10-Q 1 psfi10q.txt QUARTERLY REPORT 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, 2001 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 3-5 Consolidated statement of income 5 Consolidated statement of comprehensive income (loss) 6 Consolidated statement of cash flows 7-10 Notes to unaudited financial statements 10-13 Results of operations 13 Signatures 14 PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ================================================================================ ASSETS

3 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY

See accompanying notes. 4 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS ================================================================================

5 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) ================================================================================

See accompanying notes. 6 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ================================================================================

7 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ================================================================================

8 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ================================================================================

See accompanying notes. 9 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS ================================================================================ 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, 2001, filed with the Securities and Exchange Commission. The results of operations for the three months ended October 31, 2001, 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, 2001 and 2000, is as follows:

See accompanying notes. 10 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS ================================================================================ 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., originates 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. 11 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS ================================================================================ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial condition and liquidity: At October 31, 2001, the Company had total stockholders' equity of approximately $8,607,000 and a total liabilities to equity ratio of 4.5 to 1, which decreased from 5.5 to 1 at July 31, 2001. During the quarter, the Company's primary sources of funds were approximately $7,171,000 in real estate contract and loan collections, $548,000 in net proceeds from the sales of real estate, and approximately $412,000 from operating activities. The primary uses of funds were approximately $4,903,000 for investments in contracts and loans receivable, approximately $3,187,000 for net debt reduction, and $255,000 for property improvements. The Company anticipates that cash flows from operations, and the availability of funds under its lines of credit and other banking agreements totaling $27,450,000 of which $20,342,433 was outstanding at October 31, 2001, will be sufficient to provide for the retirement of maturing debentures and mortgage obligations. The Company plans to continue using funds to originate interim and construction loans, to make improvements to its existing rental properties, and to improve property held for sale and development. 12 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. RESULTS OF OPERATIONS ================================================================================ The Company's net income for the quarter ended October 31, 2001, was approximately $1,140,000 compared with a net loss of approximately $34,000 for the quarter ended October 31, 2000. The change was primarily attributable to a $2,146,000 pre-tax gain on sales of real estate in the quarter ended October 31, 2001, which was partially offset by an increase of $297,000 in the provision for loan losses. Rental income decreased by approximately $98,000 (14.2%) to approximately $592,000 in the quarter ended October 31, 2001, from approximately $691,000 in 2000. This decrease primarily resulted from reduced rents from two properties sold during the quarter and increased vacancies. Rental property expenses were approximately $73,000 (12.1%) lower in 2001 than for the comparable three months in 2000. This decrease was due to decreased interest expense of $29,416 (19.6%), decreased operating expense of $23,564 (9.1%), and decreased depreciation of $20,366 (10.4%). Salaries and commissions were approximately $184,000 (86.2%) higher for the quarter ended October 31, 2001, than the comparable three months in 2000 due to bonuses paid in 2001. Interest income and amortized discount increased approximately $100,000 (11.9%) for the three months ended October 31, 2001, compared with the similar period in 2000 as the outstanding balance in contracts and loans receivable increased during the period and interest on some past due nonaccrued loans was collected. General and administrative expense decreased approximately $7,000 (3.8%) for the three months ended October 31, 2001, compared with the comparable period in 2000. Interest expense, exclusive of interest on debt associated with rental properties, net of amounts capitalized, decreased approximately $35,000 (6.0%) in the first quarter of 2001 compared with the comparable 2000 period primarily due to the decrease in the rate of interest charged on bank borrowings tied to prime. The Company's effective income tax rate as a percentage of income (loss) before federal income tax was approximately 34% in 2001 and 2000. Part II. Other Information Items 1, 2, 3, 4, and 5 - Not applicable 13 ================================================================================ PACIFIC SECURITY FINANCIAL, INC. SIGNATURES ================================================================================ 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 /s/ Donald J. Migliuri ---------------------------------------------------------------- Donald J. Migliuri Secretary-Treasurer Date: December 14, 2001 14 ================================================================================

PACIFIC SECURITY COMPANIES 10-Q