0000898430-95-001507.txt : 19950821 0000898430-95-001507.hdr.sgml : 19950821 ACCESSION NUMBER: 0000898430-95-001507 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000818789 STANDARD INDUSTRIAL CLASSIFICATION: 6035 IRS NUMBER: 470713310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16918 FILM NUMBER: 95561392 BUSINESS ADDRESS: STREET 1: 950 TOWER LANE SUITE 600 CITY: FOSTER CITY STATE: CA ZIP: 94404 BUSINESS PHONE: 4153586394 MAIL ADDRESS: STREET 2: 950 TOWER LANE SUITE 600 CITY: FOSTER CITY STATE: CA ZIP: 94404 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 X Quarterly report pursuant to Section 13 or 15(d) of the Securities -------- Exchange Act of 1934 For the quarterly period ended June 30, 1995 or ________ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ----------------- ---------------- Commission File Number: 0-16918 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Delaware 47-0713310 - ------------------------------------------------------------------------------ (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1004 Farnam Street, Omaha, Nebraska 68102 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (402) 444-1630 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------------ --------------- America First Financial Fund 1987-A Limited Partnership and Subsidiary FORM 10-Q JUNE 30, 1995 TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 1995 and December 31, 1994....................................... 1 Consolidated Statements of Operations For the quarters ended June 30, 1995 and June 30, 1994 and for the six months ended June 30, 1995 and June 30, 1994.............. 2 Consolidated Statement of Partners' Capital For the six months ended June 30, 1995.................................... 3 Consolidated Statements of Cash Flows For the six months ended June 30, 1995 and June 30, 1994.................. 4 Notes to Consolidated Financial Statements................................ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................................... 12 Item 6. Exhibits and Reports on Form 8-K.......................................... 12 SIGNATURES......................................................................... 13
America First Financial Fund 1987-A Limited Partnership and Subsidiary Part I - Financial Information Item 1. - Financial Statements
- ------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------- June 30, 1995 December 31, 1994 - ------------------------------------------------------------------------------------------- Assets Cash and amounts due from depository institutions $ 23,153,431 $ 23,861,654 Federal funds sold 18,400,000 38,000,000 Securities purchased under agreements to resell 20,500,000 5,700,000 Investments held to maturity 39,993,092 39,990,607 Mortgage-backed securities, net Held to maturity 755,258,374 737,896,536 Available-for-sale 54,878,362 53,004,210 Loans receivable, net 1,394,846,835 1,432,997,028 Loans held for sale 85,000 151,500 Accrued interest receivable 12,928,071 11,624,961 Premises and equipment, net 10,041,709 10,638,292 Federal Home Loan Bank stock, at cost 20,978,900 20,460,600 Real estate held for sale or investment, net 4,326,103 4,653,517 Real estate owned, net 2,423,958 4,964,934 Other assets 9,713,534 9,633,418 - ------------------------------------------------------------------------------------------- Total Assets $2,367,527,369 $2,393,577,257 - ------------------------------------------------------------------------------------------- Liabilities and Partners' Capital Customer deposits $1,661,814,053 $1,696,291,789 Securities sold under agreements to repurchase 468,842,000 462,485,000 Other borrowings 50,278,000 50,278,000 Redeemable Preferred Stock; Series A, no par value; 200,000 shares issued; $20 million liquidation value 14,576,107 13,610,226 Distributions payable 2,436,725 2,436,725 Other liabilities and accrued expenses 19,343,625 23,880,176 - ------------------------------------------------------------------------------------------- Total Liabilities 2,217,290,510 2,248,981,916 - ------------------------------------------------------------------------------------------- Partners' Capital: General Partner 3,802,717 2,772,295 Beneficial Unit Certificate (BUC) Holders 6,010,589 BUCs authorized, issued and outstanding 146,434,142 141,823,046 - ------------------------------------------------------------------------------------------- Total Partners' Capital 150,236,859 144,595,341 - ------------------------------------------------------------------------------------------- Total Liabilities and Partners' Capital $2,367,527,369 $2,393,577,257 - -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 1 America First Financial Fund 1987-A Limited Partnership and Subsidiary
- -------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------------------------------------- For the For the For the Six For the Six Quarter Ended Quarter Ended Months Ended Months Ended June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994 - -------------------------------------------------------------------------------------------------------------- Interest income Interest and fees on loans $25,612,698 $22,796,409 $50,414,140 $46,149,829 Interest on mortgage-backed securities 13,225,414 9,278,839 25,893,493 17,778,989 Interest and dividends on investment securities 1,016,781 883,421 2,229,359 1,800,022 - -------------------------------------------------------------------------------------------------------------- Total interest income 39,854,893 32,958,669 78,536,992 65,728,840 - -------------------------------------------------------------------------------------------------------------- Interest expense Interest on deposits 18,690,952 15,363,662 36,146,617 30,599,258 Interest on borrowings 7,320,254 4,397,214 14,761,377 7,975,590 Preferred Stock accretion 482,941 381,999 965,881 763,998 - -------------------------------------------------------------------------------------------------------------- Total interest expense 26,494,147 20,142,875 51,873,875 39,338,846 - -------------------------------------------------------------------------------------------------------------- Net interest income before provision for loan losses 13,360,746 12,815,794 26,663,117 26,389,994 Provision for loan losses 187,933 333,583 352,211 935,075 - -------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 13,172,813 12,482,211 26,310,906 25,454,919 - -------------------------------------------------------------------------------------------------------------- Non-interest income Deposit related fees 513,444 471,712 1,056,794 936,077 Loan related fees 381,071 508,112 770,295 1,063,017 Gain (loss) on disposition of loans 45,939 (82,310) 44,154 107,735 Other income 1,936,289 1,808,336 3,033,725 2,933,833 - -------------------------------------------------------------------------------------------------------------- Total non-interest income 2,876,743 2,705,850 4,904,968 5,040,662 - -------------------------------------------------------------------------------------------------------------- Non-interest expense Compensation and benefits 4,917,029 5,350,209 9,963,916 10,935,496 Occupancy and equipment 2,234,373 2,175,165 4,465,603 4,651,665 FDIC premiums and special assessments 1,060,536 1,089,068 2,121,073 2,178,098 Professional services 347,118 410,853 530,247 782,922 Advertising and promotion 398,557 268,766 628,020 627,710 Provision for loss (recovery) on interest rate exchange agreements 1,029,000 (637,000) 1,029,000 (2,515,000) Other expense 2,601,872 2,758,088 5,499,980 5,928,352 - -------------------------------------------------------------------------------------------------------------- Total non-interest expense 12,588,485 11,415,149 24,237,839 22,589,243 - -------------------------------------------------------------------------------------------------------------- Net income before income taxes 3,461,071 3,772,912 6,978,035 7,906,338 Provision for income taxes - - - - - -------------------------------------------------------------------------------------------------------------- Net income $ 3,461,071 $ 3,772,912 $ 6,978,035 $ 7,906,338 - -------------------------------------------------------------------------------------------------------------- Net income allocated to: General Partner $ 188,418 $ 250,682 $ 388,014 $ 573,571 BUC Holders 3,272,653 3,522,230 6,590,021 7,332,767 - -------------------------------------------------------------------------------------------------------------- $ 3,461,071 $ 3,772,912 $ 6,978,035 $ 7,906,338 - -------------------------------------------------------------------------------------------------------------- Net income per Beneficial Unit Certificate $ .5445 $ .5860 $ 1.0964 $ 1.2200 - --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 2 America First Financial Fund 1987-A Limited Partnership and Subsidiary
- ------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL For the Six Months Ended June 30, 1995 - ------------------------------------------------------------------------------------------ General Beneficial Unit Partner Certificate Holders Total - ------------------------------------------------------------------------------------------ Balance at December 31, 1994 $2,772,295 $141,823,046 $144,595,341 Net income 388,014 6,590,021 6,978,035 Cash distributions paid or accrued (64,978) (4,808,471) (4,873,449) Net unrealized gains on available-for-sale mortgage-backed securities 707,386 2,829,546 3,536,932 - ------------------------------------------------------------------------------------------ Balance at June 30, 1995 $3,802,717 $146,434,142 $150,236,859 - ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 3 America First Financial Fund 1987-A Limited Partnership and Subsidiary
- --------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------------------- For the Six For the Six Months Ended Months Ended June 30, 1995 June 30, 1994 - --------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 6,978,035 $ 7,906,338 Adjustments to reconcile net income to net cash provided by operating activities Amortization of: Investments and mortgage-backed securities net premium 145,305 1,090,420 Loan discount (1,083,217) (53,253) Intangibles 669,984 669,984 Proceeds from sale of loans originated and held for sale 3,476,254 24,664,776 Originations of loans held for sale (3,365,600) (19,564,513) Gain on disposition of mortgage loans (44,154) (107,735) Provision for loan losses 352,211 935,075 Provision for loss on interest rate exchange agreements 1,029,000 - Increase in accrued interest receivable (1,303,110) (265,656) Decrease in accrued interest payable (526,859) (376,080) Depreciation and amortization of premises and equipment 1,048,853 1,265,955 (Increase) decrease in other assets (750,097) 2,042,398 Decrease in other liabilities (5,038,693) (7,902,768) Other, net 170,584 (827,221) - --------------------------------------------------------------------------------------------- Total adjustments (5,219,539) 1,571,382 - --------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,758,496 9,477,720 - --------------------------------------------------------------------------------------------- Cash flows from investing activities Loans originated and held for investment (55,134,398) (127,564,459) Purchases of investment securities - (39,985,937) Purchases of mortgage-backed securities (66,882,437) (102,411,482) Purchases of real estate loans (3,136,168) (44,168,764) Purchases of premises and equipment (452,720) (602,026) Principal payments on mortgage-backed securities 51,035,589 83,870,249 Principal payments on loans 94,645,782 229,385,647 Proceeds from maturities of securities purchased under agreements to resell 3,000,000 10,000,000 Proceeds from sale of Federal Home Loan Bank stock - 1,781,400 Proceeds from sales of real estate owned 4,659,649 6,629,688 Other, net 992,169 3,335 - --------------------------------------------------------------------------------------------- Net cash provided by investing activities 28,727,466 16,937,651 - --------------------------------------------------------------------------------------------- Cash flows from financing activities Net decrease in checking, money market accounts and passbook savings (39,219,483) (20,528,236) Proceeds from issuance of certificates of deposits 141,088,634 124,625,666 Payments for maturing or early withdrawal of certificates of deposits (136,346,887) (123,558,592) Net increase (decrease) in short-term repurchase agreements 6,357,000 (20,641,000) Decrease in Federal Home Loan Bank advances - (25,000,000) Capital distributions (4,873,449) (4,873,451) - --------------------------------------------------------------------------------------------- Net cash used in financing activities (32,994,185) (69,975,613) - --------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (2,508,223) (43,560,242) Cash and cash equivalents at beginning of period 64,561,654 87,378,870 - --------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $62,053,431 $43,818,628 - --------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Non cash investing and financing activities: Additions to real estate acquired through foreclosure $ 2,489,574 $ 5,135,512 Additions to consumer loans acquired in settlement of loans $ 57,561 $ 154,696 Cash paid for interest (including interest credited) $51,687,025 $39,100,337 Cash paid for alternative income and minimum franchise taxes $ 185,000 $ 178,058 - ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 4 America First Financial Fund 1987-A Limited Partnership and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 1. Organization America First Financial Fund 1987-A Limited Partnership (the "Partnership") was formed on April 14, 1987 under the Delaware Revised Uniform Limited Partnership Act for the purpose of acquiring one or more federally insured financial institutions through supervisory assisted acquisitions. The Partnership formed a subsidiary corporation, America First Eureka Holdings, Inc. ("AFEH") for the purpose of owning and managing one or more acquired financial institutions. The Partnership will terminate on December 31, 2036, unless terminated earlier under the provisions of the Partnership Agreement. The general partner of the Partnership is America First Capital Associates Limited Partnership Five ("AFCA-5") whose managing general partner is AFCA-5 Management Corporation. 2. Basis of Presentation The consolidated financial statements of the Partnership include the accounts of the Partnership, AFEH (its wholly owned subsidiary) and AFEH's wholly- owned subsidiary, EurekaBank ("Eureka") and its subsidiaries. All significant intercompany transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Partnership's financial condition as of June 30, 1995, and the results of its operations for the quarters and six months ended June 30, 1995 and 1994. Certain amounts in the consolidated financial statements for 1994 have been reclassified to conform with the current consolidated financial statement presentation. 3. Allowance for Loan Losses The Partnership recorded a loan loss provision of approximately $188,000 and $352,000 for the quarter and six months ended June 30, 1995, respectively, compared to $334,000 and $935,000 for comparable periods in 1994. At June 30, 1995 and December 31, 1994, the Partnership maintained loan loss reserves of approximately $7.3 million and $7.8 million, respectively. Management believes that reserves are adequate given the composition and credit characteristics of the loan portfolio. 4. Interest Rate Exchange Agreements The Partnership entered into interest rate exchange agreements to reduce the impact of future fluctuations in interest rates on fixed rate mortgages funded by variable rate liabilities. The floating rates to be received by the Partnership under the terms of the these agreements are reset monthly, quarterly or semi-annually and are generally indexed to the FHLB Eleventh District Cost of Funds index or the three or six month London Interbank Offered Rate ("LIBOR"). During the third quarter of 1993, Eureka recorded a charge to earnings of $20.4 million related to interest rate exchange contracts arranged predominantly in 1988, 1990 and 1991. The sustained decline in interest rates in the general economy and the resultant prepayment of mortgage loans associated with the interest rate exchange agreements caused Eureka to establish a liability based on the estimated fair value of interest rate exchange agreements that were no longer deemed effective as hedges. During the quarter and six months ended June 30, 1995, Eureka recorded to non- interest expense a provision for losses on interest rate exchange agreements of approximately $1.0 million to reflect the effect of interest rate decreases on the market value of Eureka's obligations under interest rate exchange agreements deemed ineffective as hedges. During the 5 America First Financial Fund 1987-A Limited Partnership and Subsidiary quarter and six months ended June 30, 1994, Eureka recorded credits (recoveries) to non-interest expense of approximately $637,000 and $2.5 million, respectively. The recorded liability for the exchange agreements totaled approximately $2.8 million and $4.7 million at June 30, 1995 and December 31, 1994, respectively. Net interest expense on interest rate exchange agreements is included as an adjustment to interest income on loans. For the quarter and six months ended June 30, 1995, net interest expense on interest rate exchange agreements totaled approximately $897,000 and $1.9 million, respectively, compared to $1.8 million and $3.7 million for the same periods in 1994. For the quarter and six months ended June 30, 1995, net interest paid or accrued on interest rate exchange agreements totaled approximately $1.5 million and $3.8 million, respectively, as compared to $4.7 million and $8.7 million for the same periods in 1994. 5. Capital In accordance with Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities," securities classified as available-for-sale are carried at fair market value with the unrealized gain or loss recorded in partners' capital. The unrealized loss at June 30, 1995 approximated $400,000 after reflecting unrealized gains of $1.4 million and $3.5 million for the quarter and six months ended June 30, 1995. 6. Partnership Income, Expenses and Cash Distributions The Partnership Agreement contains provisions for the distribution of Distributable Cash and Net Sales Proceeds, and for the allocation of income and loss from operations for both tax and financial reporting purposes among AFCA-5 and BUC Holders. Distributions are made to each BUC Holder based on the number of BUCs held by each BUC Holder as of the last day of the quarter. Allocations of earnings between BUC Holders and the General Partner are based upon non-compounded cumulative return on the adjusted capital as follows:
Allocation to Non-compounded cumulative return of: BUC Holders : General Partner ------------------------------------ ------------------------------ Up to 8% 99 : 1 >8% to 10% 90 : 10 >10% to 12% 80 : 20 >12% 75 : 25
7. Transactions with Related Parties The Partnership and AFEH reimburse AFCA-5 for certain costs and expenses incurred in connection with the operation of the Partnership including legal and accounting fees and other administrative costs. The amount of such expenses incurred by AFCA-5 subject to reimbursement by the Partnership or AFEH, was $83,134 and $241,181 for the quarter and six months ended June 30, 1995, respectively, compared to $140,397 and $426,953 for the same periods in 1994. AFEH, Eureka and an affiliate of AFCA-5, America First Service Corporation ("AFSC"), have entered into a licensing agreement through which AFSC provides services to AFEH and Eureka. AFEH is committed to pay an annual fee equal to 0.5% of Eureka's interest income and other income without deduction for interest and other expenses. For the quarter and six months ended June 30, 1995, $213,446 and $416,857, respectively, of the annual fee had been paid or accrued, compared to $193,538 and $384,344 for comparable periods in 1994. 6 America First Financial Fund 1987-A Limited Partnership and Subsidiary Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition At June 30, 1995, Partnership assets were approximately $2.4 billion, which was approximately $26 million lower than the level at December 31, 1994, and consisted primarily of the assets and liabilities of Eureka. Significant changes in the composition of the balance sheet included the following: . Net loans receivable, loans held for sale and net mortgage-backed securities ("MBS") decreased approximately $19.0 million during the six months ended June 30, 1995. Net decreases of approximately $38.2 million were recorded in the loan portfolio, while net increases of approximately $19.2 million were recorded in the MBS portfolio. During the six months ended June 30, 1995, Eureka originated $57.3 million and purchased $3.1 million and $65.8 million in mortgage loans and MBS, respectively. Repayments of $142.3 million and sales of $3.4 million were recorded in the mortgage loan and MBS portfolios during the six months ended June 30, 1995. . Retail deposits decreased approximately $34.5 million since December 31, 1994 to $1.7 billion at June 30, 1995. The decrease in deposits was primarily due to a decline in short-term money market products. . Securities sold under agreements to repurchase and other borrowings increased approximately $6.4 million during the first six months of 1995 from $512.7 million at December 31, 1994 to $519.1 million at June 30, 1995. As of June 30, 1995, other liabilities decreased by $4.5 million since December 31, 1994, primarily due to reductions of approximately $873,000 in the interest rate exchange agreements liability, $980,000 in net interest payable on interest rate exchange agreements, $776,000 for accrued interest on borrowings, $704,000 for accrued personnel expenses, $745,000 in accounts payable and $400,000 in other accruals. At June 30, 1995 and December 31, 1994, the loan-to-deposit ratio was 84%. Loans, MBS and investments comprised approximately 96% of Partnership assets at June 30, 1995 and December 31, 1994. Cash distributions paid or accrued during the first and second quarters of 1995 totaled $.40 per BUC or an 8% per annum return based on original contributions of $20 per BUC. Future distributions are expected to be made principally from dividends paid to the Partnership by AFEH. AFEH funds these dividends by receipt of dividends from Eureka, the payment of which is subject to regulatory limitation. Accordingly, it is not possible to estimate the level of cash distributions to BUC Holders over the long term. Asset Quality The allowance for loan losses was $7.3 million and $7.8 million or .52% and .54% of loans outstanding at June 30, 1995 and December 31, 1994, respectively. Non- performing assets (loans which were 90 or more days delinquent and real estate acquired through foreclosure) were approximately $10.5 million and $13.3 million or .45% and .56% of total assets at June 30, 1995 and December 31, 1994, respectively. This compares favorably to 2.71% for non-performing assets as of March 31, 1995, for thrifts located in California as reported by the Office of Thrift Supervision ("OTS"). The ratio of loan loss reserves to non-performing loans was 90% at June 30, 1995 compared to 94% at December 31, 1994. The level of loans 30 days or more delinquent remained low at approximately $16.0 million or 1.14% of loans at June 30, 1995, compared to approximately $17.0 million or 1.18% of loans at December 31, 1994. This 7 America First Financial Fund 1987-A Limited Partnership and Subsidiary compares favorably to 4.66% for loans 30 days or more delinquent as of March 31, 1995, for thrifts located in California as reported by the OTS. Loans 30 days or more delinquent at June 30, 1995 included $12.4 million in mortgage loans collateralized by 1-4 unit residences. As of January 1994, Eureka had purchased $7.8 million in mortgage loans secured by real estate located in southern California which were affected by the January 17, 1994 Northridge earthquake (Northridge loans). The Northridge loans were serviced by other institutions, and the servicers negotiated with the borrowers on behalf of Eureka temporary forbearance agreements for hardship conditions. Industry practice and regulatory guidelines require the Northridge loans to be reported as delinquent loans if the borrowers' payments under the temporary forbearance agreements are less than the contractual payments of the original loan agreements. As of June 30, 1995 and December 31, 1994, $2.7 million and $4.6 million, respectively, of the $7.8 million Northridge loans were included in delinquent loans. Under the terms of the temporary forbearance agreements, $2.5 million were performing and current at June 30, 1995. Excluding the Northridge loans, the ratio of loans thirty days or more delinquent to total loans was .94% and .86% at June 30, 1995 and December 31, 1994, respectively. Eureka's determination of loan loss reserves and the resulting provision for loan losses are based upon judgments and assumptions regarding various factors including general economic conditions, internal asset review findings, composition of the loan portfolio, historical loss experience and estimates of potential future losses. Management believes that it has provided adequate loan loss reserves to cover potential losses, particularly considering the low level of delinquencies and charge-offs experienced by Eureka over the past five years and continued adherence to strict credit quality control guidelines. Future increases in interest rates may have an impact on credit quality as mortgage loan payments increase for the upward movement in index rates. The future loss experience related to a rising interest rate environment cannot be predicted. Results of Operations Net income for the quarter and six months ended June 30, 1995 was approximately $3.5 million and $7.0 million, respectively, compared to $3.8 million and $7.9 million for comparable periods in 1994. Net income per BUC for the quarter and six months ended June 30, 1995 was $.5445 and $1.0964, respectively, compared to $.5860 and $1.2200 during the quarter and six months ended June 30, 1994. Net Interest Income Net interest income before the provision for loan losses for the quarter and six months ended June 30, 1995, was approximately $13.4 million and $26.7 million, respectively, compared to $12.8 million and $26.4 million for the same periods in 1994. Net interest income is the Partnership's principal income component and is determined by the relative levels of, and interest rates paid on, interest earning assets and interest bearing liabilities. Average interest earning assets were approximately $2.3 billion for the quarter and six months ended June 30, 1995, compared to approximately $2.2 billion for the quarter and six months ended June 30, 1994. The net interest margin, the net yield on average assets, for the three months ended June 30, 1995 was 2.30% compared to 2.21% for the same period a year earlier. The increase in net interest margin in the second quarter of 1995 compared to the second quarter of 1994 was primarily due to lower prepayment rates and the repricing of adjustable rate mortgage loans originated with initial teaser rates. For the six months ended June 30, 1995 and 1994, the net interest margin was 2.26% and 2.29%, respectively. 8 America First Financial Fund 1987-A Limited Partnership and Subsidiary Provision for Loan Losses The Partnership recorded loan loss provisions of approximately $188,000 and $352,000 for the quarter and six months ended June 30, 1995, respectively. Loan loss provisions recorded during the quarter and six months ended June 30, 1994 totaled $334,000 and $935,000, respectively. Net loan charge-offs were $326,000 and $736,000 for the quarter and six months ended June 30, 1995, respectively. Net loan charge-offs for the quarter and six months ended June 30, 1994 approximated $460,000 and $1.1 million, respectively. Of the total net charge- offs recorded during the quarter and six months ended June 30, 1995, $226,000 and $483,000, respectively, were for Eureka's consumer loan portfolio, as compared to $387,000 and $734,000 for the quarter and six months ended June 30, 1994. Mortgage loan charge-offs totaled $99,000 and $253,000 for the quarter and six months ended June 30, 1995, compared to $73,000 and $335,000 for the same periods in 1994, respectively. Management continually reviews the adequacy of loan loss reserves and believes that it has provided adequate loan loss reserves to cover potential losses. This includes consideration of the low level of delinquencies and charge-offs experienced by Eureka over the past five years and continued adherence to strict credit quality control guidelines. Non-Interest Income The principal components of non-interest income are deposit and loan related fee income, gain on the disposition of loans and other income. Non-interest income totaled approximately $2.9 million and $4.9 million for the quarter and six months ended June 30, 1995, respectively, compared to $2.7 million and $5.0 million for the same periods in 1994. Deposit and loan related fees for the three and six months ended June 30, 1995 were approximately $895,000 and $1.8 million, compared to $980,000 and $2.0 million for the same periods in 1994. Fixed rate loans which meet the FHLMC lending requirements, "conforming loans," are originated by Eureka for sale in the secondary mortgage market. The net gain from Eureka's loan sale activities was approximately $46,000 and $44,000 for the quarter and six months ended June 30, 1995, respectively, on sales of loans of approximately $2.4 million and $3.4 million, respectively. During comparable periods a year earlier, Eureka sold conforming loans with principal balances which totaled $10 million and $25 million at a net gain/(loss) of approximately $(82,000) and $108,000, respectively. The decline in loan sale transactions and related income was due, in part, to overall fewer loan fundings and a shift in borrowers preferences to adjustable mortgages, which are generally not sold in the secondary market. Other non-interest income for the quarter and six months ended June 30, 1995 was approximately $1.9 million and $3.0 million, respectively, compared to $1.8 million and $2.9 million for comparable periods in 1994. Other income included rental income, fee income from Eureka Financial Services Inc., a Eureka subsidiary licensed to sell mutual funds and insurance annuities, income from real estate held for investment, gain on sale of real estate foreclosed, and other non-operating income items. Non-Interest Expense The principal components of non-interest expense are compensation and benefits expenses, occupancy and equipment expenses, FDIC insurance premiums, professional and advertising expenses, provision for loss(recovery) on interest rate exchange agreements and other administrative expenses. Non-interest expense for the quarter and six months ended June 30, 1995 was approximately $12.6 million and $24.2 million compared to $11.4 million and $22.6 million for the same periods in 1994. 9 America First Financial Fund 1987-A Limited Partnership and Subsidiary Compensation and benefits expenses were approximately $4.9 million and $10.0 million for the quarter and six months ended June 30, 1995, compared to approximately $5.4 million and $10.9 million for the quarter and six months ended June 30, 1994. In addition to management's general effort to reduce controllable costs, the decline in loan funding volume in 1995 reduced loan agent commissions for the three and six months ended June 30, 1995, as compared to the same periods in 1994. Non-interest expense for the quarter and six months ended June 30, 1995 included adjustments to the interest rate exchange agreements liability established by recording the $20.4 million provision for the quarter and nine months ended September 30, 1993. During the quarter ended June 30, 1995, a provision of approximately $1.0 million was recorded to increase the interest rate exchange agreements liability to reflect the effect of interest rate decreases on the market value of Eureka's obligations under the interest rate exchange agreements deemed ineffective as hedges. The recorded exchange agreements liability was reduced by $637,000 and $2.5 million for the quarter and six months ended June 30, 1994, to reflect the effect of interest rate increases on the market value of Eureka's obligations under the interest rate exchange agreements. The change in the exchange agreements liability during the quarter and six months ended June 30, 1995 included scheduled accretion of $600,000 and $1.9 million, as compared to $2.3 million and $5.0 million for the same periods in 1994. Such accretion was an adjustment to the yield on mortgage loans. Occupancy and equipment expenses totaled $2.2 million and $4.5 million for the quarter and six months ended June 30, 1995, respectively, compared to $2.2 million and $4.7 million for the same periods a year earlier. FDIC insurance premiums, professional and advertising expenses, and other administrative expenses were approximately $4.4 million and $ 8.8 million for the quarter and six months ended June 30, 1995, respectively, and $4.5 million and $9.5 million for comparable periods a year earlier. Decreases in 1995 were primarily attributable to the general effort to manage controllable costs such as professional services and other administrative expenses. Provision for Income Taxes Due to the net operating loss carryforwards available to AFEH arising from the Acquisition of Eureka, AFEH does not expect to pay federal income taxes in 1995. AFEH's alternative minimum taxes totaled $90,000 and $185,000 for the three and six months ended June 30, 1995. Alternative minimum taxes paid by AFEH are recorded as prepaid expenses in other assets with an indefinite life and will be used to offset future tax liabilities. Interest Rate Risk At June 30, 1995, Eureka had a negative one-year interest rate repricing gap of approximately five percent and a negative three-year interest rate repricing gap of approximately three percent. At June 30, 1994, Eureka had a negative one- year interest rate repricing gap of approximately two percent and a negative three-year interest rate repricing gap of approximately four percent. The interest rate repricing gap reported at June 30, 1995 assumes lower prepayment levels on mortgage loans as compared to the interest rate repricing gap reported at June 30, 1994. Eureka experienced overall lower prepayment levels during the second quarter and six months ended June 30, 1995, as compared to the same period in 1994. Additionally, maturing interest rate swap agreements have had a reduced hedging impact on Eureka's reported interest rate repricing gap at June 30, 1995, as compared to June 30, 1994. 10 America First Financial Fund 1987-A Limited Partnership and Subsidiary Liquidity Regulations require a savings institution to maintain a liquidity ratio of at least five percent of cash and specified securities to net withdrawable accounts and borrowings due in one year. For the month of June 1995, Eureka's liquidity ratio was 5.02% compared to 5.03% for the month of December 1994. Resources committed at June 30, 1995 consisted of approximately $22.2 million in loan and MBS funding commitments. Management believes that existing liquidity and other capital resources are adequate to fund existing and anticipated commitments existing at June 30, 1995. Capital Requirements OTS regulations require that savings institutions meet three separate capital tests: a risk-based standard, a core capital standard and a tangible capital standard. At June 30, 1995, Eureka maintained regulatory capital as follows:
(000's) ----------------------------------------------------------------- Tangible Core Risk-Based Capital Capital Capital ---------------------- ------------------ --------------------- % of % % Risk-Based Amount of Assets Amount of Assets Amount Assets --------- --------- -------- --------- ------ ------------ GAAP Capital $144,355 $144,355 $144,355 Non-allowable assets: Intangible assets (4,762) (4,762) (4,762) Non-includable Subsidiaries (4,946) (4,946) (4,946) Unrealized loss on securities: Available for sale 400 400 400 Additional capital item: General valuation allowances - - 4,238 -------- -------- -------- Computed regulatory capital 135,047 5.75% 135,047 5.75% 139,285 14.16% Minimum capital requirement 35,246 1.50% 70,491 3.00% 78,696 8.00% -------- ------ -------- ------ -------- -------- Excess regulatory capital $ 99,801 4.25% $ 64,556 2.75% $ 60,589 6.16% ======== ====== ======== ====== ======== ========
11 America First Financial Fund 1987-A Limited Partnership and Subsidiary PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- There are no material pending legal proceedings to which the Partnership or AFEH is a party or to which any property of the Partnership or AFEH is subject. Eureka, however, is a party to various lawsuits arising in the normal course of its business. Management does not believe that any of the legal proceedings to which Eureka is a party will have a material impact on the financial condition of the Partnership. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 4(a) Amended and Restated Limited Partnership Agreement dated June 30, 1987 (incorporated herein by reference to Form 10- K dated December 31, 1987 filed pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 by America First Financial Fund 1987-A Limited Partnership (Commission File No. 0-16918)). 4(b) Form of Certificate of Beneficial Unit Certificate (incorporated by reference to Amendment No. 3 to Registration Statement on Form S-11 filed March 31, 1987 with the Securities and Exchange Commission by America First Financial Fund 1987-A Limited Partnership (Commission File No. 33-10286)). 10 Long-term incentive compensation plan of EurekaBank (as amended and restated effective January 1, 1991) (incorporated herein by reference to Form 10-Q dated August 13, 1991 filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 by America First Financial Fund 1987-A Limited Partnership (Commission File No. 0- 16918)). 28.1 Letter to BUC Holders, revised as of April 1, 1992 (incorporated herein by reference to Form 10-Q dated May 15, 1992, filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 by America First Financial Fund 1987-A Limited Partnership (Commission File No. 33- 10286)). 28.2 America First Financial Fund 1987-A Distribution Reinvestment Plan Summary, revised as of April 1, 1992 (incorporated herein by reference to Form 10-Q dated May 15, 1992, filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 by America First Financial Fund 1987-A Limited Partnership (Commission File No. 33- 10286)). 28.3 First Amended Distribution Reinvestment Plan Agreement, dated as of April 1, 1992 (incorporated herein by reference to Form 10-Q dated May 15, 1992, filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 by America First Financial Fund 1987-A Limited Partnership (Commission File No. 33-10286)). 12 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. AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP By America First Capital Associates Limited Partnership Five, General Partner of the Registrant By AFCA-5 Management Corporation, General Partner of America First Capital Associates Limited Partnership Five Date: August 10, 1995 By /s/ George H. Krauss ------------------------------------------- GEORGE H. KRAUSS Chairman of the Board of Directors and Secretary (Principal Executive Officer) Date: August 10, 1995 By /s/ J. Paul Bagley -------------------------------------------- J. PAUL BAGLEY Director, President and Treasurer (Principal Financial Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING. 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 20,572,000 2,581,431 38,900,000 0 54,878,362 795,251,466 793,742,470 1,402,156,596 7,309,761 2,367,527,369 1,661,814,053 519,120,000 21,780,350 0 0 14,576,107 0 150,236,859 2,367,527,369 50,414,140 28,122,852 0 78,536,992 36,146,617 51,873,875 26,663,117 352,211 0 24,237,839 6,978,035 6,978,035 0 0 6,978,035 1.096 0 2.26 8,112,380 0 5,520,000 0 7,820,406 961,457 225,163 7,309,761 7,309,761 0 0