-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GNKeq26OfG1o4QmOYq00bIDemX0f/cMyQzgFNe5jHgQe9Vbz6bUAkssLMjO4aVfK Zf6tiJNUNRHtLZO+XyAn4Q== 0000898430-96-001717.txt : 19960513 0000898430-96-001717.hdr.sgml : 19960513 ACCESSION NUMBER: 0000898430-96-001717 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000818789 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [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: 96559931 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 FORM 10-Q 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 March 31, 1996 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 MARCH 31, 1996 TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets March 31, 1996 and December 31, 1995.................................. 1 Consolidated Statements of Operations For the quarters ended March 31, 1996 and March 31, 1995.............. 2 Consolidated Statement of Partners' Capital For the three months ended March 31, 1996............................. 3 Consolidated Statements of Cash Flows For the three months ended March 31, 1996 and March 31, 1995.......... 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..................................................... 13 Item 6. Exhibits and Reports on Form 8-K...................................... 13 SIGNATURES....................................................................... 15
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY PART I - FINANCIAL INFORMATION Item 1. - Financial Statements
- ------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------- March 31, 1996 December 31, 1995 - ------------------------------------------------------------------------------------------------- Assets Cash and amounts due from depository institutions $ 22,882,479 $ 27,115,665 Federal funds sold 8,800,000 24,700,000 Securities purchased under agreements to resell 5,400,000 20,500,000 Investments held to maturity 39,996,869 39,995,619 Mortgage-backed securities, net Held to maturity 724,264,345 763,770,159 Available-for-sale 49,567,305 52,031,990 Loans receivable, net 1,422,944,210 1,431,180,207 Loans held for sale 2,210,118 403,000 Accrued interest receivable 13,849,441 13,500,436 Premises and equipment, net 9,293,005 9,535,178 Federal Home Loan Bank stock, at cost 20,876,200 21,508,600 Real estate held for sale or investment, net 2,385,712 2,385,712 Real estate owned, net 2,229,341 2,542,684 Other assets 8,414,187 7,784,114 - ---------------------------------------------------------------------------------------------- Total Assets $2,333,113,212 $2,416,953,364 - ---------------------------------------------------------------------------------------------- Liabilities and Partners' Capital Customer deposits $1,753,330,202 $1,704,466,523 Securities sold under agreements to repurchase 154,989,000 206,856,000 Other borrowings 229,419,627 310,087,421 Distributions payable 2,436,725 2,436,725 Other liabilities and accrued expenses 18,116,295 21,433,023 - ---------------------------------------------------------------------------------------------- Total Liabilities 2,158,291,849 2,245,279,692 - ---------------------------------------------------------------------------------------------- Redeemable Preferred Stock; Series A, no par value; 200,000 shares issued; $20 million liquidation value 16,066,335 15,541,988 Partners' Capital: General Partner 5,359,528 4,883,801 Beneficial Unit Certificate (BUC) Holders 6,010,589 BUCs authorized, issued and outstanding 153,395,500 151,247,883 - ---------------------------------------------------------------------------------------------- Total Partners' Capital 158,755,028 156,131,684 - ---------------------------------------------------------------------------------------------- Total Liabilities and Partners' Capital $2,333,113,212 $2,416,953,364 - ----------------------------------------------------------------------------------------------
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 Quarter Ended Quarter Ended March 31, 1996 March 31, 1995 - --------------------------------------------------------------------------------------- Interest income Interest and fees on loans $27,214,575 $24,801,442 Interest on mortgage-backed securities 13,831,481 12,668,079 Interest and dividends on investment 1,202,899 1,212,578 - --------------------------------------------------------------------------------------- Total interest income 42,248,955 38,682,099 - --------------------------------------------------------------------------------------- Interest expense Interest on deposits 19,726,180 17,455,665 Interest on borrowings 6,519,716 7,441,123 Preferred Stock accretion 524,347 482,940 - --------------------------------------------------------------------------------------- Total interest expense 26,770,243 25,379,728 - --------------------------------------------------------------------------------------- Net interest income before provision for loan losses 15,478,712 13,302,371 Provision for loan losses 408,321 164,278 - --------------------------------------------------------------------------------------- Net interest income after provision for loan losses 15,070,391 13,138,093 - --------------------------------------------------------------------------------------- Non-interest income Deposit related fees 469,106 543,350 Loan related fees 325,557 389,224 Gain (loss) on disposition of loans 46,372 (1,785) Other income 577,567 1,097,436 - --------------------------------------------------------------------------------------- Total non-interest income 1,418,602 2,028,225 - --------------------------------------------------------------------------------------- Non-interest expense Compensation and benefits 5,414,787 5,046,887 Occupancy and equipment 2,224,859 2,231,230 FDIC premiums and special assessments 1,095,016 1,060,537 Professional services 325,759 184,129 Advertising and promotion 230,148 229,463 Provision for loss (recovery) on interest rate exchange agreements (469,000) - Other expense 2,155,244 2,897,108 - --------------------------------------------------------------------------------------- Total non-interest expense 10,976,813 11,649,354 - --------------------------------------------------------------------------------------- Income before income taxes 5,512,180 3,516,964 Provision for income taxes - - - --------------------------------------------------------------------------------------- Net income $5,512,180 $3,516,964 - --------------------------------------------------------------------------------------- Net income allocated to: General Partner $598,638 $ 199,596 BUC Holders 4,913,542 3,317,368 - --------------------------------------------------------------------------------------- $5,512,180 $3,516,964 - --------------------------------------------------------------------------------------- Net income per BUC $ .8175 $ .5519 - ---------------------------------------------------------------------------------------
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 Three Months Ended March 31, 1996 - -------------------------------------------------------------------------------------------- General Partner BUC Holders Total - -------------------------------------------------------------------------------------------- Balance at December 31, 1995 $4,883,801 $151,247,883 $156,131,684 Net income 598,638 4,913,542 5,512,180 Cash distributions paid or accrued (32,489) (2,404,236) (2,436,725) Net unrealized losses on available-for-sale mortgage-backed securities (90,422) (361,689) (452,111) - -------------------------------------------------------------------------------------------- Balance at March 31, 1996 $5,359,528 $153,395,500 $158,755,028 - --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 3 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
- -------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------------------------------- For the Three For the Three Months Ended Months Ended March 31, 1996 March 31, 1995 - -------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 5,512,180 $ 3,516,964 Adjustments to reconcile net income to net cash provided by operating activities Amortization of: Investments and mortgage-backed securities net premium 652,442 57,940 Loan (discount) premium 213,856 (487,318) Intangibles 328,757 334,992 Proceeds from sale of loans originated and held for sale 2,376,272 979,315 Originations of loans held for sale (4,137,018) (1,245,750) Loss on sale of real estate owned 71,226 - (Gain) loss on disposition of mortgage loans (46,372) 1,785 Provision for loan losses 408,321 164,278 Provision for loss (recovery) on interest rate exchange agreements (469,000) - Increase in accrued interest receivable (349,005) (529,805) Decrease in accrued interest payable (1,093,587) (1,132,425) Depreciation and amortization of premises and equipment 439,987 539,400 Increase in other assets (958,829) (211,054) Decrease in other liabilities (1,754,140) (4,582,476) Other, net 222,472 207,817 - -------------------------------------------------------------------------------------------------------- Total adjustments (4,094,618) (5,903,301) - -------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 1,417,562 (2,386,337) - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities Loans originated and held for investment (52,772,363) (24,074,375) Purchases of mortgage-backed securities (14,547,696) - Purchases of real estate loans (18,734,272) (869,897) Purchases of premises and equipment (223,687) (337,728) Principal payments on mortgage-backed securities 55,412,391 25,258,556 Principal payments on loans 78,300,824 46,686,348 Proceeds from maturities of securities purchased under agreements to resell - 3,000,000 Proceeds from sale of Federal Home Loan Bank Stock 911,200 - Proceeds from sales of real estate owned 831,629 3,193,194 Other, net 279,066 317,829 - -------------------------------------------------------------------------------------------------------- Net cash provided by investing activities 49,457,092 53,173,927 - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net increase (decrease) in checking, money market accounts and passbook savings 49,486,802 (20,267,800) Proceeds from issuance of certificates of deposits 38,497,270 66,792,340 Payments for maturing on early withdrawal of certificates of deposits (39,120,393) (64,112,743) Net decrease in short-term repurchase agreements (51,867,000) (54,061,000) Decrease in Federal Home Loan Bank advances (80,667,794) - Capital distributions (2,436,725) (2,436,725) - -------------------------------------------------------------------------------------------------------- Net cash used by financing activities (86,107,840) (74,085,928) - -------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (35,233,186) (23,298,338) Cash and cash equivalents at beginning of period 72,315,665 64,561,654 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 37,082,479 $ 41,263,316 - -------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Non cash investing and financing activities: Additions to real estate acquired through foreclosure $ 734,259 $ 1,073,568 Additions to consumer loan acquired in settlement of loans $ 26,350 $ 33,704 Cash paid for interest (including interest credited) $ 27,419,918 $ 26,187,410 Cash paid for alternative income and minimum franchise taxes $ 210,000 $ 95,000 - --------------------------------------------------------------------------------------------------------
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 MARCH 31, 1996 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 (primarily consisting of normal recurring accruals) necessary for a fair presentation of the Partnership's financial condition as of March 31, 1996, and the results of its operations for the quarters ended March 31, 1996 and 1995. 3. ALLOWANCE FOR LOAN LOSSES The Partnership recorded loan loss provisions of approximately $408,000 and $164,000 for the quarters ended March 31, 1996 and 1995, respectively. At March 31, 1996 and December 31, 1995, the Partnership maintained loan loss reserves of approximately $7.1 million and $6.9 million, respectively. Management believes that reserves are adequate given the composition, credit characteristics and loss experience 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 one or three month London Interbank Offered Rate ("LIBOR"). In 1993, the sustained decline in interest rates in the general economy and the resulting 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 ended March 31, 1996, Eureka recorded to non-interest expense, a recovery on interest rate exchange agreements of approximately $469,000 to reflect the effect of interest rate increases on the market value of Eureka's related obligations. No such adjustment was necessary for the quarter ended March 31, 1995. The recorded liability for the interest rate exchange agreements totaled approximately $2.3 million and $3.4 million at March 31, 1996 and 1995, respectively. Net interest payable on interest rate exchange agreements was $1.0 million and $700,000 at March 31, 1996 and December 31, 1995, respectively, and was included in other liabilities and accrued expenses. Net interest expense on interest rate exchange agreements is included as an adjustment to interest income on loans. For the quarters ended March 31, 1996 and 1995, net interest paid or accrued on interest rate exchange agreements totaled approximately $126,000 and $1.0 million, respectively. The decrease in net interest expense and net interest paid or accrued on interest rate exchange agreements is primarily due to the expiration of some of these agreements. The notional 5 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY amount of interest rate exchange agreements outstanding was $125 million and $278 million at March 31, 1996 and 1995, respectively. 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 net unrealized loss at March 31, 1996 approximated $341,000 after reflecting a decrease in market value of approximately $452,000 for the quarter ended March 31, 1996. 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
Cash distributions paid or accrued during the three months ended March 31, 1996 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. 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 $191,000 and $158,047 for the quarters ended March 31, 1996 and 1995, respectively. 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, including: earnings improvement studies, management enhancement programs, development of marketing programs, product development and similar business, economic and financial advice and consultation. 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 quarters ended March 31, 1996 and 1995, $217,881 and $203,411, respectively, of the annual fee had been paid or accrued. 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 March 31, 1996, Partnership assets were approximately $2.3 billion, which was approximately $84 million lower than the level at December 31, 1995, 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 $48.4 million during the three months ended March 31, 1996. The net decreases in the loan and MBS portfolio were primarily due to prepayments. During the three months ended March 31, 1996, Eureka originated (net of sales) $15.4 million and $38.7 million in retail and wholesale loans, respectively. Management believes that wholesale loan originations will continue to be a significant percentage of total loan originations through 1996. Wholesale loan originations enable Eureka to add assets that meet its credit quality guidelines within its market area. Purchased loans and MBS for the three months ended March 31, 1996 totaled $18.0 million and $14.3 million, respectively. Repayments of $79.4 million and $55.4 million were recorded in the mortgage loan and MBS portfolios, respectively, during the three months ended March 31, 1996. . Retail deposits increased approximately $49 million since December 31, 1995 and totaled $1.8 billion at March 31, 1996. This increase is primarily due to deposit promotions in the first quarter of 1996. . Securities sold under agreements to repurchase and other borrowings decreased approximately $132.5 million during the first three months of 1996 from $516.9 million at December 31, 1995 to $384.4 million at March 31, 1996. As of March 31, 1996, other liabilities decreased by $3.3 million from December 31, 1995, primarily due to reductions of approximately $1.1 million in the interest rate exchange agreements liability, $1.0 million for accrued interest on borrowings, and payments of taxes and insurance received from borrowers. At March 31, 1996 and December 31, 1995, the loan-to-deposit ratio was 81%. Loans, MBS, federal funds sold and investments comprised approximately 97% of Partnership assets at March 31, 1996 and December 31, 1995. Cash distributions paid or accrued during the three months ended March 31, 1996 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 $7.1 million and $6.9 million, or .50% and .48% of loans outstanding at March 31, 1996 and December 31, 1995, respectively. Non-performing assets (loans which were 90 or more days delinquent and real estate acquired through foreclosure) were approximately $10.2 million and $8.9 million, or .44% and .37% of total assets at March 31, 1996 and December 31, 1995, respectively. This compares favorably to 1.05% for non-performing assets as of December 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 89.62% at March 31, 1996 compared to 107.66 % at December 31, 1995. Management believes that reserves are adequate given the composition, credit characteristics and loss experience of the loan portfolio. The level of loans 30 days or more delinquent remained low at approximately $12.6 million or .88% of loans at March 31, 1996, compared to approximately $12.1 million or .84% of loans at December 31, 1995. This compares favorably to 1.70% for loans 30 days or more delinquent as of December 31, 1995, for thrifts located in California as reported by the OTS. 7 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY Loans 30 days or more delinquent at March 31, 1996 included $9.7 million in mortgage loans collateralized by 1-4 family residences. RESULTS OF OPERATIONS Net income for the quarters ended March 31, 1996 and 1995 was approximately $5.5 million and $3.5 million, respectively. Net income per BUC for the quarters ended March 31, 1996 and 1995 was $.8175 and $.5519, respectively. NET INTEREST INCOME Net interest income before the provision for loan losses for the quarters ended March 31, 1996 and 1995, was approximately $15.5 million and $13.3 million, respectively. 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 quarters ended March 31, 1996 and 1995. The net interest margin, the net yield on average assets, for the three months ended March 31, 1996 was 2.58% compared to 2.22% for the same period a year earlier. The net interest margin improved in the first quarter of 1996 as compared to the first quarter of 1995, as earnings on adjustable rate mortgage loans increased and the cost of funds was stable. The notional amount of interest rate exchange agreements decreased from $278 million at March 31, 1995 to $125 million at March 31, 1996 which decreased the net interest expense on interest rate exchange agreements from $1.0 million to $126,000 for the quarters ended March 31, 1995 and 1996, respectively. The reduction in net interest expense on interest rate exchange agreements contributed to a higher net interest margin for the first quarter of 1996 as compared to the same period in 1995. The net interest received or paid on these contracts is reflected as an adjustment to interest income on loans receivable (see Note 4 of Notes to Consolidated Financial Statements). PROVISION FOR LOAN LOSSES The Partnership recorded loan loss provisions of approximately $408,000 and $164,000 for the quarters ended March 31, 1996 and 1995, respectively. Net loan charge-offs were $104,000 and $411,000 for the quarters ended March 31, 1996 and 1995, respectively. Of the total net charge-offs recorded during the quarter ended March 31, 1996, $13,000 were for Eureka's consumer loan portfolio, as compared to $257,000 for the quarter ended March 31, 1995. During the third quarter of 1995, Eureka sold its credit card portfolio. Future provisions and charge-offs for the consumer loan portfolio are expected to continue to decline due to the sale of the credit card portfolio. Mortgage loan charge-offs totaled $91,000 for the quarter ended March 31, 1996, compared to $154,000 for the same period in 1995. 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. The future loss experience related to changes in the economy and interest rate environment, however, cannot be predicted. 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 $1.4 million for the quarter ended March 31, 1996, compared to $2.0 million for the same period in 1995. Deposit and loan related fees for the quarter ended March 31, 1996 were approximately $800,000, compared to $900,000 for the same period in 1995. This decrease was primarily due to the sale of the credit card portfolio in the third quarter of 1995 and the resulting reduction in fees. 8 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY 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 for the quarter ended March 31, 1996, on sales of loans of approximately $2.6 million. During the comparable period a year earlier, Eureka sold conforming loans with principal balances which totaled $1.0 million at a net loss of approximately $2,000. The increase in loan sale transactions and related income was due, in part, to the securitization and attractive interest rate pricing on conforming loans. Other non-interest income for the quarter ended March 31, 1996 was approximately $600,000, compared to $1.1 million for the same period in 1995. Other non- interest 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. Net gain (loss) on the sale of REO for the quarter ended March 31, 1996 was ($71,000), compared to $163,000 for the same period in 1995. Other income includes $290,000 for the three months ended March 31, 1995 for the reduction of previously established reserves no longer deemed necessary. No similar adjustments were recorded for the quarter ended March 31, 1996. 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 ended March 31, 1996 was approximately $11.0 million, compared to $11.6 million for the same period in 1995. Compensation and benefits expenses were approximately $5.4 million for the quarter ended March 31, 1996, compared to approximately $5.0 million for the quarter ended March 31, 1995. This increase is primarily due to increases in base compensation in the first quarter of 1996 as compared to the same period in 1995. Non-interest expense for the quarter ended March 31, 1996 included adjustments to the interest rate exchange agreements liability established in 1993. During the quarter ended March 31, 1996, recoveries of approximately $469,000 were recorded to reduce the interest rate exchange agreements liability to reflect the effect of interest rate increases on the market value of Eureka's obligations under the interest rate exchange agreements. No such adjustment was necessary for the quarter ended March 31, 1995. Occupancy and equipment expenses totaled $2.2 million for the quarters ended March 31, 1996 and 1995. FDIC insurance premiums, professional and advertising expenses, and other expenses were approximately $3.8 million for the quarter ended March 31, 1996, compared to $4.4 million for the same period in 1995. Other expenses for the quarter ended March 31, 1995 included an adjustment for nonrecurring expenses of $400,000. A comparable adjustment was not necessary for the quarter ended March 31, 1996. 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 any regular income taxes in 1996. AFEH's alternative minimum taxes totaled $210,000 for the quarter ended March 31, 1996. Alternative minimum taxes paid by AFEH are recorded as prepaid expenses in other assets as they result in tax credits with an indefinite life and will be used to offset future tax liabilities. 9 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY ASSET/LIABILITY MANAGEMENT Eureka's Asset and Liability Committee ("ALCO") has responsibility for managing Eureka's assets and liabilities in a manner which balances profitability and risk (including interest rate risk). ALCO operates within policies and risk limits prescribed by the Board of Directors. ALCO's principal activities include: . Measuring and monitoring the expected impact of market interest rates on the Eureka's net interest margin. . Establishing target pricing, volume, and business mix of loans and deposits. . Emphasizing adjustable rate mortgages ("ARMs") and retail deposits as opposed to fixed rate mortgages and other borrowings. . Utilizing financial models to project, measure and evaluate profitability/risk decisions. INTEREST RATE RISK Financial institutions (such as Eureka) are subject to interest rate risk when interest-bearing liabilities "reprice" or mature at different times or with different indexes than do interest-earning assets. Eureka's objective and strategy in this regard is to balance the effective maturities (or repricing bases) of assets and liabilities such that the Eureka's capital base is protected in the event of significant changes in interest rates and/or market conditions. Eureka utilizes a comprehensive simulation of projected interest income and expense under alternative market scenarios to assess its interest rate exposure. This analysis incorporates expectations about how borrowers and depositors will increase or pay down their balances as a result of the simulated rate changes, and reflects the impact of those rate changes on the market value of securities and other investments. An additional measure of the Eureka's interest rate exposure is the interest rate gap (the difference between the amount of assets and liabilities which reprice or mature within a specified time period, e.g. one year). At March 31, 1995, Eureka's one-year and three-year interest rate gaps were a negative 4% (assets expected to reprice in the next 12 months or 36 months were only 96% of liabilities which were expected to reprice during the same period). These gaps suggested margins would be reduced slightly if overall interest rates were to move upwards. At March 31, 1996, Eureka's one-year and three-year interest rate gaps were neutral (approximately zero). At March 31, 1996, Eureka had more ARMS's as a percentage of total loans and a higher concentration of retail deposits as compared to securities sold under agreement to repurchase and other borrowings, however, the notional amount of interest rate exchange agreements (paying fixed rates, receiving adjustable rates) was lower. LIQUIDITY Eureka derives its liquidity primarily from loan repayments, customer deposits, FHLB advances and securities sold under agreements to repurchase. Eureka manages its liquidity through the coordination of the relative maturities of assets and liabilities. The sources of liquidity are influenced by various uncertainties, primarily market interest rates. Eureka continually evaluates its sources of funds, and a decline in any one source of funds generally can be offset by an alternate source, although potentially at a different cost. Resources committed at March 31, 1996 consisted of approximately $37.2 million in loan funding commitments. Management believes that existing liquidity and other capital resources are adequate to fund existing and anticipated commitments existing at March 31, 1996. 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 March 31, 1996, Eureka's liquidity ratio was 5.74% compared to 5.38% for the month of December 1995. 10 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY CAPITAL REQUIREMENTS Regulations require that savings institutions meet three separate capital tests: a risk-based capital standard, a core capital standard and a tangible capital standard. At March 31, 1996, 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 $152,453 $152,453 $152,453 Non-allowable assets: Intangible assets (3,988) (3,988) (3,988) Non-includable Subsidiaries (2,689) (2,689) (2,689) Net unrealized loss on securities available for sale 341 341 341 Allowance for loan losses - - 4,281 -------- ---- -------- ---- -------- Computed regulatory capital 146,117 6.30% 146,117 6.30% 150,398 15.08% Minimum capital requirement 34,773 1.50% 69,547 3.00% 79,764 8.00% -------- ---- -------- ---- -------- ------ Excess regulatory capital $111,344 4.80% $ 76,570 3.30% $ 70,634 7.08% ======== ==== ======== ==== ======== ======
RECENT ACCOUNTING PRONOUNCEMENTS During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Impaired assets would be adjusted to fair value. In addition, SFAS No. 121 requires that long-lived assets and certain identifiable intangibles intended for disposal be reported at the lower of carrying amount or fair value less selling costs. SFAS No. 121 must be adopted for fiscal years beginning after December 15, 1995, and the adoption is not expected to be material to the Partnership's financial statements. During 1995, the Financial Accounting Standards Board issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," which requires that enterprises such as commercial banks and thrift institutions that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others, however those servicing rights are acquired. In addition, SFAS No. 122 requires that capitalized mortgage servicing rights be stratified and assessed for impairment based on the fair value of those rights . SFAS No. 122 must be adopted for fiscal years beginning after December 15, 1995, and based on the operations of 1995 and 1994, the adoption is not expected to be material to the Partnership's financial statements. During 1995, the Financial Accounting Standards Board issued SFAS No. 123,"Accounting for Stock-based Compensation," which requires stock-based employee compensation plans and equity instruments issued to non-employees to acquire goods or services to be accounted for using a fair value based method. SFAS No. 123 must be adopted for fiscal years beginning after December 15, 1995, and the adoption is not expected to be material to the Partnership's financial statements. DEPOSIT INSURANCE AND OTHER MATTERS Eureka's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the maximum amount provided by law through the Savings Association Insurance Fund ("SAIF"). For the three months ended March 31, 1996, Eureka paid 11 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY deposit insurance premiums to the SAIF of $966,000 based on an annual assessment rate of .23% of covered deposits. In contrast, the FDIC lowered the deposit assessment rate for well capitalized Bank Insurance Fund ("BIF")-insured institutions to 0% of covered deposits, effective January 1, 1996. These reductions could provide most commercial banks competitive advantages over institutions with deposits that are primarily SAIF-insured (such as Eureka). Although SAIF recapitalization provisions were included in initial drafts of both House and Senate versions of 1996 federal budget bills, the final bills passed by both houses in April did not include any such recapitalization provisions. Under previous versions of these bills, the SAIF would have been recapitalized through a combined approach of imposing a one-time special assessment on SAIF-insured institutions, and an incremental pro-rata charge on SAIF-insured institutions, and commercial banks insured under the BIF, to be used to pay the interest on Financing Corporation ("FICO") bonds issued as part of the 1989 savings association rescue package adopted under FIRREA. The SAIF recapitalization provisions would have imposed a one-time special assessment of approximately 80 basis points on deposits held by SAIF-insured institutions as of March 31, 1995, payable not later than 60 days after the enactment of the legislation. These provisions also would have provided for a merger of BIF and SAIF by no later than January 1998, provided that no insured savings associations are in existence on that date. Because President Clinton is seeking to enact SAIF recapitalization legislation by year-end, it is possible that these provisions may be added to pending bills. If these provisions or substantially similar provisions are enacted this year, Eureka would be subject to the special assessments levied on SAIF-insured institutions and would be required to pay approximately $13.4 million, which would be a charge to income. Pending health insurance reform legislation currently includes provisions that would repeal the thrift bad debt reserve method of calculation under the Internal Revenue Code, effective for tax years beginning after December 31, 1995. If enacted, most large savings associations (including Eureka) would be required to change to the specific charge-off method of accounting for bad debts and would be required to recapture statutory "excess reserves" as provided in the bills. In light of the exclusion of the SAIF recapitalization provisions from 1996 budget legislation, it remains to be seen whether these accounting and bad debt reserve provisions will remain in the health insurance legislation. Enactment of such provisions, however, would have a negligible impact on Eureka. In addition, Congress is considering broader legislative measures which would effectively combine the federal thrift and national bank charters by eliminating the federal thrift charter, and abolishing the OTS. While Eureka again cannot predict whether, when or in what form any such legislation will be enacted, Eureka would be required to give up its federal savings bank charter and convert either to a national bank, or a state bank or savings association, if this legislation is adopted. Further, AFEH and the Partnership would be subject to regulation as bank holding companies under federal law. The financial impact on Eureka, AFEH or the Partnership of any such measures enacted cannot be determined at this time, although such impact could be material. 12 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 herein by reference to Amendment No. 3 to the Registration Statement on Form S-1 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(a). Custody Agreement dated August 3, 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)). 10(b). Agreement between America First Capital Associates Limited Partnership Five and Stephen McLin (incorporated herein by reference to Amendment No. 3 to the Registration Statement on Form S-1 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(c). Assistance Agreement dated May 27, 1988 (incorporated herein by reference to Form 8 filed September 15, 1988 pursuant to Section 13 or 15(d) of the Securities Exchange Act by America First Financial Fund 1987-A Limited Partnership (Commission File No. 0-16918)). 10(d). Assignment Agreement dated May 27, 1988 (incorporated herein by reference to Form 10-K dated December 31, 1988, 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)). 10(e). Capital Maintenance Agreement dated May 27, 1988 (incorporated herein by reference to Form 10-K dated December 31, 1988, 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)). 10(f). Asset Purchase Agreement dated May 27, 1988 (incorporated herein by reference to Form 10-K dated December 31, 1988, 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)). 13 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY 10(g). Employment Agreement between America First Holdings, Inc. (now America First Eureka Holdings, Inc.) and Stephen T. McLin dated January 24, 1989 (incorporated herein by reference to Form 10-K dated December 31, 1988, 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)). 10(h) Employment Agreement between America First Holdings, Inc. (now America First Eureka Holdings, Inc.) and Mariann Byerwalter dated January 24, 1989 (incorporated herein by reference to Form 10-K dated December 31, 1988, 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)). Ms. Byerwalter resigned as an executive officer of America First Eureka Holdings, Inc. in January 1996. 10(i). 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)). 27. Financial Data Schedule. (b) The Partnership did not file any Current Reports on Form 8-K during the first quarter of 1996. 14 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: May 9, 1996 By /s/ George H. Krauss ----------------------------------- George H. Krauss Chairman of the Board of Directors and Secretary (Principal Executive Officer) Date: May 9, 1996 By /s/ J. Paul Bagley ----------------------------------- J. Paul Bagley Director, President and Treasurer (Principal Financial Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from FORM 10-Q and is qualified in its entirety by reference to such FORM 10-Q filing. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 19,622,563 3,259,916 14,200,000 0 49,567,305 764,261,214 764,764,318 1,432,261,035 7,106,707 2,333,113,212 1,753,330,202 364,508,627 20,553,020 19,900,000 16,066,335 0 0 158,755,028 2,333,113,212 27,214,575 15,034,380 0 42,248,955 19,726,180 26,770,243 15,478,712 408,321 0 10,976,812 5,512,180 5,512,180 0 0 5,512,180 0.82 0 0 7,930,000 0 1,799,000 0 6,878,072 120,405 16,719 7,106,707 7,106,707 0 0 -----END PRIVACY-ENHANCED MESSAGE-----