the management agreement for any alleged misconduct, unauthorized or grossly negligent act, error or omission occurring before November 17, 2004.

Banking

In September 2004, we sold our three retail bank branches and our brokered deposit portfolio and, at December 31, 2004, we had our remaining internet originated deposits under contract for sale pending regulatory approval. The sale of the internet originated deposits was closed on February 5, 2005. We have included the net gain on these sales, net of costs associated with the sales, as discontinued operations in our consolidated statement of operations. The normal net operating costs and interest expense on deposits of the Bank have not been reclassified as discontinued operations from prior periods because the associated loans funded by these deposits are not discontinued and the cost of the replacement funds from the securitization and the warehouse line are very similar to the net cost of deposits including operating costs.

Industry Segments

We have two reportable segments: (1) automobile finance and (2) investments. Information regarding industry segments is set forth in Footnote Number 21 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

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Competition

We are involved in non-prime automobile finance and investment. Our business is highly competitive. We purchase automobile contracts through automobile dealers and compete primarily with other companies specializing in non-prime 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.

Economic Conditions, Government Policies, Legislation, and Regulation

Our profitability is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by us on interest-bearing liabilities, such as our warehouse line, and other borrowings, and the interest rates received by us on our interest-earning assets, such as the automobile installment contracts and securities held in our investment portfolio, comprise the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment, and the impact which future changes in domestic and foreign economic conditions might have on us cannot be predicted.

Prior to its dissolution, the business of the Bank was also influenced by interest rate changes as well as 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.

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 the operating environment of us and 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 with which we compete. 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 UPFC or any of its subsidiaries. See “Business—Regulation.”

Employees

At December 31, 2004, we had 647 full-time equivalent employees. We believe that we have been successful in attracting quality employees and that our employee relations are satisfactory.

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

At December 31, 2004, the Bank was a federally chartered savings association insured by the Federal Deposit Insurance Corporation, or FDIC, and we and our subsidiary, PAFI, were each a unitary savings and loan

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holding company. 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. At December 31, 2004, we and our subsidiaries PAFI and the Bank were subject to such regulation. Among other matters, such regulation included restrictions on business activities, restrictions on acquisitions, restrictions on dividends by the Bank, restrictions on transactions among the Bank and its affiliates, limitations on the amount of loans which the Bank could make to any one borrower, compliance with minimum regulatory capital requirements of the Bank, compliance with regulatory safety and soundness guidelines, requirements to hold minimum investments in qualified thrift investments, and compliance with regulatory fair lending and community reinvestment obligations. At December 31, 2004, we believe that we, as well as PAFI and the Bank, were in compliance with all of the foregoing regulatory requirements. The foregoing summary is qualified by reference to discussion in our prior periodic reports and to the notes to our Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

As discussed more fully above in the Section entitled “Business-Investment and Banking,” the Bank dissolved effective as of February 11, 2005 upon cancellation of its federal thrift charter by the OTS. In addition, we and PAFI each ceased to be a savings and loan holding company effective as of February 11, 2005 by virtue of the cancellation of the Bank’s federal thrift charter.

Our business continues to be regulated by federal, state, and local government authorities and is subject to extensive federal, state and local laws, rules and regulations. We are also subject to judicial and administrative decisions that impose requirements and restrictions on our business. Set forth below is a summary description of certain of the material laws and regulations which relate to our business. The description is qualified in its entirety by reference to the applicable laws and regulations.

General Securities Regulation

Our securities are registered with the SEC 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.

The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 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. To date, these costs have not had a material impact on our operations.

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. Under the USA PATRIOT Act, financial institutions are subject to

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prohibitions regarding specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures, and controls generally require financial institutions to take reasonable steps:

Under the USA PATRIOT Act, financial institutions are required to establish and maintain anti-money laundering programs which included

We have implemented comprehensive policies and procedures to address the requirements of the USA PATRIOT Act.

Fair and Accurate Credit Transactions Act

The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, or FACT, requires financial firms to help deter identity theft, including developing appropriate fraud response programs, 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. In connection with FACT, financial institution regulatory agencies proposed rules that would prohibit an institution from using certain information about a consumer it received from an affiliate to make a solicitation to the consumer, unless the consumer has been notified and given a chance to opt out of such solicitations. A consumer’s election to opt out would be applicable for at least five years.

Privacy

Federal 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.

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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 customers the opportunity to bar financial companies from sharing information with their affiliates.

Predatory Lending

The term “predatory lending,” much like the term “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. However, predatory lending typically involves at least one, and perhaps all three, of the following elements:

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.”

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.

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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 enforcement of current laws or the expansion of UACC’s business into jurisdictions that have adopted more stringent regulatory requirements than those jurisdictions 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 39.6% in 2004, as compared to 40.4% in 2003. The change in the overall effective income tax rate from 2003 to 2004 was primarily due to a decrease 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

At December 31, 2004, PAFI was a direct wholly-owned subsidiary of UPFC, the Bank was a direct wholly-owned subsidiary of PAFI, UACC was a direct wholly-owned subsidiary of the Bank, and UPFC Auto Receivables Corporation, or UARC, and UPFC Funding Corporation, or UFC, were direct wholly-owned subsidiaries of UACC.

Prior to the Bank’s dissolution, PAFI acted as the parent company of the Bank, and the Bank was the primary operating subsidiary of UPFC and a federally chartered savings bank. We intend to merge PAFI into us, which will result in UACC becoming a direct wholly owned subsidiary of us.

UACC holds for investment and services non-prime retail automobile installment sales contracts; UARC is a special purpose entity to purchase automobile contracts from UACC in connection with securitization of such contracts; and UFC is a special purpose entity to purchase such contracts from UACC in connection with warehouse funding of the such contracts.

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Factors That May Affect Future Results of Operations

This Annual Report on Form 10-K contains forward-looking statements, including statements regarding UPFC’s strategies, plans, objectives, expectations and intentions, which are subject to a variety of risks and uncertainties. UPFC’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the “Factors That May Affect 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 Our Business

We require substantial liquidity to run our business.

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

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

During the third quarter of 2004, we shifted the funding source of our automobile finance business to the public capital markets through warehouse facilities and securitizations. Historically, we have funded the purchase of automobile contracts business principally through deposits of the Bank. However, we caused the Bank to exit its federal thrift charter because of the increasing regulatory requirements associated with financing our non-prime automobile finance business with insured deposits of the Bank. Non-prime lending has been and continues to be an area of lending that has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS.

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

We face risks related to our recent accounting restatements.

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

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

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

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

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

Any adverse change in these factors could adversely affect our ability to obtain warehouse financing. There is no assurance that our automobile finance warehouse facility will be available to us or that it will be available on favorable terms. If we are unable to arrange new warehousing credit facilities or extend our existing credit facility when it expires, our results of operations, financial condition and cash flows could be materially and adversely affected.

We depend on securitizations to generate revenue.

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

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

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

Our securitization utilized credit enhancement in the form of a financial guaranty insurance policy in order to achieve “AAA/Aaa” rating. This form of credit enhancement reduces the cost of the securitizations relative to alternative forms of credit enhancement currently available to us and enhances the marketability of these transactions to investors in asset-backed securities. The willingness of an insurance provider to insure our future securitizations is subject to many factors outside our control including the insurance provider’s own rating considerations. As a result, there can be no assurance that we will be able to continue to obtain credit enhancements in any form or on acceptable terms or that future securitizations will be similarly rated.

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

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We have discovered, and may in the future discover, material weaknesses in our internal controls as defined under interim standards adopted by the Public Company Accounting Oversight Board, or PCAOB, that require remediation. Furthermore, our former independent auditor has, in the past, advised us that it had noted certain material weaknesses in our internal financial reporting and accounting controls and we have also noted material weaknesses. Additionally, it is possible that as we continue our ongoing review and analysis of internal controls over financial reporting for Sarbanes-Oxley compliance, additional weaknesses in internal controls may be discovered. Under the PCAOB standards, a “material weakness” is a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency or combination of control deficiencies, that adversely affect a company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.

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

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We are a holding company with limited operations of our own.

The results of our operations and our financial condition are principally dependent upon the business activities of our principal consolidated subsidiary, UACC. In addition, our ability to fund our operations, meet our obligations for payment of principal and interest on our outstanding debt obligations and pay dividends on our common stock are dependent upon the earnings from the businesses conducted by our subsidiaries. Our ability to pay dividends on our common stock is also subject to the restrictions of the California Corporations Code. As of December 31, 2004, 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 subordinated debt matures in 2033. However, 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 agreement. The redemption price is par plus accrued and unpaid interest, except in the case of redemption if the debt is called before July 7, 2008. It is possible that we may not have sufficient funds to repay that debt at the required time. Our subsidiaries are separate and distinct legal entities and have no obligation to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. Any distribution of funds to us from our subsidiaries is subject to statutory, regulatory or contractual restrictions, subsidiaries’ earnings and various other business considerations.

A significant portion of our cash flow comes from our principal consolidated subsidiary UACC. UACC, which is a wholly-owned subsidiary, is party to a $200 million warehouse facility, which it uses to fund its operations. We have agreed to provide an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance of all liabilities, agreements and other obligations of UACC under the warehouse facility. If UACC defaults on its obligations under the warehouse facility, it is possible that we may not have sufficient funds to satisfy this guarantee.

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

As of December 31, 2004, 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, Guillermo Bron, beneficially owns these shares through his majority ownership of and executive position held at BVG. As of December 31, 2004, the term of Pan American Financial, L.P., had expired and the partnership is in the process of liquidation.

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

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

We purchase automobile contracts primarily from dealers in used automobiles. Many of our competitors have long-standing relationships with automobile dealers and may offer dealers or their customers other forms of financing that we currently do not provide. If we were 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

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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 non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If we experience higher losses than anticipated, our financial condition, results of operations and business prospects would be materially and adversely affected.

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

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

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

We are dependent upon the continued services of our key employees. In addition, our growth strategy depends in part on our ability to attract and retain qualified branch managers. The loss of the services of any key employee, or our failure to attract and retain other qualified personnel, could also have a material adverse effect on our financial condition, results of operations and business prospects. We currently have $10 million of key person life insurance in place on the life of Ray Thousand, our President and Chief Executive Officer.

Competition may adversely affect our performance.

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

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

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

We may be unable to manage our growth.

Our operations have rapidly expanded over the past several years and we remain vulnerable to a variety of business risks generally associated with rapidly growing companies. We intend to pursue growth for the foreseeable future in our automobile finance business by opening new branches. In addition, we may broaden our product offerings to include additional types of consumer loans or may enter other specialty finance businesses. This growth strategy will require that we successfully obtain acceptable warehouse financing and access the

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capital markets to fund the growth, it will require additional capital and human resources as well as improvements to our infrastructure and management information systems. Our failure to implement our planned growth strategy or the failure of our automated systems, including a failure of data integrity or accuracy, would have a material adverse effect on our financial condition, results of operations and business prospects.

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

We have realized substantial growth in our automobile finance business since its inception in 1996. Of UACC’s 87 branches as of December 31, 2004, 59 opened after January 1, 2001 and the amount of automobile contracts purchased has increased from $314.6 million for 2002 to $442.2 million for 2003 to $573.9 million for 2004. In the future, UACC’s rate of growth will be dependent upon, among other things, the continued success of its efforts to expand the number of branches, attract qualified branch managers, and expand its relationships with independent and franchised dealers of used automobiles.

The ability to grow our automobile finance business has been affected in the past by the fact that we historically used insured deposits of the Bank to fund our operations. Non-prime lending has been and continues to be an area of lending that has been the subject of extraordinary regulatory concern and scrutiny among all of the federal banking regulatory authorities, including the OTS. As a result of the increased regulatory scrutiny, we caused the Bank to exit its federal thrift charter effective February 11, 2005. While we have pursued strategic financing and other alternatives to enable us to conduct UACC’s non-prime automobile lending business outside a federal thrift charter, UACC’s current expansion and future growth will depend to a significant extent on our ability to successfully manage our new sources of financing.

Risks Related to Regulatory Factors

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

Because we operate in 28 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 there is conflict among 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 among 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 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 financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of us or any of our subsidiaries. Furthermore, as our operations continue to grow, it may be more difficult to comprehensively identify, accurately interpret and properly train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of non-compliance 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.

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Risks Related to Factors Outside Our Control

Adverse economic conditions could adversely affect our business.

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

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

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

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

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

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

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

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. Additionally, as of December 31, 2004, we maintained 87 branches for UACC’s automobile finance business and one office site for our bank operations. During the year ended December 31, 2004, the Bank sold three of its retail bank branches in transactions that closed during the third quarter of 2004. Our current properties are adequate and suitable for our continuing operations.

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 $3.5 million at December 31, 2004.

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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, 2004.

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PART II

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

(a)  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 28, 2005 we had approximately 17 shareholders of record and 16,539,313 outstanding shares of common stock.

(b)  Equity Compensation Plan Information. See “Item 11. Executive Compensation.”

(c)  Issuer Purchases of Equity Securities. We did not repurchase any of our securities in the year ended December 31, 2004.

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, 2004, 2003, 2002, 2001 and 2000. The selected consolidated financial data have been derived from our 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.

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