##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|  |  |                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------
|þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
| 
|  |  | For the quarterly period ended May 31,
    2003                                                 
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-09911



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Capital Pacific Holdings, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 95-2956559                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|4100 MacArthur Blvd.,
    Newport Beach, CA                        |  | 92660(Zip Code)                            
|(Address of principal executive
    offices)                       |  |                                            

Registrants telephone number, including
area code

(949) 622-8400




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Indicate by check mark whether the Registrant
(1) 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 þ          No o

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date.

|                                         |  |                         
|---------------------------------------- |  | ------------------------
|Class and Title of                       |  | Shares Outstanding as of
|Capital Stock                            |  | June 30, 2003           
|                                         |  |                         
|Common Stock, $0.10 Par Value            |  | 12,907,050              
|Non-Voting Common Stock, $0.10 Par Value |  | 2,007,312               








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TABLE OF CONTENTS



|                                |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION
|                                | Item 1. Financial Statements                                                                 
|                                |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME         
|                                |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                | Item 4. Controls and Procedures                                                              
|PART II -- OTHER INFORMATION   
|                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                     
|CERTIFICATIONS                 
|EXHIBIT INDEX                  
|EXHIBIT 99.1                   
|EXHIBIT 99.2                   



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC.

INDEX TO FORM 10-Q

|                                   |  |                                                                                            |    |      |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                   |  |                                                                                            |    | Page
|                                   |  |                                                                                            |    |     
|PART I  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements                                                                       |    |      |    | 
|                                   |  | Consolidated Balance Sheets 
    May 31, 2003 and February 28, 2003                       |    |      | 1  | 
|                                   |  | Consolidated Statements of Income for the Three
    Months Ended May 31, 2003 and 2002     |    |      | 2  | 
|                                   |  | Consolidated Statements of Cash Flows for the
    Three Months Ended May 31, 2003 and 2002 |    |      | 3  | 
|                                   |  | Notes to Consolidated Financial Statements                                                 |    |      | 4  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Results of Operations and Financial Condition  |    |      | 12 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                             |    |      | 17 | 
|Item 4.                            |  | Controls and Procedures                                                                    |    |      | 17 | 
|PART II  OTHER
    INFORMATION   
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                           |    |      | 18 | 
|SIGNATURES                         |  |                                                                                            | 19 |     
|CERTIFICATIONS                     |  |                                                                                            | 20 |     

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##### Table of Contents






PART I  FINANCIAL
INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements

CAPITAL PACIFIC HOLDINGS, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |          |         | 
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | - | ------- | -------- | ------- | 
|                                                                |                                                                                                                                        | May 31,                                    |         | February 28,
|                                                                |                                                                                                                                        | 2003                                       |         | 2003        
|                                                                |                                                                                                                                        |                                            |         |             
|                                                                |                                                                                                                                        | (Unaudited)                                |         |             
|ASSETS                                                         
|Cash and cash equivalents                                       |                                                                                                                                        | $                                          | 6,403   |              |         | $ | 6,231   |         
|Restricted cash                                                 |                                                                                                                                        |                                            | 495     |              |         |   | 495     |         
|Accounts and notes receivable                                   |                                                                                                                                        |                                            | 11,752  |              |         |   | 16,192  |         
|Real estate projects                                            |                                                                                                                                        |                                            | 212,047 |              |         |   | 184,891 |         
|Consolidated inventory not owned                                |                                                                                                                                        |                                            | 17,694  |              |         |   |        |         
|Property and equipment                                          |                                                                                                                                        |                                            | 7,711   |              |         |   | 7,679   |         
|Investment in and advances to unconsolidated
    joint ventures |                                                                                                                                        |                                            | 14,636  |              |         |   | 14,303  |         
|Prepaid expenses and other assets                               |                                                                                                                                        |                                            | 22,625  |              |         |   | 21,956  |         
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|                                                                |                                                                                                                                        | Total assets                               |         | $            | 293,363 |   |         | $        | 251,747 | 
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY                       
|Accounts payable and accrued liabilities                        |                                                                                                                                        | $                                          | 18,384  |              |         | $ | 20,141  |         
|Notes payable                                                   |                                                                                                                                        |                                            | 153,446 |              |         |   | 126,563 |         
|Consolidated liabilities from inventory not owned               |                                                                                                                                        |                                            | 2,797   |              |         |   |        |         
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|                                                                |                                                                                                                                        | Total liabilities                          |         |              | 174,627 |   |         |          | 146,704 | 
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|Minority interest                                               |                                                                                                                                        |                                            | 18,148  |              |         |   | 4,644   |         
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|Stockholders equity:                                           |                                                                                                                                        |                                            |         |              |         |   |         |         
|                                                                | Common stock, par value $0.10 per share,
    60,000,000 shares authorized; 16,230,000 shares
    issued; 14,914,362 shares outstanding |                                            |         | 1,635        |         |   |         | 1,635    |        
|                                                                | Additional paid-in capital                                                                                                             |                                            |         | 217,249      |         |   |         | 217,249  |        
|                                                                | Accumulated deficit                                                                                                                    |                                            |         | (110,281     | )       |   |         | (111,098 | )      
|                                                                | Treasury stock                                                                                                                         |                                            |         | (4,875       | )       |   |         | (4,875   | )      
|                                                                | Accumulated other comprehensive income (loss)                                                                                          |                                            |         | (3,140       | )       |   |         | (2,512   | )      
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|                                                                |                                                                                                                                        | Total stockholders equity                 |         |              | 100,588 |   |         |          | 100,399 | 
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         
|                                                                |                                                                                                                                        | Total liabilities and stockholders equity |         | $            | 293,363 |   |         | $        | 251,747 | 
|                                                                |                                                                                                                                        |                                            |         |              |         |   |         |         

See accompanying notes to financial statements.

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC. AND
SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


(In thousands, except share data)


|                                                                                               |                                                                                                      |                    |         |       |     |   |         |       |       | 
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------ | ------- | ----- | --- | - | ------- | ----- | ----- | 
|                                                                                               |                                                                                                      |                   
|                                                                                               |                                                                                                      | Three Months Ended
|                                                                                               |                                                                                                      | May 31,           
|                                                                                               |                                                                                                      |                   
|                                                                                               |                                                                                                      | 2003               |         | 2002 
|                                                                                               |                                                                                                      |                    |         |      
|Sales of homes and land                                                                        |                                                                                                      | $                  | 43,471  |       |     | $ | 44,846  |      
|Cost of sales                                                                                  |                                                                                                      |                    | (34,229 | )     |     |   | (34,243 | )    
|Interest expense                                                                               |                                                                                                      |                    | (2,859  | )     |     |   | (3,318  | )    
|Selling, general and administrative expenses                                                   |                                                                                                      |                    | (7,730  | )     |     |   | (6,707  | )    
|Income from unconsolidated joint ventures                                                      |                                                                                                      |                    | 1,640   |       |     |   | 356     |      
|Interest and other income, net                                                                 |                                                                                                      |                    | 1,068   |       |     |   | 217     |      
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|                                                                                               | Income before provision for income taxes and
    cumulative effect of change in accounting principle |                    |         | 1,361 |     |   |         | 1,151 |      
|Provision for income taxes                                                                     |                                                                                                      |                    | (544    | )     |     |   | (399    | )    
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|                                                                                               | Income before cumulative effect of change in
    accounting principle                                |                    |         | 817   |     |   |         | 752   |      
|Cumulative effect of change in accounting
    principle  negative goodwill, net of tax effect |                                                                                                      |                    |        |       |     |   | 5,447   |      
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|                                                                                               |                                                                                                      | Net income         |         | $     | 817 |   |         | $     | 6,199 | 
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|Earnings per common share  basic and
    diluted:                                             |                                                                                                      |                    |         |       |     |   |         |      
|                                                                                               | Income before cumulative effect of change in
    accounting principle                                |                    | $       | 0.05  |     |   | $       | 0.05  |      
|                                                                                               | Cumulative effect of change in accounting
    principle  negative goodwill, net of tax effect       |                    |         |      |     |   |         | 0.37  |      
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|                                                                                               | Net income                                                                                           |                    | $       | 0.05  |     |   | $       | 0.42  |      
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|Weighted average common shares  basic                                                         |                                                                                                      |                    | 14,914  |       |     |   | 14,853  |      
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      
|Weighted average common shares  diluted                                                       |                                                                                                      |                    | 14,939  |       |     |   | 14,958  |      
|                                                                                               |                                                                                                      |                    |         |       |     |   |         |      

See accompanying notes to financial statements.

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CAPITAL PACIFIC HOLDINGS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Unaudited)


(In thousands)


|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |         |         |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----- | ------- | ------- | - | ------ | ------- | ------- | -
|                                                                                  |                                                                                             |                                                        
|                                                                                  |                                                                                             | For the                                                
|                                                                                  |                                                                                             | Three Months Ended                                     
|                                                                                  |                                                                                             | May 31,                                                
|                                                                                  |                                                                                             |                                                        
|                                                                                  |                                                                                             | 2003                                                    |       | 2002   
|                                                                                  |                                                                                             |                                                         |       |        
|Operating activities:                                                             |                                                                                             |                                                         |       |         |         |   |        |        
|Net income                                                                        |                                                                                             | $                                                       | 817   |         |         | $ | 6,199  |        
|Adjustments to reconcile net income to net cash
    used in operating activities: |                                                                                             |                                                         |       |         |         |   |        |        
|                                                                                  | Gain on sale of assets                                                                      |                                                         |       | (854    | )       |   |        |        |        
|                                                                                  | Depreciation and amortization                                                               |                                                         |       | 304     |         |   |        | 122     |        
|                                                                                  | Accretion of deferred gain                                                                  |                                                         |       | (71     | )       |   |        | (177    | )      
|                                                                                  | Cumulative effect of change in accounting
    principle                                     |                                                         |       |        |         |   |        | (5,447  | )      
|                                                                                  | (Increase) decrease in real estate projects                                                 |                                                         |       | (27,156 | )       |   |        | 2,221   |        
|                                                                                  | Decrease (increase) in receivables, prepaid
    expenses and other assets                   |                                                         |       | 2,127   |         |   |        | (3,100  | )      
|                                                                                  | Decrease in accounts payable and accrued
    liabilities                                    |                                                         |       | (2,732  | )       |   |        | (13,824 | )      
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|                                                                                  |                                                                                             | Net cash used in operating activities                   |       |         | (27,565 | ) |        |         | (14,006 | )
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|Investing activities:                                                             |                                                                                             |                                                         |       |         |         |   |        |        
|                                                                                  | Proceeds from sale of assets                                                                |                                                         |       | 854     |         |   |        |        |        
|                                                                                  | Purchases of property and equipment, net                                                    |                                                         |       | (336    | )       |   |        | (6,465  | )      
|                                                                                  | (Increase) decrease in investment in and advances
    to unconsolidated joint ventures, net |                                                         |       | (333    | )       |   |        | 181     |        
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|                                                                                  |                                                                                             | Net cash provided by (used in) investing
    activities |       |         | 185     |   |        |         | (6,284  | )
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|Financing activities:                                                             |                                                                                             |                                                         |       |         |         |   |        |        
|                                                                                  | Borrowings (payments) on notes payable, net                                                 |                                                         |       | 26,883  |         |   |        | 25,917  |        
|                                                                                  | Capital contributions from minority interest, net                                           |                                                         |       | 669     |         |   |        |        |        
|                                                                                  | Issuance of common stock                                                                    |                                                         |       |        |         |   |        | 620     |        
|                                                                                  | Repurchase of common stock and warrants                                                     |                                                         |       |        |         |   |        | (790    | )      
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|                                                                                  |                                                                                             | Net cash provided by financing activities               |       |         | 27,552  |   |        |         | 25,747  |  
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|Net increase in cash and cash equivalents                                         |                                                                                             |                                                         | 172   |         |         |   | 5,457  |        
|Cash and cash equivalents at beginning of period                                  |                                                                                             |                                                         | 6,231 |         |         |   | 5,080  |        
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        
|Cash and cash equivalents at end of period                                        |                                                                                             | $                                                       | 6,403 |         |         | $ | 10,537 |        
|                                                                                  |                                                                                             |                                                         |       |         |         |   |        |        

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


1.     Basis of
Presentation

The unaudited financial statements presented
herein have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and
note disclosures required by accounting principles generally
accepted in the United States. These statements should be read
in conjunction with the consolidated financial statements and
notes thereto, included in the Form 10-K for the fiscal
year ended February 28, 2003, of Capital Pacific Holdings,
Inc. (the Company or CPH, Inc.). In the
opinion of management, the financial statements presented herein
include all adjustments (which are solely of a normal recurring
nature) necessary to present fairly the Companys financial
position and results of operations. The results of operations
for the three month period ended May 31, 2003, are not
necessarily indicative of the results that may be expected for
the year ending February 29, 2004. The consolidated
financial statements include the accounts of the Company,
wholly-owned subsidiaries and certain majority owned joint
ventures, as well as the accounts of Capital Pacific Holdings,
LLC (CPH LLC), which is wholly owned by the Company.
All other investments are accounted for on the equity method.
All significant intercompany balances and transactions have been
eliminated in consolidation.

2.     Reclassifications

Certain items in prior period financial
statements have been reclassified in order to conform with the
current year presentation.

3.     Company
Organization and Operations

The Company is a regional builder and developer
with operations throughout selected metropolitan areas of
California, Texas, Arizona and Colorado. The Companys
principal business activities are to build and sell
single-family homes. The Companys single-family homes are
targeted to entry-level, move-up and luxury buyers.

In fiscal year 1998, the Company consummated an
equity and restructuring transaction whereby CPH, Inc. and
certain of its subsidiaries transferred to CPH LLC substantially
all of their respective assets and CPH LLC assumed all the
liabilities of CPH, Inc. and its subsidiaries. An unaffiliated
investment company, California Housing Finance, L.P.
(CHF) then acquired a minority interest in CPH LLC
as a result of a cash investment in CPH LLC. From fiscal 1998
through fiscal 2001, CPH, Inc. and CHF entered into various
joint ventures.

In February and May of 2001, CPH, Inc. and CHF
consummated an interest exchange transaction (the Exchange
Transaction), whereby CPH, Inc. exchanged its interests in
the majority of the joint ventures capitalized by CHF, including
certain entities which were previously consolidated (the
Divested Joint Ventures), for CHFs interest in
CPH LLC and certain residential joint ventures. The
consideration for the Exchange Transaction included CHFs
acquisition of 1,235,000 shares of non-voting Common Stock of
CPH, Inc. at the equivalent of approximately $6.40 per share. As
a result of the Exchange Transaction, CPH, Inc. owns 100% of CPH
LLC, and obtained an increment of CPH LLCs total capital
of $35.1 million. In addition, Capital Pacific Homes, Inc.,
a wholly-owned subsidiary of CPH, Inc., has entered into
construction, management and marketing agreements relating to
certain of the Divested Joint Ventures with residential
components (the Managed Projects), whereby the
Company is compensated for performing such services through a
management fee arrangement, including reimbursement of all
project costs. As a result of the Exchange Transaction, the
Company has no further exposure to the economic or entitlement
risks associated with the Divested Joint Ventures or the Managed
Projects, including no obligation to provide any capital.

The Exchange Transaction was accounted for as the
simultaneous acquisition of CHFs minority interest in CPH
LLC and certain other residential joint ventures and the
disposition of the Companys interest in the

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Divested Joint Ventures. As a result, no gain was
initially recognized, the remaining balance of the
Companys property and equipment was adjusted to zero at
February 28, 2001, and again at May 31, 2001, a
deferred gain of approximately $3.5 million was recorded on
the disposition of one of the Divested Joint Ventures, and the
balance of the transaction was recorded as negative goodwill in
the amount of $6.8 million. Negative goodwill represents a
portion of the positive difference between the Companys
basis in the assets acquired in the Exchange Transaction as
compared to the assets which were divested which was not
otherwise accounted for as an adjustment to property and
equipment or as a deferred gain. Both negative goodwill and the
deferred gain were being accreted over five years, which
accretion was included as a reduction in selling, general and
administrative expenses. As further discussed in Note 13
below, due to a recently promulgated change in accounting
principles, the remaining $5.4 million in unaccreted
negative goodwill as of February 28, 2002 increased net
income in the quarter ended May 31, 2002 through a
cumulative effect of change in accounting principle. The
remaining deferred gain was being accreted over the four years
of its remaining expected life. However, in fiscal 2003, the
Company terminated a portion of its lease from the Divested
Joint Venture noted above and did not renew a consulting
agreement covering all of the Divested Joint Ventures, thus
eliminating its continuing involvement on a portion of the
deferred gain resulting in an acceleration of the accretion of
the deferred gain in the amount of $1.3 million in the
fourth quarter of fiscal 2003. The remaining deferred gain of
$777,000 at May 31, 2003 is being accreted over the three
years of its remaining expected life.

Assets under management, including assets owned
by unconsolidated joint ventures and Managed Projects, totaled
$542 million at May 31, 2003 in 66 residential
projects. At May 31, 2003, CPH LLC, which is wholly owned
by the Company, had $282 million in assets and a net worth
of $108 million. The Company and its subsidiaries perform
their respective management functions for CPH LLC and the
Managed Projects, pursuant to management agreements, which
include provisions for the reimbursement of Company and
subsidiary costs and a management fee. CPH LLC, the Managed
Projects and certain other project-specific entities indemnify
CPH, Inc. and its subsidiaries against liabilities arising from
the projects owned by such entities. The Company maintains
certain licenses and other assets as are necessary to fulfill
its obligations as managing member and under management
agreements.

References to the Company are, unless the context
indicates otherwise, also references to CPH LLC and the
project-specific entities in which the Company has an equity
ownership interest. At the current time, all material financing
transactions and arrangements are incurred either by CPH LLC or
by the project-specific entities.

4.     Consolidation
of Variable Interest Entities

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46). FIN 46 addresses the
consolidation of Variable Interest Entities (VIEs).
Under FIN 46, arrangements that are not controlled through
voting or similar rights are accounted for as VIEs. An
enterprise is required to consolidate a VIE if it is the primary
beneficiary of the VIE. FIN 46 applies immediately to
arrangements created after January 31, 2003 and, with
respect to arrangements created before February 1, 2003,
the interpretation will apply to the Company beginning on
September 1, 2003. Arrangements entered into subsequent to
January 31, 2003 have been evaluated under FIN 46 and,
if applicable, accounted for in accordance with FIN 46.

Under FIN 46, a VIE is created when
(i) the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional
subordinated financial support from other parties or
(ii) equity holders either (a) lack direct or indirect
ability to make decisions about the entity, (b) are not
obligated to absorb expected losses of the entity or (c) do
not have the right to receive expected residual returns of the
entity if they occur. If an entity is deemed to be a VIE,
pursuant to FIN 46, an enterprise that absorbs a majority
of the expected losses or residual returns of the VIE is
considered the primary beneficiary and must consolidate the VIE.

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Based on the provisions of FIN 46, the
Company has concluded that under certain circumstances when the
Company options land or lots from an entity and pays a
non-refundable deposit, a VIE is created under condition (ii)
(b) of the previous paragraph. The Company has been deemed
to have provided subordinated financial support, which refers to
variable interests that will absorb some or all of an
entitys expected theoretical losses if they occur. For
each VIE created the Company will compute expected losses and
residual returns based on the probability of future cash flows
as outlined in FIN 46. If the Company is deemed to be the
primary beneficiary of the VIE, it will be consolidated on the
balance sheet. The fair value of the applicable VIEs
inventory is reported as consolidated inventory not owned in the
accompanying consolidated balance sheet at May 31, 2003.

At May 31, 2003 the Company consolidated two
VIEs created between March 1, 2003 and May 31, 2003 as
a result of options to purchase land or lots from the selling
entities. The Company paid cash deposits to these two VIEs
totaling $2.1 million. Other than normal due diligence and
transaction expenses, the Companys option deposits
represent the Companys maximum exposure to loss. At
May 31, 2003, the fair value of the property owned by the
VIEs was approximately $17.7 million. To the extent the
amount of any debt held by the selling entities could be
determined, it has been reflected as consolidated liabilities
from inventory not owned in the accompanying consolidated
balance sheet at May 31, 2003. The fair value of the
optioned property less these liabilities and the cash deposits,
which totaled $12.8 million, was reported on the
accompanying consolidated balance sheet as minority interest.
Creditors of these VIEs have no recourse against the Company.

The Company has not yet determined the
anticipated impact of adopting FIN 46 for arrangements
existing as of January 31, 2003. However, it may require
the consolidation in the Companys third quarter financial
statements as of November 30, 2003 of the assets,
liabilities and operations of certain existing homebuilding and
land development joint ventures, as well as option contracts
with land sellers or third-party financial entities. Since the
Company already recognizes its proportionate share of joint
venture earnings and losses under the equity method of
accounting, the adoption of FIN 46 will not affect the
Companys consolidated net income.

5.     Investments in
and Advances to Unconsolidated Entities

The Company is a general partner or a direct or
indirect managing member and has a 50 percent or lesser
ownership in 13 unconsolidated entities at May 31,
2003. The Companys net investment in and advances to
unconsolidated entities are as follows at May 31, 2003 and
February 28, 2003 (in thousands):

|                               |                               |          |  |         |  |              |        |       |  |   |        |       | 
|------------------------------ | ----------------------------- | -------- |  | ------- |  | ------------ | ------ | ----- |  | - | ------ | ----- | 
|                               |                               | Capital  |  | May 31, |  | February 28,
|                               |                               | Interest |  | 2003    |  | 2003        
|                               |                               |          |  |         |  |             
|Unconsolidated Joint Ventures: |                               |          |  |         |  |              |        |       |  |   |        |      
|                               | LB/L  CPH Providence, LLC    |          |  | 10%     |  |              | $      | 151   |  |   | $      | 151   | 
|                               | LB/L  CPH Longmont, LLC      |          |  | 10%     |  |              |        | 2,734 |  |   |        | 2,529 | 
|                               | LB/L  CPH Laguna Street, LLC |          |  | 10%     |  |              |        |      |  |   |        | 1,119 | 
|                               | CPH Daily Ranch, L.P.         |          |  | 10%     |  |              |        | 3,584 |  |   |        | 3,251 | 
|                               | CPH Sierra Peak, L.P.         |          |  | 50%     |  |              |        | 5,139 |  |   |        | 4,650 | 
|                               | CPH Banning-Lewis Ranch, LLC  |          |  |        |  |              |        | 1,470 |  |   |        | 1,062 | 
|                               | Other                         |          |  | Various |  |              |        | 1,558 |  |   |        | 1,541 | 
|                               |                               |          |  |         |  |              |        |       |  |   |        |      
|                               |                               |          |  |         |  | $            | 14,636 |       |  | $ | 14,303 |      
|                               |                               |          |  |         |  |              |        |       |  |   |        |      

The Companys economic interests in the
unconsolidated joint ventures vary. Generally, the Company
receives a portion of earnings after repayment of invested
capital and payment of a preferred return on invested capital is
provided. Typically, the majority of capital is provided by
capital partners. In addition, the Company

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CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

is typically required to contribute the full
amount of its capital obligation at the commencement of the
joint ventures business, but in some cases the Company may
have a contingent obligation to contribute additional capital.
The Company is typically the direct or indirect managing entity
pursuant to terms in each ventures agreement. In the case
of Divested Joint Ventures which are now Managed Projects, the
Company or a subsidiary manages the development of the project
under a management contract. Such management contracts as well
as the unconsolidated joint venture agreements typically provide
for the payment of a fee to compensate the Company for overhead
expenditures as well as reimbursement of all direct project
costs. The Company provides for income taxes currently on its
share of distributed and undistributed earnings and losses from
the investments.

The Company uses the equity method of accounting
for its investments in the unconsolidated 50 percent or
less owned entities. The accounting policies of the entities are
substantially the same as those of the Company.

Following is summarized, combined financial
information for the unconsolidated entities at May 31, 2003
and February 28, 2003 and for the three month periods ended
May 31, 2003 and May 31, 2002 (in thousands). This
information includes in each case the interest of all equity
owners of the entities, not just that of the Company and its
subsidiaries.

Assets

|                     |  |         |         |              |  |   |         | 
|-------------------- |  | ------- | ------- | ------------ |  | - | ------- | 
|                     |  | May 31, |         | February 28,
|                     |  | 2003    |         | 2003        
|                     |  |         |         |             
|Cash                 |  | $       | 2,036   |              |  | $ | 299     | 
|Real estate projects |  |         | 123,319 |              |  |   | 120,313 | 
|Other assets         |  |         | 1,211   |              |  |   | 2,997   | 
|                     |  |         |         |              |  |   |         | 
|                     |  | $       | 126,566 |              |  | $ | 123,609 | 
|                     |  |         |         |              |  |   |         | 

Liabilities and Equity

|                                       |  |         |         |              |  |   |         | 
|-------------------------------------- |  | ------- | ------- | ------------ |  | - | ------- | 
|                                       |  | May 31, |         | February 28,
|                                       |  | 2003    |         | 2003        
|                                       |  |         |         |             
|Accounts payable and other liabilities |  | $       | 12,098  |              |  | $ | 9,510   | 
|Notes payable                          |  |         | 11,521  |              |  |   | 7,014   | 
|                                       |  |         |         |              |  |   |         | 
|                                       |  |         | 23,619  |              |  |   | 16,524  | 
|                                       |  |         |         |              |  |   |         | 
|Equity                                 |  |         | 102,947 |              |  |   | 107,085 | 
|                                       |  |         |         |              |  |   |         | 
|                                       |  | $       | 126,566 |              |  | $ | 123,609 | 
|                                       |  |         |         |              |  |   |         | 

7



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income Statement

|                               |  |                    |        |         |  |   |       | 
|------------------------------ |  | ------------------ | ------ | ------- |  | - | ----- | 
|                               |  |                   
|                               |  | Three Months Ended
|                               |  |                   
|                               |  | May 31,            |        | May 31,
|                               |  | 2003               |        | 2002   
|                               |  |                    |        |        
|Sales of homes and land        |  | $                  | 11,188 |         |  | $ | 9,517 | 
|Interest and other income, net |  |                    | 146    |         |  |   | 248   | 
|                               |  |                    |        |         |  |   |       | 
|                               |  |                    | 11,334 |         |  |   | 9,765 | 
|Costs and expenses             |  |                    | 8,324  |         |  |   | 8,651 | 
|                               |  |                    |        |         |  |   |       | 
|Net income                     |  | $                  | 3,010  |         |  | $ | 1,114 | 
|                               |  |                    |        |         |  |   |       | 

6.     Warranty
Costs

Estimated future warranty costs are accrued and
charged to cost of sales for each home concurrent with the
recognition of revenue upon satisfaction of the requirements of
SFAS 66. Amounts accrued are based upon historical
experience rates. Accrued warranty reserve is included in
accounts payable and accrued liabilities in the accompanying
consolidated balance sheets. Changes in the Companys
warranty reserve are detailed in the table set forth below (in
thousands):

|                                                  |  |              |       |      |  |  |       |  
|------------------------------------------------- |  | ------------ | ----- | ---- |  |  | ----- | -
|                                                  |  |             
|                                                  |  | Three Months
|                                                  |  | Ended       
|                                                  |  | May 31,     
|                                                  |  |             
|                                                  |  | 2003         |       | 2002
|                                                  |  |              |       |     
|Accrued warranty reserve, beginning of the period |  |              | 1,242 |      |  |  | 1,923 |  
|Warranty costs accrued during the period          |  |              | 204   |      |  |  | 321   |  
|Warranty costs paid during the period             |  |              | (435  | )    |  |  | (472  | )
|                                                  |  |              |       |      |  |  |       |  
|Accrued warranty reserve, end of the period       |  |              | 1,011 |      |  |  | 1,772 |  
|                                                  |  |              |       |      |  |  |       |  

7.     Notes
Payable

Notes payable at May 31, 2003 and
February 28, 2003, are summarized as follows (in thousands):

|                                                                                                                                                      |  |         |         |              |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | ------------ |  | - | ------- | 
|                                                                                                                                                      |  | May 31, |         | February 28,
|                                                                                                                                                      |  | 2003    |         | 2003        
|                                                                                                                                                      |  |         |         |             
|Senior unsecured revolving credit facility,
    bearing interest varying from LIBOR to prime, as selected by the
    Company, plus applicable margins |  | $       | 110,126 |              |  | $ | 97,626  | 
|Senior subordinated note, bearing interest at
    LIBOR plus applicable margin, maturing October 31, 2007                                             |  |         | 20,000  |              |  |   | 20,000  | 
|Purchase money obligations related to real estate
    acquisitions                                                                                    |  |         | 18,617  |              |  |   | 950     | 
|Non-recourse notes payable to banks                                                                                                                   |  |         |        |              |  |   | 1,900   | 
|Other                                                                                                                                                 |  |         | 4,703   |              |  |   | 6,087   | 
|                                                                                                                                                      |  |         |         |              |  |   |         | 
|                                                                                                                                                      |  | $       | 153,446 |              |  | $ | 126,563 | 
|                                                                                                                                                      |  |         |         |              |  |   |         | 

During the fiscal 2003, CPH LLC renewed and
extended its senior unsecured revolving credit facility (the
Senior Facility) with several participant banks. As
of May 31, 2003, the facility had a maximum commitment of
$140 million and a three year revolving term. Subsequent to
May 31, 2003, the maximum commitment was increased to
$150 million. At the option of the Company, borrowings
under the agreement bear interest at LIBOR plus applicable
margin (3.82 percent at May 31, 2003) or at prime plus
applicable

8



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

margin (4.75 percent at May 31, 2003).
Initial proceeds from this facility were used to pay down
certain of CPH LLCs existing facilities and retire the
remaining $55.6 million of its previously issued
12 3/4% Senior Notes (Senior Notes) at face
value during fiscal 2002. In addition, the Company has fixed the
interest rate on $75 million of borrowings at 5.9% until October
2005 through an interest rate swap agreement with a bank which
was required by the terms of the Senior Facility. The Company
also entered into a Senior Subordinated Credit Agreement in the
initial amount of $20 million, with a maturity date in
October 2007, and also entered into an interest swap as required
by the terms of the Senior Subordinated Credit Agreement
effectively fixing the interest rate on that obligation at 9.5%
through its maturity in October 2007. The Senior Subordinated
Credit Agreement has a maximum commitment of $50 million.

8.     Earnings Per
Common Share

Basic earnings per common share is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding. Diluted earnings
per common share includes the effect of the potential shares
outstanding, including dilutive securities using the treasury
stock method. The table below reconciles the components of the
basic earnings per common share calculation to diluted earnings
per common share (in thousands, except per share data):

|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |     |     |  |  |        |        |  |   |      |      | 
|------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------------------ | --- | ------------ |  | --- | ------ | ------ |  | ------ | ---- | ---- |  | - | --- | --- |  |  | ------ | ------ |  | - | ---- | ---- | 
|                                                                                                 |                                                                                                        |                   
|                                                                                                 |                                                                                                        | Three Months Ended
|                                                                                                 |                                                                                                        |                   
|                                                                                                 |                                                                                                        |                    |     |             
|                                                                                                 |                                                                                                        | May 31, 2003       |     | May 31, 2002
|                                                                                                 |                                                                                                        |                    |     |             
|                                                                                                 |                                                                                                        | Income             |     | Shares       |  | EPS |        | Income |  | Shares |      | EPS 
|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |     
|Basic earnings per common share:                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |     |     |  |  |        |        |  |   |      |     
|                                                                                                 | Income available to common stockholders before
    cumulative effect of change in accounting principle |                    | $   | 817          |  |     |        | 14,914 |  |        | $    | 0.05 |  |   | $   | 752 |  |  |        | 14,853 |  |   | $    | 0.05 | 
|Effect of dilutive securities:                                                                   |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |     |     |  |  |        |        |  |   |      |     
|                                                                                                 | Warrants                                                                                               |                    |     |             |  |     |        |       |  |        |      |     |  |   |     |    |  |  |        |       |  |   |      |     | 
|                                                                                                 | Stock options                                                                                          |                    |     |             |  |     |        | 25     |  |        |      |     |  |   |     |    |  |  |        | 105    |  |   |      |     | 
|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |     |     |  |  |        |        |  |   |      |     
|Diluted earnings per common share before
    cumulative effect of change in accounting principle |                                                                                                        | $                  | 817 |              |  |     | 14,939 |        |  | $      | 0.05 |      |  | $ | 752 |     |  |  | 14,958 |        |  | $ | 0.05 |     
|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |     |     |  |  |        |        |  |   |      |     

9.     Stockholders
Equity

The Company has a stock repurchase program in
place whereby up to 1,000,000 shares of the Companys
outstanding common stock may be repurchased. As of May 31,
2003, 750,100 shares have been repurchased cumulatively under
this program. In addition, as of May 31, 2003, the Company
has repurchased on a cumulative basis 657,095 of the 790,000
warrants originally issued in connection with the issuance of
the Senior Notes. Of the remaining warrants, 123,951 were
exercised and 8,954 expired unexercised.

10.     Comprehensive
Income and Implementation of SFAS No. 133

Effective March 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), as amended.
SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities by requiring
that all derivatives be recognized in the balance sheet and
measured at fair value. The Companys policy is to
designate at a derivatives inception the specific assets,
liabilities, or future commitments being hedged and monitor the
derivative to determine if it remains an effective hedge.

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has various interest rate swap
agreements which effectively fix the variable interest rate on a
notional amount of $95 million of its Senior Facility and
Senior Subordinated Credit Agreement. The swap agreements have
been designated as cash flow hedges and, accordingly, are
reflected at their fair value in the consolidated balance sheets
at May 31, 2003 and February 28, 2003. The unrealized
loss, net of income tax benefit, as of May 31, 2003 and
February 28, 2003, of $3,140,000 and $2,512,000,
respectively, is recorded in stockholders equity as
accumulated other comprehensive loss.

Amounts to be received or paid as a result of the
swap agreements are recognized as adjustments to interest
incurred on the related debt instruments. The Company believes
that there will be no ineffectiveness related to the interest
rate swaps and therefore no portion of the accumulated other
comprehensive loss would be reclassified into future earnings.
The net effect on the Companys operating results is that
interest on the variable-rate debt being hedged is recorded and
paid based on fixed interest rates.

11.     Commitments
and Contingencies

Approximately $41.3 million and
$41.8 million of performance bonds which have been issued
on behalf of both CPH LLC and certain joint ventures, by which
the Company has been indemnified, were outstanding at
May 31, 2003 and February 28, 2003, respectively. The
estimated cost to complete the development work related to the
performance bonds was $5.6 million at both May 31,
2003 and February 28, 2003, respectively. The beneficiaries
of these bonds are certain municipalities. Additionally, at
May 31, 2003 and February 28, 2003, CPH LLC has
outstanding letters of credit with banks totaling
$1.8 million and $1.5 million, respectively.

The Company is subject to customary obligations
associated with entering into contracts for the purchase of land
and improved homesites. These purchase contracts typically
require a cash deposit and the purchase of properties under
these contracts is generally contingent upon satisfaction of
certain requirements by the sellers, including in some cases
obtaining applicable property entitlements. In addition, the
Company utilizes option contracts with land sellers and
third-party financial entities as a method of acquiring land.
Option contracts generally require the payment of a
non-refundable cash deposit or the issuance of a letter of
credit for the right to acquire lots over a specified period of
time at predetermined prices. The Company generally has the
right at its discretion to terminate its obligations under these
option agreements by forfeiting its cash deposit or repaying
amounts drawn under the letter of credit with no further
financial responsibility. As of May 31, 2003, the Company
had cash deposits outstanding of approximately $5.2 million
on land purchase and option contracts having a total remaining
purchase price of approximately $94.9 million, of which
approximately $2.1 million is included in consolidated
inventory not owned in the accompanying consolidated balance
sheet at May 31, 2003 related to two option contracts, as
discussed in Note 4.

The Company also enters into land development and
homebuilding joint ventures. Certain of these joint ventures
obtain secured acquisition, development and construction
financing. At May 31, 2003, the Companys
unconsolidated joint ventures had borrowings of approximately
$11.5 million. The Company is generally obligated to the
project lenders to complete land development improvements and
the construction of planned homes if the joint venture does not
perform the required construction. Provided that the Company is
in compliance with these completion obligations, the project
lenders would be obligated to fund the required construction and
improvements through any financing commitments available under
the applicable joint venture development and construction loans.

Additionally, the Company has agreed to indemnify
third-party surety providers with respect to performance bonds
issued on behalf of certain unconsolidated joint ventures. If a
joint venture does not perform its obligations, the surety bond
could be called. If these surety bonds are called, and the joint
venture fails to reimburse the surety, the Company would be
obligated to indemnify the surety. As of May 31, 2003,

10



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Companys unconsolidated joint ventures
had approximately $24.3 million of surety bonds outstanding
subject to such indemnity arrangements.

CPH LLC is a general partner in certain joint
venture partnerships that have completed operations. As a
general partner, CPH LLC is liable for all debts of these
partnerships without limitation to the respective partnership
interest.

12.     Accounting
for Guarantees

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). The
disclosure requirements of FIN 45 are effective as of
December 31, 2002, and the Company adopted that portion of
the pronouncement as of that date. The initial recognition and
measurement requirements of FIN 45 are effective on a
prospective basis to guarantees issued or modified after
December 31, 2002. Recognition of a liability is recorded
at its estimated fair value based on the present value of the
expected contingent payments under the guarantee arrangement.
The adoption of the initial recognition and measurement
requirements of FIN 45 did not have a material impact on
the Companys financial position or results of operations.

The types of guarantees that the Company provides
that are subject to FIN 45 generally are made to
third-parties on behalf of unconsolidated homebuilding and land
development joint ventures. As of May 31, 2003, these
guarantees included, but were not limited to, construction
completion agreements and surety bond indemnities (see
Note 11 for further discussion).

13.     Other Recent
Accounting Pronouncements

In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142).
SFAS 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, Intangible Assets. This
pronouncement addresses, among other things, how goodwill and
other intangible assets should be accounted for after they have
been initially recognized in the financial statements. Goodwill
will no longer be amortized but will be assessed at least
annually for impairment using a fair value methodology. The
Company has adopted this statement for all goodwill and other
intangible assets acquired after June 30, 2001 and for all
existing goodwill and other intangible assets beginning
March 1, 2002. Upon adoption of this standard on
March 1, 2002, the Company was required to accrete the
remaining balance of negative goodwill through a cumulative
effect of change in accounting principle, which increased net
income in the first quarter of fiscal 2003 by $5.4 million,
or $0.37 per diluted share. Other than the accretion of the
remaining negative goodwill, the Company does not anticipate
that the adoption of SFAS 142 will have a material impact
on the Companys financial position or results of
operations.

11



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##### Table of Contents






Item 2.     Managements
Discussion and Analysis of Results of Operations and Financial
Condition

Forward-Looking Information is Subject to Risk
and Uncertainty

Certain statements in the financial discussion
and analysis by management contain forward-looking
information (as defined in the Private Securities Litigation
Reform Act of 1995 and within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended) that involves risk
and uncertainty, including projections and assumptions regarding
the business environment in which the Company operates. Actual
future results and trends may differ materially depending on a
variety of factors, including the Companys successful
execution of internal performance strategies; changes in general
national and regional economic conditions, such as levels of
employment, consumer confidence and income; uncertainty arising
from acts of war and terrorism and similar factors; availability
to homebuilders of financing for acquisitions, development and
construction; availability to homebuyers of permanent mortgages;
interest rate levels; the demand for housing; supply levels of
land, utilities and other services, labor and materials;
difficulties in obtaining permits or approvals from governmental
authorities; difficulties in marketing homes; regulatory changes
and weather and other environmental uncertainties; competitive
influences; and the outcome of pending and future legal claims
and proceedings.

Results of Operations 
General

As is noted in footnote 1 to the financial
statements presented herein, the Company is reporting its
results on a consolidated basis with the results of its
wholly-owned subsidiaries, including CPH LLC. References to the
Company in this Item 2 are, unless the context indicates
otherwise, also references to such subsidiaries. At the current
time, all material financing transactions and arrangements are
incurred either by CPH LLC or by project-specific entities, or
in the case of Managed Projects, by the owner of such projects.

The following table illustrates the actual
results of the Companys operations, as well as the results
including the Companys unconsolidated joint ventures and
the Managed Projects, for the three months ended May 31,
2003 and 2002. The actual results have been adjusted to reflect
the inclusion of the operating results of the Companys
unconsolidated joint ventures, including the portion
attributable to the Companys Joint Venture partners, in
order to facilitate the discussion of the overall results in
certain portions of the discussion below. During the three
months ended May 31, 2003 and 2002, the Company was
responsible for construction and marketing activity in the
Managed Projects and the Companys sole economic interest
is through management arrangements.

Results of Operations

(Amounts in thousands)


|                        |              |                    |        |                |  |             |        |                |  |                |        |             |  |   |        |        |  |   |        |        |  |   |        |        | 
|----------------------- | ------------ | ------------------ | ------ | -------------- |  | ----------- | ------ | -------------- |  | -------------- | ------ | ----------- |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                        |              |                   
|                        |              | Three Months Ended
|                        |              |                   
|                        |              |                    |        |               
|                        |              | May 31, 2003       |        | May 31, 2002  
|                        |              |                    |        |               
|                        |              |                    |        | Including      |  |             |        | Including     
|                        |              |                    |        | Joint Ventures |  |             |        | Joint Ventures
|                        |              |                    |        | Including      |  | and Managed |        |                |  | Including      |        | and Managed
|                        |              | Consolidated       |        | Joint Ventures |  | Projects    |        | Consolidated   |  | Joint Ventures |        | Projects   
|                        |              |                    |        |                |  |             |        |                |  |                |        |            
|Sales of homes and land |              | $                  | 43,471 |                |  | $           | 54,659 |                |  | $              | 82,937 |             |  | $ | 44,846 |        |  | $ | 54,364 |        |  | $ | 59,138 |       
|Cost of sales           |              |                    | 34,229 |                |  |             | 42,106 |                |  |                | 62,484 |             |  |   | 34,243 |        |  |   | 42,215 |        |  |   | 46,449 |       
|                        |              |                    |        |                |  |             |        |                |  |                |        |             |  |   |        |        |  |   |        |        |  |   |        |       
|                        | Gross margin |                    | $      | 9,242          |  |             | $      | 12,553         |  |                | $      | 20,453      |  |   | $      | 10,603 |  |   | $      | 12,149 |  |   | $      | 12,689 | 
|                        |              |                    |        |                |  |             |        |                |  |                |        |             |  |   |        |        |  |   |        |        |  |   |        |       

Cost of sales, as shown above, does not include
the amount of previously capitalized interest costs which are
included in interest expense. As a result, the gross margin also
does not reflect the impact of previously capitalized interest
cost included in current interest expense. Industry practice
among homebuilders varies, but Company management feels that
gross margin, exclusive of interest expense, is the most
relevant comparable measure, given the Companys historical
capital structure.

12



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##### Table of Contents



Operating Data

The following table shows new home deliveries,
lot deliveries, net new orders and average sales prices for the
first fiscal quarter of fiscal years 2004 and 2003, including
unconsolidated joint ventures but excluding Managed Projects:

|                               |                                            |                    |                       |         |     |     |     |         |     |     | 
|------------------------------ | ------------------------------------------ | ------------------ | --------------------- | ------- | --- | --- | --- | ------- | --- | --- | 
|                               |                                            |                   
|                               |                                            | Three Months Ended
|                               |                                            |                   
|                               |                                            | May 31,            |                       | May 31,
|                               |                                            | 2003               |                       | 2002   
|                               |                                            |                    |                       |        
|New homes delivered:           |                                            |                    |                       |         |     |     |     |        
|                               | California                                 |                    |                       | 53      |     |     |     | 25      |    
|                               | Texas                                      |                    |                       | 29      |     |     |     | 36      |    
|                               | Arizona                                    |                    |                       | 33      |     |     |     | 19      |    
|                               | Colorado                                   |                    |                       | 28      |     |     |     | 27      |    
|                               |                                            |                    |                       |         |     |     |     |        
|                               |                                            | Subtotal           |                       |         | 143 |     |     |         | 107 |    
|                               | Unconsolidated Joint Ventures (California) |                    |                       | 28      |     |     |     | 33      |    
|                               |                                            |                    |                       |         |     |     |     |        
|                               |                                            |                    | Total homes delivered |         |     | 171 |     |         |     | 140 | 
|Lots delivered                 |                                            |                    | 26                    |         |     |     | 62  |        
|                               |                                            |                    |                       |         |     |     |     |        
|Total homes and lots delivered |                                            |                    | 197                   |         |     |     | 202 |        
|                               |                                            |                    |                       |         |     |     |     |        
|Net new orders                 |                                            |                    | 308                   |         |     |     | 222 |        
|                               |                                            |                    |                       |         |     |     |     |        
|Average home sales price:      |                                            |                    |                       |         |     |     |     |        
|                               | California                                 |                    | $                     | 438,000 |     |     | $   | 747,000 |    
|                               | Texas                                      |                    |                       | 210,000 |     |     |     | 325,000 |    
|                               | Arizona                                    |                    |                       | 166,000 |     |     |     | 139,000 |    
|                               | Colorado                                   |                    |                       | 220,000 |     |     |     | 257,000 |    
|                               | Combined                                   |                    |                       | 312,000 |     |     |     | 353,000 |    

The following table shows backlog in units and
dollars at May 31, 2003 and 2002 for each of the
Companys operations, including unconsolidated joint
ventures:

|           |       |                |     |              |  |       |        |         |  |  |    |     |  |   |        |        | 
|---------- | ----- | -------------- | --- | ------------ |  | ----- | ------ | ------- |  |  | -- | --- |  | - | ------ | ------ | 
|           |       |               
|           |       | Ending Backlog
|           |       |               
|           |       |                |     |             
|           |       | May 31, 2003   |     | May 31, 2002
|           |       |                |     |             
|           |       | Units          |     | ($000s)      |  | Units |        | ($000s)
|           |       |                |     |              |  |       |        |        
|California |       |                | 177 |              |  | $     | 69,900 |         |  |  | 79 |     |  | $ | 57,300 |       
|Texas      |       |                | 84  |              |  |       | 15,200 |         |  |  | 79 |     |  |   | 19,900 |       
|Arizona    |       |                | 79  |              |  |       | 15,900 |         |  |  | 47 |     |  |   | 6,900  |       
|Colorado   |       |                | 82  |              |  |       | 20,500 |         |  |  | 71 |     |  |   | 9,700  |       
|           |       |                |     |              |  |       |        |         |  |  |    |     |  |   |        |       
|           | Total |                |     | 422          |  |       | $      | 121,500 |  |  |    | 276 |  |   | $      | 93,800 | 
|           |       |                |     |              |  |       |        |         |  |  |    |     |  |   |        |       



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | First Three Months of Fiscal 2004 (ended
    May 31, 2003) Compared to First Three Months of Fiscal 2003
    (ended May 31, 2002)

Excluding the effect of a cumulative change in
accounting principle in fiscal 2003, net income increased from
$752,000 in the first quarter of fiscal 2003 to $817,000 in the
first quarter of fiscal 2004. However, income for the quarter
ended May 31, 2002 included a cumulative effect of change
in accounting principle which increased income by
$5.4 million, or $0.37 per share. The Company reported net
income of $817,000, or $0.05 per share, in the first quarter of
fiscal 2004, as compared to net income of $6.2 million, or
$0.42 per share, in the first quarter of fiscal 2003.

On a consolidated basis, sales of homes and land
decreased slightly to $43.5 million for the first quarter
of fiscal 2004 compared to $44.8 million for the first
quarter of fiscal 2003. This decrease is primarily due to a
decrease in the Companys average sales price per home to
$312,000 in the first quarter of fiscal 2003 from

13



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##### Table of Contents



$353,000 in the first quarter of fiscal 2003 and
fewer lot deliveries, partially offset by higher home closings.
Sales of homes and land including unconsolidated joint ventures,
but excluding Managed Projects, increased slightly to
$54.7 million from $54.4 million for the respective
quarters. Total home closings increased from 140 in the first
quarter of fiscal 2003 to 171 in the first quarter of fiscal
2004, including 33 and 28 homes, respectively, closed in
unconsolidated joint ventures. This was partially offset by a
decrease in lot closings from 62 in the first quarter of fiscal
2003 to 26 in the first quarter of fiscal 2004. The substantial
increase in the Companys backlog from 276 units to 422
units between quarters is primarily due to an increase in demand
and backlog units in substantially all of the Companys
markets, including a 22% rise in backlog in dollar terms in
California and a 130% rise in Arizona, which affected both
backlog and net new orders. The Company anticipates opening
between 8 and 10 net new communities over the next few
quarters.


The Companys gross margin on home and lot
closings decreased to 21.3% for the first quarter of fiscal 2004
as compared to 23.6% for the first quarter of fiscal 2003, due
to a change in the mix of closings to certain higher-volume,
lower-margin projects and the close-out of certain less
profitable projects. The gross margin, including unconsolidated
joint ventures, increased from 22.3% in the first quarter of
fiscal 2003 to 23.0% in the first quarter of fiscal 2004. The
Companys measure of gross margin may differ from other
homebuilders, as discussed above.

Selling, general and administrative expense of
$7.7 million for the first quarter of fiscal 2004 increased
$1.0 million as compared to the first quarter of fiscal
2003 due principally to selling and marketing expense in advance
of closing revenue in several new communities in certain markets
as well as a lower level of construction overhead reimbursements
from unconsolidated joint ventures and managed projects in the
current quarter. As a percentage of revenue, selling, general
and administrative expense increased from 15.0% for the first
quarter of fiscal 2003 to 17.8% for the first quarter of fiscal
2004.

Income from unconsolidated joint ventures
increased from $356,000 in the first quarter of fiscal 2003 to
$1.6 million in the first quarter of fiscal 2004, due to an
increased level of profit participation and a higher level of
closings in the active joint ventures in the current quarter.

Interest and other income increased from $217,000
in the first quarter of fiscal 2003 to $1.1 million in the
first quarter of fiscal 2004, primarily due to gains on the sale
of certain assets.

Interest incurred was $3.1 million in the
first quarter of fiscal 2004, as compared to $2.2 million
in the first quarter of fiscal 2003, while previously
capitalized interest expensed was $2.9 million during the
first quarter of fiscal 2004, as compared to $3.3 million
in the first quarter of fiscal 2003.

The Company recorded a provision for income taxes
of $544,000 in the first quarter of fiscal 2004, utilizing an
effective tax rate of 40.0%, as compared to $399,000 in the
first quarter of fiscal 2003, with an effective tax rate of
34.7%.

Liquidity and Capital Resources

The Companys principal cash requirements
are for the acquisition, development, construction, marketing
and overhead of its projects. When building inventory, the
Company uses substantial amounts of cash that are generally
obtained from borrowings, available cash flow from operations
and partners contributions to joint ventures.

At the current time, all material financing
transactions and arrangements are incurred either by CPH LLC or
by certain project specific entities. During the fiscal 2003,
CPH LLC renewed and extended its senior unsecured revolving
credit facility (the Senior Facility) with several
participant banks. As of May 31, 2003, the facility had a
maximum commitment of $140 million and a three year
revolving term. Subsequent to May 31, 2003, the maximum
commitment was increased to $150 million. At the option of
the Company, borrowings under the agreement bear interest at
LIBOR plus applicable margin (3.82 percent at May 31,
2003) or at prime plus applicable margin (4.75 percent at
May 31, 2003). Initial proceeds from this facility were
used to pay down certain of CPH LLCs existing facilities
and retire the remaining $55.6 million of its previously
issued 12 3/4% Senior Notes (Senior Notes) at
face value during fiscal 2002. In addition, the

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Company has fixed the interest rate on
$75 million of borrowings at 5.9% until October 2005
through an interest rate swap agreement with a bank which was
required by the terms of the Senior Facility (see Note 10).
The Company also entered into a Senior Subordinated Credit
Agreement in the initial amount of $20 million, with a
maturity date in October 2007, and also entered into an interest
swap as required by the terms of the Senior Subordinated Credit
Agreement effectively fixing the interest rate on that
obligation at 9.5% through its maturity in October 2007. The
Senior Subordinated Credit Agreement has a maximum commitment of
$50 million.


As of May 31, 2003, the Company has in place
certain credit facilities, including the Senior Facility,
totaling $190 million (the Facilities) with
various bank lenders (the Banks), of which
approximately $130 million was outstanding. Pursuant to the
Facilities, the Company is subject to certain covenants, which
require, among other things, the maintenance of a consolidated
liabilities to net worth ratio, minimum liquidity, minimum net
worth and loss limitations, all as defined in the documents that
evidence the Facilities. At May 31, 2003, the Company was
in compliance with these covenants. The Facilities also define
certain events that constitute events of default. As of
May 31, 2003, no such event had occurred. Commitment fees
are payable annually on some of the Facilities.

Homebuilding activity is being financed out of
CPH LLC cash, bank financing, and the existing joint ventures,
including joint ventures with institutional investors.
Development work undertaken in certain of the Companys
joint ventures is financed through various non-recourse lending
arrangements. Additional lot development activity is enhanced
through various arrangements outside the Senior Facility. The
Company anticipates that it will continue to utilize both third
party financing and joint ventures to cover financing needs in
excess of internally generated cash flow.

Management expects that cash flow generated from
operations and from bank financing will be sufficient to cover
the debt service and to fund CPH LLCs current development
and homebuilding activities for the reasonably foreseeable
future, and expects that capital commitments from its joint
venture partners and other bank facilities will provide
sufficient financing for the operation of its joint ventures.

The Company is subject to customary obligations
associated with entering into contracts for the purchase of land
and improved homesites. These purchase contracts typically
require a cash deposit and the purchase of properties under
these contracts is generally contingent upon satisfaction of
certain requirements by the sellers, including obtaining
applicable property and development entitlements.

The Company also utilizes option contracts with
land sellers and third-party financial entities as a method of
acquiring land in staged takedowns and minimizing the use of
funds from the Senior Facility and other corporate financing
sources. These option contracts also help the Company manage the
financial and market risk associated with land holdings. Option
contracts generally require the payment of a non-refundable cash
deposit or the issuance of a letter of credit for the right to
acquire lots over a specified period of time at predetermined
prices. The Company generally has the right at its discretion to
terminate its obligations under these option agreements by
forfeiting its cash deposit or repaying amounts drawn under the
letter of credit with no further financial responsibility. As of
May 31, 2003, the Company had cash deposits outstanding of
approximately $5.2 million on option contracts having a
total remaining purchase price of approximately
$94.9 million, of which approximately $2.1 million is
included in consolidated inventory not owned in the accompanying
consolidated balance sheet at May 31, 2003 related to two
land option contracts. The Companys utilization of option
contracts is dependent on, among other things, the availability
of capital to the option provider, general housing market
conditions and geographic preferences. Options may be more
difficult to procure from land sellers in strong housing market
conditions and are more prevalent in certain geographic regions.

The Company enters into land development and
homebuilding joint ventures from time to time as a means of
accessing lot positions, expanding its market opportunities,
managing its risk profile and leveraging its capital base.
Certain of these joint ventures obtain secured acquisition,
development and construction financing, which minimizes the use
of funds from the Senior Facility and other corporate financing
sources. The Company plans to continue using these types of
arrangements to finance the development of properties as
opportunities arise. At May 31, 2003, these unconsolidated
joint ventures and certain Managed Projects had

15



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borrowings which totaled approximately
$27.0 million which, in accordance with generally accepted
accounting principles, are not recorded in the accompanying
consolidated balance sheet. The Company is generally obligated
to the project lenders to complete land development improvements
and the construction of planned homes if the joint venture or
Managed Project does not perform the required development and
construction. Provided that the Company is in compliance with
these completion obligations, the project lenders would be
obligated to fund these improvements through any financing
commitments available under the applicable development and
construction loans.


Critical Accounting Policies

The Companys financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires management to make estimates and
judgments that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and costs and expenses during the
reporting period. Management evaluates its estimates and
judgments, including those which impact its most critical
accounting policies on an ongoing basis. Management bases its
estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, within the framework of current accounting
literature. Actual results may differ from these estimates under
different assumptions or conditions. The Companys key
accounting policies are discussed in detail in the
Companys Form 10-K for the fiscal year ended
February 28, 2003.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 145 Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections
(SFAS 145). SFAS 145 provides that gains
or losses resulting from the extinguishment of debt not be
classified as an extraordinary item unless it meets the criteria
of Accounting Principles Board Opinion No. 30. SFAS 145 is
effective for fiscal years beginning after May 15, 2002.
The adoption of SFAS 145 did not have any impact on the
Companys financial position or results of operations.

In June 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting
for Costs Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including certain costs incurred in a
restructuring). SFAS 146 requires recognition of a
liability for a cost associated with an exit or disposal
activity when the liability is incurred as opposed to when the
entity commits to an exit plan as prescribed under EITF
No. 94-3. SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. The adoption
of SFAS 146 did not have a material impact on the
Companys financial position or results of operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). The
disclosure requirements of FIN 45 are effective as of
December 31, 2002, and the Company adopted that portion of
the pronouncement as of that date. The initial recognition and
measurement requirements of FIN 45 are effective on a
prospective basis to guarantees issued or modified after
December 31, 2002. Recognition of a liability is recorded
at its estimated fair value based on the present value of the
expected contingent payments under the guarantee arrangement.
The adoption of the initial recognition and measurement
requirements of FIN 45 did not have a material impact on
the Companys financial position or results of operations.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46). FIN 46 addresses
the consolidation of variable interest entities. Under FIN 46,
arrangements that are not controlled through voting or similar
rights are accounted for as variable interest entities. An
enterprise is required to consolidate a variable interest entity
if it is the primary beneficiary. FIN 46 applies

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immediately to arrangements created after
January 31, 2003 and, with respect to arrangements created
before February 1, 2003, the interpretation will apply
beginning on September 1, 2003. Arrangements entered into
subsequent to January 31, 2003 have been evaluated under
FIN 46 and, if applicable, accounted for in accordance with
FIN 46. The adoption of FIN 46 is reflected in the
Companys financial statements as of May 31, 2003. The
Company has not yet determined the anticipated impact of
adopting FIN 46 for arrangements existing as of
January 31, 2003. However, it may require the consolidation
of the assets, liabilities and operations of certain
homebuilding and land development joint ventures, as well as
option contracts with land sellers or third-party financial
entities. Since the Company already recognizes its proportionate
share of joint venture earnings and losses under the equity
method of accounting, the adoption of FIN 46 will not
affect the Companys consolidated net income.





Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

The Market Risk Exposure paragraphs
are presented to provide an update about material changes to the
Quantitative and Qualitative Disclosures about Market
Risk paragraphs included in the Companys 2003 Annual
Report on Form 10-K filed with the Securities and Exchange
Commission and should be read in conjunction with those
paragraphs.

The Company is exposed to market risks related to
fluctuations in interest rates on its debt. Under the Senior
Facility and the Senior Subordinated Credit Agreement, the
Company has utilized interest rate swaps in order to fix the
interest rate on $95 million of its variable rate debt. The
Company has not used forward or option contracts on foreign
currencies or commodities, or other types of derivative
financial instruments.

The Company uses debt financing primarily for the
purpose of acquiring and developing land and constructing and
selling homes. Historically, the Company has made short-term
borrowings under its revolving credit facilities to fund those
expenditures. In addition, the Company had previously issued
$100 million in fixed-rate 12 3/4% Senior Notes
(Senior Notes) to provide longer-term financing.
Prior to the third quarter of fiscal 2002, the Company had
repurchased Senior Notes with a face value of
$44.4 million. During the third quarter of fiscal 2002, the
Company redeemed at face value the remaining $55.6 million
of the Senior Notes.

For fixed rate debt, changes in interest rates
generally affect the fair market value, but not the
Companys earnings or cash flows. Conversely, for variable
rate debt, changes in interest rates generally do not have an
impact on fair market value, but do affect the Companys
future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity, and as a
result, interest rate risk and changes in fair market value
should not have a significant impact on such debt until the
Company would be required to refinance such debt. Based upon the
amount of variable rate debt outstanding at the end of the first
quarter, and holding the variable rate debt balance constant,
each one percentage point increase in interest rates occurring
on the first day of an annual period would result in an increase
in interest incurred for the coming year of approximately
$400,000.

The Company does not believe that future market
interest rate risks related to its debt obligations will have a
material impact on the Companys financial position,
results of operations or liquidity.




Item 4.     Controls
and Procedures

As of May 31, 2003, an evaluation was
performed under the supervision and with the participation of
the Companys management, including the CEO, CFO, COO and
CLO, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on that
evaluation, the Companys management, including the CEO,
CFO, COO and CLO, concluded that the Companys significant
disclosure controls and procedures were effective as of
May 31, 2003. There have been no significant changes in the
Companys internal controls or in other factors that could
significantly affect internal controls subsequent to
May 31, 2003.

17



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##### Table of Contents






PART II  OTHER
INFORMATION




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits

|        |      |             |  |                                                                                                      
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 99.1 |             |  | Certification of Hadi Makarechian pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002      
|        | 99.2 |             |  | Certification of Steven O. Spelman, Jr. pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

None Filed.

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##### Table of Contents






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.



| |     |                     
| | --- | --------------------
| | By: | /s/ HADI MAKARECHIAN

| |                                          
| | -----------------------------------------
| |                                          
| | Hadi Makarechian                         
| | Chairman of the Board,                   
| | Chief Executive Officer and
    President
| | (Principal Executive Officer)            

Date: July 15, 2003



| |     |                           
| | --- | --------------------------
| | By: | /s/ STEVEN O. SPELMAN, JR.

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Steven O. Spelman, Jr.                             
| | Chief Financial Officer and Corporate
    Secretary
| | (Principal Financial Officer)                      

Date: July 15, 2003

19



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##### Table of Contents






CERTIFICATIONS

I, Hadi Makarechian, certify that:

1.     I have reviewed
this quarterly report on Form 10-Q of Capital Pacific
Holdings, Inc.:



| |                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.     Based on my
    knowledge, this quarterly 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 quarterly
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this quarterly 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 quarterly report;                       
|
| | 4.     The
    registrants other certifying officers 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 quarterly 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
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this quarterly 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 officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this quarterly report whether 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.



| |     |                     
| | --- | --------------------
| | By: | /s/ HADI MAKARECHIAN

| |                                          
| | -----------------------------------------
| |                                          
| | Hadi Makarechian                         
| | Chairman of the Board,                   
| | Chief Executive Officer and
    President
| | (Principal Executive Officer)            

Date: July 15, 2003

20



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##### Table of Contents



I, Steven O. Spelman, Jr., certify that:



| |                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this quarterly report on Form 10-Q of Capital Pacific
    Holdings, Inc.:                                                                                                                                                                                                                                                         
|
| | 2.     Based on my
    knowledge, this quarterly 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 quarterly
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this quarterly 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 quarterly report;                       
|
| | 4.     The
    registrants other certifying officers 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 quarterly 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
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this quarterly 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 officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this quarterly report whether 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.



| |     |                           
| | --- | --------------------------
| | By: | /s/ STEVEN O. SPELMAN, JR.

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Steven O. Spelman, Jr.                             
| | Chief Financial Officer and Corporate
    Secretary
| | (Principal Financial Officer)                      

Date: July 15, 2003

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##### Table of Contents






EXHIBIT INDEX

|        |      |             |  |                                                                                                      
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 99.1 |             |  | Certification of Hadi Makarechian pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002      
|        | 99.2 |             |  | Certification of Steven O. Spelman, Jr.
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002