UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-6673
PACIFIC SECURITY FINANCIAL, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0669906
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 North Post Street
325 Peyton Building
Spokane, Washington 99201 (509) 444-7700
------------------------------- ----------------------------------
(Address of principal executive offices) (Registrant's telephone number,
including area code)
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.
[X] Yes [ ] No
PACIFIC SECURITY FINANCIAL, INC.
FORM 10-Q QUARTERLY REPORT
Table of Contents
--------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet 1-2
Consolidated statement of operations 3
Consolidated statement of comprehensive income (loss) 4
Consolidated statement of cash flows 5-7
Notes to unaudited financial statements 8-9
Item 2. Management's discussion and analysis of financial
condition and results of operations
Financial condition and liquidity 10-11
Results of operations 12
Item 3. Qualitative and quantitative disclosures about
market risk 13
Item 5. Other information 13
Signatures 14
PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEET
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ASSETS
OCTOBER 31, July 31,
2002 2002
(UNAUDITED) (Audited)
----------- -----------
ASSETS
Cash and cash equivalents $ 325,028 $ 367,469
----------- -----------
Receivables
Contracts, mortgages, finance notes, and loans receivable, net
Related parties 160,176 166,182
Unrelated 25,062,670 25,285,714
----------- -----------
25,222,846 25,451,896
Accrued interest 165,543 208,612
Other 158,045 251,639
----------- -----------
25,546,434 25,912,147
----------- -----------
Investment in rental properties, net 12,612,843 12,811,852
----------- -----------
Other investments
Property held for sale and development 2,977,666 4,399,921
----------- -----------
Other assets
Vehicles and equipment, net 90,245 78,553
Prepaid and other, net 211,233 234,410
Federal income tax refund receivable 560,133 647,273
----------- -----------
861,611 960,236
----------- -----------
TOTAL ASSETS $42,323,582 $44,451,625
=========== ===========
See accompanying notes. 1
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PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEET
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LIABILITIES AND STOCKHOLDERS' EQUITY
OCTOBER 31, July 31,
2002 2002
(UNAUDITED) (Audited)
----------- -----------
LIABILITIES
Notes payable to banks $16,335,467 $16,438,964
Installment contracts, mortgage notes, and notes payable
Related parties 18,881 28,158
Unrelated 7,921,080 8,636,785
Debenture bonds 9,486,723 9,996,954
Accrued expenses and other liabilities
Related parties 144,766 144,928
Unrelated 900,281 896,541
Deferred income taxes 817,653 1,096,699
----------- -----------
35,624,851 37,239,029
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STOCKHOLDERS' EQUITY
Preferred stock
Class A preferred stock, $100 par value, authorized 20,000
shares; issued and outstanding 3,000 shares 300,000 300,000
Preferred stock, authorized 10,000,000 no par value shares;
no shares issued and outstanding -- --
Common stock
Original class, authorized 2,500,000 no par value shares; $3 stated value;
issued and outstanding, 1,083,356 and
1,084,289 shares 3,250,068 3,252,866
Class B, authorized 30,000 no par value shares; no shares
issued and outstanding -- --
Additional paid-in capital 1,830,941 1,830,941
Retained earnings 1,317,722 1,828,789
----------- -----------
Total stockholders' equity 6,698,731 7,212,596
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $42,323,582 $44,451,625
=========== ===========
See accompanying notes. 2
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PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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Three Months Ended October 31,
-----------------------------
2002 2001
----------- -----------
(UNAUDITED)
----------------------------
Income
Rental $ 326,289 $ 592,465
Interest, including loan fees of $84,102 and $276,274 484,019 936,195
Gain (loss) on sale of real estate (628) 2,145,587
Other, net 6,127 8,998
----------- -----------
815,807 3,683,245
----------- -----------
Expense
Rental operations
Depreciation and amortization 122,557 174,411
Interest 91,979 120,666
Other 162,484 235,493
----------- -----------
377,020 530,570
Interest, net of amount capitalized 463,205 542,357
Salaries and commissions 332,264 397,924
General and administrative 269,637 175,631
Depreciation and amortization 12,971 11,602
Provision for loan loss 135,053 297,000
----------- -----------
1,590,150 1,955,084
----------- -----------
Income (loss) before income tax (benefit) provision (774,343) 1,728,161
Income tax (benefit) provision (263,277) 587,575
----------- -----------
NET INCOME (LOSS) $ (511,066) $ 1,140,586
=========== ===========
Net income (loss) per common share basic and diluted $ (0.47) $ 1.03
=========== ===========
Weighted average common shares outstanding basic and diluted 1,083,620 1,106,581
=========== ===========
3
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PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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Three Months Ended October 31,
-----------------------------
2002 2001
----------- -----------
(UNAUDITED)
----------------------------
Net income (loss) $ (511,066) $1,140,586
---------- ----------
Other comprehensive income (loss) before
income taxes -- --
---------- ----------
COMPREHENSIVE INCOME (LOSS) $ (511,066) $1,140,586
========== ==========
See accompanying notes. 4
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PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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Three Months Ended October 31,
----------------------------
2002 2001
----------- -----------
(UNAUDITED)
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from rentals and other $ 442,938 $ 734,853
Interest received 527,087 1,020,716
Cash paid to suppliers and employees (767,510) (770,832)
Interest paid, net of amounts capitalized (389,069) (572,972)
Income taxes refunded 71,372 --
----------- -----------
Net cash provided (used) by operating activities (115,182) 411,765
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sales of real estate 1,838,239 548,502
Collections on contracts, mortgages, finance notes,
and loans receivable 1,136,773 7,170,828
Origination of loans receivable and investment in contracts,
mortgages, and finance notes (870,776) (4,903,020)
Additions to rental properties, property held for sale,
property under development, vehicles, and equipment (559,770) (255,356)
Change in restricted investments and cash equivalents -- (19,480)
----------- -----------
Net cash provided by investing activities 1,544,466 2,541,474
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5
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PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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Three Months Ended October 31,
-----------------------------
2002 2001
----------- -----------
(UNAUDITED)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments under line of credit agreements $ (103,497) $(3,144,821)
Proceeds from installment contracts, mortgage notes,
and notes payable -- 240,606
Payments on installment contracts, mortgage notes,
and notes payable (724,982) (120,981)
Proceeds from sales of debenture bonds -- 506
Redemption of debenture bonds (622,448) (162,156)
Purchase and retirement of treasury stock (2,798) (18,806)
Payment of dividends on preferred stock (18,000) (18,000)
----------- -----------
Net cash used by financing activities (1,471,725) (3,223,652)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (42,441) (270,413)
Cash and cash equivalents, beginning of year 367,469 639,122
----------- -----------
Cash and cash equivalents, end of year $ 325,028 $ 368,709
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6
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PACIFIC SECURITY FINANCIAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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Three Months Ended October 31,
----------------------------
2002 2001
----------- -----------
(UNAUDITED)
----------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
Net income (loss) $ (511,066) $ 1,140,586
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 135,528 186,013
Deferred income tax provision -- 562,575
Interest accrued on debenture bonds 112,216 120,818
(Gain) loss on sales of real estate 628 (2,145,587)
Provision for loan loss 135,053 297,000
Change in assets and liabilities:
Accrued interest receivable 43,069 84,521
Prepaid expenses, net 16,928 35,034
Accrued expense and other liabilities 50,774 13,700
Income taxes (receivable) payable (263,277) 25,000
Other, net 164,965 92,105
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ (115,182) $ 411,765
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Company financed sale of property $ 172,000 $ 5,970,284
=========== ===========
Impairment of real estate owned against provision for
loan losses $ -- $ 60,000
=========== ===========
See accompanying notes. 7
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PACIFIC SECURITY FINANCIAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
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NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pacific Security
Financial, Inc. and its subsidiaries (the Company). In the opinion of the
Company, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the Company's financial position, results of operations, and cash
flows for the periods presented.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and the related disclosures contained in the
Company's annual report on Form 10-K for the year ended July 31, 2002, filed
with the Securities and Exchange Commission. Assets are presented at fair value
and liabilities are recorded that are expected to be incurred as part of the
liquidation of a majority of the Company's assets to meet its current and
long-term obligations.
The results of operations for the three months ended October 31, 2002, are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - BUSINESS SEGMENT REPORTING
Information about the Company's separate continuing business segments as of and
for the three months ended October 31, 2002 and 2001, is as follows:
Real Estate
Commercial Rental, and
Lending Receivables
Operations Operations Total
---------- ---------- -----
2002
Revenue $ 254,907 $ 560,900 $ 815,807
Income (loss) from operations (336,667) (437,676) (774,343)
Identifiable assets, net 17,801,203 24,522,379 42,323,582
Depreciation and amortization 1,242 134,286 135,528
Capital expenditures 2,382 557,388 559,770
2001
Revenue $ 838,617 $ 2,844,628 $ 3,683,245
Income from operations 162,049 1,566,112 1,728,161
Identifiable assets, net 20,767,944 26,602,127 47,370,071
Depreciation and amortization 1,242 184,771 186,013
Capital expenditures 27,231 228,125 255,356
8
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PACIFIC SECURITY FINANCIAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
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NOTE 2 - BUSINESS SEGMENT REPORTING (CONTINUED)
The Company has determined that its reportable business segments are those that
are based on its method of disaggregated internal reporting. The Company's
reportable business segments are its commercial loan origination business and
its rental and receivable operations. Its commercial loan origination business,
operated as Cornerstone Realty Advisors, Inc., originated commercial
construction loans throughout the western United States. The rental and
receivable operations represent the selling and leasing of real properties and
the financing of contracts and loans collateralized by real estate. Some
unallocated general corporate expense items are part of the rental and
receivable segment reporting.
Management decided to dissolve its 100% owned subsidiary, Cornerstone Realty
Advisors, Inc., as of its corporation license expiration date of March 31, 2002.
Commercial lending activities are now being conducted through the parent
company.
9
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PACIFIC SECURITY FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY:
At October 31, 2002, the Company had total stockholders' equity of approximately
$6,699,000 and a total liabilities to equity ratio of 5.32 to 1, which increased
from 5.16 to 1 at July 31, 2002. During the three months ended October 31, 2002,
the Company's primary sources of funds were approximately $1,137,000 in real
estate contract and loan collections and $1,838,000 in net proceeds from the
sales of real estate. The primary uses of funds were approximately $871,000 for
investments in contracts and loans receivable, approximately $1,451,000 for net
debt reduction, and $560,000 for property improvements.
The Company's sources of liquidity historically have included the issuance of
debentures under the auspices of the Washington State Securities Division of the
Department of Financial Institutions and borrowings from various bank lenders.
These sources of liquidity are limited either by the Washington State Securities
Division who has capped the amount of debentures the Company may sell or by the
individual banks through restrictive covenants included in the lines of credit
loan agreements. Additionally, the Washington State Securities Division has not
yet approved the Company's application to issue additional debentures under the
Washington State Debenture Act. Approval is unlikely without significant
conditions, which may materially adversely impact the Company's liquidity and
profitability. The state of Washington has mandated as a condition for issuance
of a previous permit that the Company reduce total debentures outstanding to
$9.5 million by March 2003. The requirement to do so will materially impact the
Company's liquidity.
An additional source of liquidity is the issuance of participation interests in
certain loans originated by the Company. The total of these nonrecourse
participations was approximately $3,520,000 at October 31, 2002, and $3,495,000
at July 31, 2002.
10
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PACIFIC SECURITY FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION AND LIQUIDITY (CONTINUED):
At October 31, 2002, the Company's lines of credit and other banking agreements
totaled approximately $16,530,000 of which approximately $16,335,000 was
outstanding. The remaining unused portions of the lines of credit may not be
fully available to the Company to meet operational needs because of violation of
covenants at the Company's banks. One bank has also negotiated a reduction in
total line availability from $4.75 million to $4 million effective November 27,
2002. Another financial institution the Company has relied upon as a source of
funding for its commercial real estate loans has, subsequent to fiscal year end,
indicated they are terminating (nationally) from all or nearly all, commercial
warehouse lines of credit. This financial institution has presently agreed to
work with the Company to allow all current loan commitments totaling $8,968,000
to pay off as they mature, which is anticipated to occur by March 31, 2003.
Management does not currently believe that this line of credit can be replaced
by another lender. This event will materially impact the Company's liquidity and
profitability. Due to the restrictive banking agreements, the Company has
essentially stopped making new loans and has concentrated on collection efforts
to pay down outstanding debt. These collection efforts include foreclosure
proceedings on several loans. The Company anticipates that cash flows from
operations along with real estate and receivable sales will be sufficient to
provide for the retirement of maturing debentures and mortgage obligations.
The Company has begun to implement strategies for reorganizing, which include
liquidating a majority of the Company's assets over the course of the next year.
It is management's intention that the Company will continue to own and invest in
commercial real estate upon completion of the reorganization, at which time
management intends to evaluate the opportunities to continue financing
commercial real estate in light of market conditions and available capital.
The Company's management is continuously evaluating loans for collectibility.
Additional provisions for loan losses may be required as the Company analyzes
each loan during its efforts to reduce outstanding loans receivable. Litigation
may be required in the course of collection. In addition, the Company's position
relative to bankruptcy filings by borrowers must be assessed.
An additional provision for loan loss of $70,000 was made during the quarter
ending October 31, 2002, bringing the total allowance for loan loss to $350,000
on a Bellevue, Washington, loan of approximately $700,000. The Bellevue loan
borrower filed for bankruptcy protection on June 6, 2002. The Company is
currently assessing its potential for recovery.
The borrower on a Park City, Utah, loan filed for bankruptcy protection on May
1, 2002. The Company's principal portion of this loan totaled $1,250,000 and is
expected to be recovered.
Two of the Company's executives made a loan secured by a second mortgage in
2001, behind the first position mortgage of the Company, and ahead of a
cross-collateralized third position mortgage held by the Company. The second
mortgage was paid off in May 2002, putting the Company in a first and second
position. The Company is currently in foreclosure proceedings on these Eagle,
Idaho loans and has increased its provision for loan losses by $33,693 during
the quarter to a total allowance for loan loss of $269,548 against loans
receivable totaling approximately $2,466,000.
11
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PACIFIC SECURITY FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION AND LIQUIDITY (CONTINUED):
As a result of a slowdown in economic activity since September 11, 2001, the
Company anticipates sales of its real estate, including foreclosed properties,
may involve delays and possible losses.
RESULTS OF OPERATIONS (THREE MONTHS):
The Company's net loss for the quarter ended October 31, 2002, was approximately
$511,000 compared with net income of approximately $1,141,000 for the quarter
ended October 31, 2001. The change was primarily attributable to a $2,146,000
decrease in gain on sales of real estate in the quarter ended October 31, 2002,
reduction of $373,000 in net interest income, and a reduction of $113,000 in net
rental income, offset by an increase in income tax benefit of $851,000 and a
decrease of $162,000 in the provision for loan losses.
Rental property revenue decreased by approximately $266,000 (45%) to
approximately $326,000 in the quarter ended October 31, 2002, from approximately
$592,000 in 2001. This decrease primarily resulted from reduced rents from
properties sold during the year.
Rental property expenses were approximately $154,000 (29%) lower in 2002 than
for the comparable three months in 2001. This decrease was due to decreased
depreciation expense of approximately $52,000 (30%), decreased operating expense
of $73,000 (31%), and decreased interest expense of $29,000 (24%).
Salaries and commissions were approximately $66,000 (16%) lower for the quarter
ended October 31, 2002, than the comparable three months in 2001 due to lower
commissions and bonuses paid or accrued in 2002.
Interest income, including loan fees, decreased approximately $452,000 (48%) for
the three months ended October 31, 2002, compared with the similar period in
2001 as the variable interest rate on contracts and loans receivable decreased
during the period, interest on some past due loans went to nonaccrual status,
and the total amount of receivables declined. Loan fees declined approximately
$192,000 (70%) to $84,000 from $276,000 because of a lack of new loan
originations.
General and administrative expense increased approximately $94,000 (54%) for the
three months ended October 31, 2002, compared with the same period in 2001,
primarily because of legal expense increases of approximately $57,000 for
various matters and restructuring expenses of approximately $40,000 in 2002.
Interest expense, exclusive of interest on debt associated with rental
properties, net of amounts capitalized, decreased approximately $79,000 (15%) in
the first quarter of 2002 compared with the same period in 2001 primarily due to
the decrease in the rate of interest charged on bank borrowings tied to prime,
and a reduction in interest-bearing debt.
The Company's effective income tax rate as a percentage of income (loss) before
federal income tax was approximately 34% in 2002 and 2001.
12
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PACIFIC SECURITY FINANCIAL, INC.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that there has been a material change in its market
risk since the end of its last fiscal year.
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4, AND 6 - NOT APPLICABLE
ITEM 5. OTHER INFORMATION
At a special meeting of the Board of Directors on October 7, 2002, a motion was
passed which provided for the execution of employment agreements with seven
employees through a restructuring period ending April 30, 2003. These agreements
call for the payment of bonuses equal to 50% of annual pay (in lieu of one week
of severance pay for each year of service unless this is greater than 26 weeks).
A pro rata portion of these expenses has been recorded as of October 31, 2002.
On October 15, 2002, Kevin Guthrie resigned as a vice president of the Company
and began employment with a Spokane property management company, which executed
a property agreement with Pacific Security Financial, Inc. to provide services
for Pacific Security's rental properties. In addition, Kevin Guthrie has
deferred compensation of approximately $57,000 due to his separation from
Pacific Security Financial, Inc.
13
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PACIFIC SECURITY FINANCIAL, INC.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
Pacific Security Financial, Inc.
/s/ David L. Guthrie
- -------------------------------------------------
David L. Guthrie
President/Chief Executive Officer
December 18, 2002
/s/ Donald J. Migliuri
- -------------------------------------------------
Donald J. Migliuri
Secretary-Treasurer/Chief Financial Officer
December 18, 2002
14
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PACIFIC SECURITY FINANCIAL, INC.
CERTIFICATIONS
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I, David L. Guthrie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pacific Security
Financial, Inc. (the Company);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this report (the Evaluation Date); and
(c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the
registrant's Board of Directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
15
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PACIFIC SECURITY FINANCIAL, INC.
CERTIFICATIONS
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6. The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 13, 2002
/s/ David L. Guthrie
- ----------------------------------
David L. Guthrie, President
16
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PACIFIC SECURITY FINANCIAL, INC.
CERTIFICATIONS
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I, Donald J. Migliuri, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pacific Security
Financial, Inc. (the Company);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this report (the Evaluation Date); and
(c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the
registrant's Board of Directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
17
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PACIFIC SECURITY FINANCIAL, INC.
CERTIFICATIONS
- --------------------------------------------------------------------------------
6. The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 13, 2002
/s/ Donald J. Migliuri
- -------------------------------
Donald J. Migliuri, Treasurer
18
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