-----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, Guz4Zx8no7KggF36mI7aXAuVYxNLqtDpI1kmaJoSnr2pUwY/8Bntee8wIoTz29Bc cF0ZX3nFJJBJM3Jmn5LS+g== 0000929624-97-000555.txt : 19970514 0000929624-97-000555.hdr.sgml : 19970514 ACCESSION NUMBER: 0000929624-97-000555 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97602818 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, 1997 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, 1997 TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets March 31, 1997 and December 31, 1996............................ 1 Consolidated Statements of Operations For the quarters ended March 31, 1997 and March 31, 1996........ 2 Consolidated Statement of Partners' Capital For the three months ended March 31, 1997....................... 3 Consolidated Statements of Cash Flows For the three months ended March 31, 1997 and March 31, 1996.... 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............................................... 14 Item 6. Exhibits and Reports on Form 8-K................................ 14 SIGNATURES................................................................. 16 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY PART I - FINANCIAL INFORMATION Item 1. - Financial Statements
- ------------------------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS (dollars in thousands) - ------------------------------------------------------------------------------------------------ March 31, 1997 December 31, 1996 -------------- ----------------- Assets Cash and amounts due from depository institutions ..... $ 22,574 $ 30,827 Federal funds sold .................................... 14,000 20,000 Securities purchased under agreements to resell ....... 8,037 5,300 Mortgage-backed securities, net Held to maturity ................................... 592,108 630,106 Available-for-sale ................................. 43,007 44,489 Loans receivable, net ................................. 1,427,635 1,403,483 Loans held for sale ................................... 1,404 370 Accrued interest receivable ........................... 12,521 12,217 Premises and equipment, net ........................... 8,688 8,888 Federal Home Loan Bank stock, at cost ................. 22,180 21,827 Real estate held for sale or investment, net .......... 1,328 1,328 Real estate owned, net ................................ 1,996 1,438 Deferred tax assets, net .............................. 22,323 22,643 Other assets .......................................... 5,261 6,135 - --------------------------------------------------------------------------------------------- Total Assets ....................................... $2,183,062 $2,209,051 - --------------------------------------------------------------------------------------------- Liabilities and Partners' Capital Customer deposits ..................................... $1,890,504 $1,840,485 Securities sold under agreements to repurchase ........ -- 44,353 Other borrowings ...................................... 75,181 106,998 Distributions payable ................................. 2,437 2,437 Other liabilities and accrued expenses ................ 15,851 19,583 - --------------------------------------------------------------------------------------------- Total Liabilities .................................. 1,983,973 2,013,856 - --------------------------------------------------------------------------------------------- Redeemable Preferred Stock; Series A, no par value; 200,000 shares issued; $20 million liquidation value 18,347 17,748 Partners' Capital: General Partner ....................................... 9,865 9,155 Beneficial Unit Certificate (BUC) Holders 6,010,589 BUCs authorized, issued and outstanding .. 170,877 168,292 - --------------------------------------------------------------------------------------------- Total Partners' Capital ............................ 180,742 177,447 - --------------------------------------------------------------------------------------------- Total Liabilities and Partners' Capital ................... $2,183,062 $2,209,051 - ---------------------------------------------------------------------------------------------
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 (dollars in thousands except per BUC amounts) - -------------------------------------------------------------------------------------- For the For the Quarter Ended Quarter Ended March 31, 1997 March 31, 1996 - -------------------------------------------------------------------------------------- Interest income Interest and fees on loans ..................... $ 26,762 $ 27,215 Interest on mortgage-backed securities ......... 11,320 13,831 Interest and dividends on investment ........... 871 1,202 - -------------------------------------------------------------------------------------- Total interest income ....................... 38,953 42,248 - -------------------------------------------------------------------------------------- Interest expense Interest on deposits ........................... 21,490 19,726 Interest on borrowings ......................... 1,612 6,520 Preferred Stock accretion ...................... 599 523 - -------------------------------------------------------------------------------------- Total interest expense ...................... 23,701 26,769 - -------------------------------------------------------------------------------------- Net interest income before provision for loan losses 15,252 15,479 Provision for loan losses ...................... 252 408 - -------------------------------------------------------------------------------------- Net interest income after provision for loan losses 15,000 15,071 - -------------------------------------------------------------------------------------- Non-interest income Deposit related fees ........................... 462 469 Loan related fees .............................. 295 326 Gain on disposition of loans, net .............. 62 46 Other income ................................... 897 577 - -------------------------------------------------------------------------------------- Total non-interest income ................... 1,716 1,418 - -------------------------------------------------------------------------------------- Non-interest expense Compensation and benefits ...................... 5,813 5,415 Occupancy and equipment ........................ 1,904 2,225 FDIC premiums and special assessments .......... 380 1,095 Professional services .......................... 249 326 Advertising and promotion ...................... 235 230 Provision for loss (recovery) on interest rate exchange agreements .................... (136) (469) Other .......................................... 1,877 2,155 - -------------------------------------------------------------------------------------- Total non-interest expense .................. 10,322 10,977 - -------------------------------------------------------------------------------------- Income before income taxes ......................... 6,394 5,512 Provision for income taxes ..................... 320 -- - -------------------------------------------------------------------------------------- Net income ......................................... $ 6,074 $ 5,512 - -------------------------------------------------------------------------------------- Net income allocated to: General Partner ................................ $ 828 $ 599 BUC Holders .................................... 5,246 4,913 - -------------------------------------------------------------------------------------- $ 6,074 $ 5,512 - -------------------------------------------------------------------------------------- Net income per BUC ................................. $ .87 $ .82 - --------------------------------------------------------------------------------------
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, 1997 (dollars in thousands) - ---------------------------------------------------------------------------------------- General Partner BUC Holders Total - ---------------------------------------------------------------------------------------- Balance at December 31, 1996 .................... $ 9,155 $ 168,292 $ 177,447 Net income ...................................... 828 5,246 6,074 Cash distributions paid or accrued .............. (33) (2,404) (2,437) Direct charges: Net unrealized losses on available-for-sale mortgage-backed securities ................ (85) (257) (342) - ---------------------------------------------------------------------------------------- Balance at March 31, 1997 ....................... $ 9,865 $ 170,877 $ 180,742 - ----------------------------------------------------------------------------------------
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 (dollars in thousands) - -------------------------------------------------------------------------------------------------------- For the Three For the Three Months Ended Months Ended March 31, 1997 March 31, 1996 - -------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income ........................................................... $ 6,074 $ 5,512 Adjustments to reconcile net income to net cash provided by operating activities Amortization of: Investments and mortgage-backed securities net premium ......... 633 652 Loan premium ................................................... 109 214 Intangibles .................................................... 290 329 Proceeds from sale of loans originated and held for sale ......... 3,431 2,376 Originations of loans held for sale .............................. (4,403) (4,137) (Gain) loss on sale of real estate owned ......................... (21) 71 Gain on disposition of mortgage loans ............................ (62) (46) Provision for loan losses ........................................ 252 408 Provision for loss (recovery) on interest rate exchange agreements (136) (469) Net provision for income taxes ................................... 320 -- Increase in accrued interest receivable .......................... (304) (349) Decrease in accrued interest payable ............................. (1,685) (1,094) Depreciation and amortization of premises and equipment .......... 423 440 Decrease (increase) in other assets .............................. 671 (959) Decrease in other liabilities .................................... (1,900) (1,754) Other, net ....................................................... 217 223 - -------------------------------------------------------------------------------------------------------- Total adjustments .................................................... (2,165) (4,095) - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities ........................ 3,909 1,417 - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities Loans originated and held for investment ......................... (76,450) (52,772) Purchases of mortgage-backed securities .......................... -- (14,548) Purchases of real estate loans ................................... (4,360) (18,734) Purchases of premises and equipment .............................. (258) (224) Principal payments on mortgage-backed securities ................. 38,504 55,412 Principal payments on loans ...................................... 55,279 78,301 Proceeds from sale of Federal Home Loan Bank Stock ............... -- 911 Proceeds from sales of real estate owned ......................... 360 832 Other, net ....................................................... 89 279 - -------------------------------------------------------------------------------------------------------- Net cash provided by investing activities ........................ 13,164 49,457 - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net increase in checking and saving accounts ..................... 13,557 49,487 Proceeds from issuance of certificates of deposits ............... 90,765 38,497 Payments for maturing on early withdrawal of certificates of deposits .................................... (54,304) (39,120) Net decrease in short-term repurchase agreements ................. (44,353) (51,867) Decrease in Federal Home Loan Bank advances ...................... (31,817) (80,668) Capital distributions ............................................ (2,437) (2,437) - -------------------------------------------------------------------------------------------------------- Net cash used by financing activities ............................ (28,589) (86,108) - -------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents ............................ (11,516) (35,234) Cash and cash equivalents at beginning of period ..................... 56,127 72,316 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period ........................... $ 44,611 $ 37,082 - -------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information Non cash investing an financing activities: Additions to real estate acquired through foreclosure ............ $ 948 $ 734 Loans made to facilitate the sale of real estate ................. $ 6,748 $ 12,095 Cash paid for interest (including interest credited) ............. $ 24,405 $ 27,420 Cash paid for alternative income and minimum franchise taxes .............................................. $ 190 $ 210 - --------------------------------------------------------------------------------------------------------
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, 1997 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, 1997, and the results of its operations for the quarters ended March 31, 1997 and 1996. 3. ALLOWANCE FOR LOAN LOSSES The Partnership recorded loan loss provisions of approximately $252,000 and $408,000 for the quarters ended March 31, 1997 and 1996, respectively. At March 31, 1997 and December 31, 1996, the allowance for loan losses was approximately $7.2 million and $7.1 million, respectively. Management believes that the allowance for loan losses was 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 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 quarters ended March 31, 1997 and 1996, Eureka recorded to non-interest expense recoveries on interest rate exchange agreements of approximately $136,000 and $469,000, respectively, to reflect the effect of interest rate increases on the market value of Eureka's related obligations. The recorded liability for the interest rate exchange agreements totaled approximately $700,000 and $1.2 million at March 31, 1997 and December 31 1996, respectively. Net interest payable on interest rate exchange agreements was $409,000 and $600,000 at March 31, 1997 and December 31, 1996, respectively, and was included in other liabilities and accrued expenses. For the quarters ended March 31, 1997 and 1996, net interest expense on interest rate exchange agreements (after amortization of the interest rate exchange agreement liability of $397,000 and $658,000, respectively) totaled approximately $214,000 and $126,000, respectively. Net interest expense on interest rate exchange agreements is 5 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY included as an adjustment to interest income on loans. The notional amount of interest rate exchange agreements outstanding was $80 million and $125 million at March 31, 1997 and 1996, respectively. The notional amount of interest rate exchange agreements outstanding at December 31, 1996 was $100 million. 5. INCOME TAXES The Partnership files calendar year federal and state Partnership information returns, reporting its operations on an accrual basis. The consolidated financial statement provisions for income tax for the quarters ended March 31, 1997 and 1996 relate to the Partnership's subsidiary, AFEH and its subsidiaries. AFEH and its subsidiaries file calendar year consolidated federal income and combined California franchise tax returns. Deferred tax assets are initially recognized for net operating loss and tax credit carryforwards and differences between the financial statements carrying amount and the tax bases of assets and liabilities which will result in future deduction amounts. A valuation allowance is established to reduce the deferred tax assets to the level at which it is more likely than not that the tax benefits will be recognized. The deferred tax valuation allowance adjustment is updated quarterly based on the expected net operating loss carryforwards which are more likely than not to be utilized. 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 - -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS In addition to the historical information contained in this Management's Discussion and Analysis section, certain discussions contain forward-looking statements that involve risks and uncertainties. A number of important factors could cause the actual results of operations and other information to differ materially from those results of operations and other information discussed in those forward-looking statements. Those factors include fluctuations in interest rates, inflation, the impact of federal government legislation and regulations (including changes in legislation and regulation), and economic conditions and competition in the geographic and business area in which the Partnership conducts its operations. The forward-looking statements are made as of the date of this Form 10-Q and the Partnership undertakes no obligation to publicly update such forwarding-looking statements to reflect subsequent events or circumstances. The interim information discussed below should be read in conjunction with the Partnership's 1996 Form 10-K, in particular the forward-looking statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations. FINANCIAL CONDITION At March 31, 1997, Partnership assets were approximately $2.2 billion, approximately $26 million lower than at December 31, 1996, 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 $14 million during the three months ended March 31, 1997. The net decrease in the loan and MBS portfolios were primarily due to prepayments. During the three months ended March 31, 1997, Eureka originated (net of sales) $22 million and $55 million in retail and wholesale loans, respectively. Wholesale loan originations enable Eureka to add assets that meet its credit quality guidelines within its market area, and management believes that wholesale loan originations will continue to be a significant percentage of total originations through 1997. Mortgage loans purchased during the three months ended March 31, 1997 totaled $4 million. There were no MBS additions during the first quarter of 1997. Repayments of $54 million and $38 million were recorded in the mortgage loan and MBS portfolios, respectively, during the three months ended March 31, 1997. - - Retail deposits increased approximately $50 million since December 31, 1996, and totaled $1.9 billion at March 31, 1997. This increase is primarily due to deposit promotions and retention incentives. The increases were primarily in time deposits. - - Securities sold under agreements to repurchase and other borrowings decreased approximately $76 million during the first three months of 1997 from $151 million at December 31, 1996 to $75 million at March 31, 1997. As of March 31, 1997, other liabilities decreased approximately $3 million from December 31, 1996, primarily due to reductions of approximately $533,000 in the interest rate exchange agreement liability and $2.5 million for accrued interest on borrowings and interest rate exchange agreements, and other payables. At March 31, 1997 and December 31, 1996, the loan-to-deposit ratio was 76%. Loans, MBS and federal funds sold comprised approximately 95% of Partnership assets at March 31, 1997 and December 31, 1996. Cash distributions paid or accrued during the three months ended March 31, 1997 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 in the future. 7 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY ASSET QUALITY The allowance for loan losses was $7.2 million and $7.1 million, or .50% of loans outstanding at each of March 31, 1997 and December 31, 1996. Net non-performing assets (loans which were 90 or more days delinquent and real estate acquired through foreclosure) were approximately $5.0 million and $5.7 million, or .23% and .26% of total assets at March 31, 1997 and December 31, 1996, respectively. This compares favorably to 1.43% for non-performing assets as of December 31, 1996, for thrifts located in California as reported by the Office of Thrift Supervision ("OTS"). The allowance for loan losses as a percentage of non-performing loans was approximately 227% at March 31, 1997, compared to approximately 159% at December 31, 1996. Management believes that the allowance for loan losses is 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 $7.6 million or .53% of total loans at March 31, 1997, compared to approximately $7.4 million or .53% of total loans at December 31, 1996. This compares favorably to 2.55% for loans 30 days or more delinquent as of December 31, 1996, for thrifts located in California as reported by the OTS. Loans 30 days or more delinquent at March 31, 1997 were primarily mortgage loans collateralized by 1-4 family residences. RESULTS OF OPERATIONS Net income for the quarters ended March 31, 1997 and 1996 was approximately $6.1 million and $5.5 million, respectively. Net income per BUC for the quarters ended March 31, 1997 and 1996 was $.87 and $.82, respectively. NET INTEREST INCOME Net interest income before the provision for loan losses for the quarters ended March 31, 1997 and 1996, was approximately $15.3 million and $15.5 million, respectively. Net interest income is the Partnership's principal income component and is determined by the relative levels of, and interest rates received on interest earning assets, and interest rates paid on interest bearing liabilities. Average interest earning assets were approximately $2.1 billion and $2.2 billion, respectively, for the quarters ended March 31, 1997 and 1996. The net interest margin, the net yield on average assets, for the three months ended March 31, 1997 was 2.70% compared to 2.58% for the same period a year earlier. The net interest margin improved in the first quarter of 1997 as compared to the first quarter of 1996, primarily as a result of a lower cost of funds due to the increase in retail deposits and reductions in other borrowings that have higher costs. The net interest expense on interest rate exchange agreements was $214,000 and $126,000 for the quarters ended March 31, 1997 and 1996, respectively. 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 $252,000 and $408,000 for the quarters ended March 31, 1997 and 1996, respectively. Net loan charge-offs were $77,000 and $104,000 for the quarters ended March 31, 1997 and 1996, respectively. Of the total net charge-offs recorded during the quarter ended March 31, 1997, $16,000 were for the consumer loan portfolio and $61,000 were for mortgage loans. In the same period in 1996, consumer loan charge-offs were $13,000 and mortgage loan charge-offs were $91,000. 8 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY Eureka's determination of the allowance for loan loss 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 an adequate valuation allowance 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, gains on the disposition of loans and other income. Non-interest income totaled approximately $1.7 million for the quarter ended March 31, 1997, compared to $1.4 million for the same period in 1996. Deposit and loan related fees for the quarter ended March 31, 1997 were approximately $757,000 compared to $795,000 for the same period in 1996. 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 $62,000 for the quarter ended March 31, 1997 on sales of loans of approximately $3.1 million. During the comparable period a year earlier, Eureka sold conforming loans with principal balances which totaled $2.6 million at a net gain of approximately $46,000. Other non-interest income for the quarter ended March 31, 1997 was approximately $900,000, compared to $550,000 for the same period in 1996. 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. Other income includes $200,000 for the quarter ended March 31, 1997 for the reduction of previously established reserves no longer deemed necessary. No similar adjustments were recorded for the quarter ended March 31, 1996. The remainder of the increase in 1997 over 1996 is not attributable to any one specific item, but to several smaller items which aggregated approximately $150,000. NON-INTEREST EXPENSE The principal components of non-interest expense are compensation and benefits expense, 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 was approximately $10.3 million and $11.0 million for the quarters ended March 31, 1997 and 1996, respectively. Compensation and benefits expenses were approximately $5.8 million for the quarter ended March 31, 1997, compared to approximately $5.4 million for the quarter ended March 31, 1996. The increase from 1996 to 1997 is primarily due to increases in base compensation and incentive award accruals. Non-interest expense for the quarter ended March 31, 1997 included adjustments to the interest rate exchange agreements liability established in 1993. During the quarters ended March 31, 1997 and 1996, recoveries of approximately $136,000 and $469,000, respectively, 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. 9 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY Occupancy and equipment expenses totaled $1.9 million and $2.2 million for the quarters ended March 31, 1997 and 1996, respectively. The first quarter of 1996 expenses included a lease buy out and in addition, there were several lease expirations during 1996. FDIC insurance premiums, professional and advertising expenses, and other expenses were approximately $2.7 million for the quarter ended March 31, 1997, compared to $3.8 million for the same period in 1996. FDIC insurance premiums were approximately $290,000 in the first quarter of 1997, as compared to $966,000 in the same period in 1996. The reduction in FDIC insurance premiums was the result of the recapitalization of the Savings Association Insurance Fund ("SAIF"). See "Deposit Insurance and Other Matters" below. 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 1997. AFEH's alternative minimum taxes totaled $190,000 for the quarter ended March 31, 1997. 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 regular and income tax liabilities. As required by Statement of Financial Accounting Standard No. 109 ("SFAS No. 109"), management periodically reevaluates the realizability of the deferred tax assets and adjusts the valuation allowance so that the resulting level of the net deferred tax assets will, more likely than not, be realized. As of December 31, 1996, an adjustment of $26.2 million was recorded to reduce the valuation allowance for net deferred tax assets primarily for the recognition of estimated benefits from net operating loss carryforwards. The reevaluation and resulting adjustment of the deferred tax asset valuation allowance occurred due to a number of factors which arose during the latter portion of 1996. With the enactment in August 1996 of legislation which repealed the tax deduction for bad debt reserves, and the later enactment of the SAIF recapitalization legislation which resulted in the special one-time assessment paid by Eureka (and all other SAIF-insured institutions), Eureka determined that it may be able to utilize net operating loss carryforward benefits that had previously been reserved against in the valuation allowance. Further, Eureka's strong financial results in 1996 and its consistent financial performance during the preceding two fiscal years, coupled with the forecast of a stable interest rate environment in the short term, separately indicated the possibility that Eureka might be able to utilize additional net operating loss carryforward benefits against net pre-tax income generated in future financial reporting periods. Accordingly, Eureka reassessed the recoverability of the net deferred tax assets in the fourth quarter of 1996 and concluded that a downward adjustment in the valuation allowance for net operating loss carryforwards, as of the end of 1996, was appropriate. Federal net operating loss carryforwards were approximately $209 million at December 31, 1996, with various expiration dates through 2007. State net operating loss carryforwards were approximately $29 million at December 31, 1996, and expire in 1997. To the extent such carryforwards are used by AFEH, the FDIC may be entitled to share in the benefit of the utilization. Net deferred tax assets totaled $22.3 million and $22.6 million at March 31, 1997 and December 31, 1996, respectively. The deferred tax valuation allowance adjustment is updated quarterly based on the expected net operating loss carryforwards which are more likely than not to be utilized. In accordance with SFAS No. 109, management periodically reevaluates the appropriate level of the deferred tax valuation allowance, and adjustments are recorded as appropriate. ASSISTANCE AGREEMENT Under the terms of the Assistance Agreement between Eureka and the FDIC entered into in 1988 in connection with the assisted acquisition of the assets and liabilities of Eureka Federal Savings and Loan Association, $50 million in 10 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY preferred stock was issued to the FDIC. In 1990, $30 million of the preferred stock was redeemed by the FDIC. The $20 million in non-voting Series A Preferred Stock which remains outstanding is mandatorily redeemable in May of 1997 and 1998 in the amount of $10 million each year, and has a liquidation value of $100 per share. The holder of this preferred stock is not entitled to dividends. The preferred stock is being accreted through the redemption dates of 1997 and 1998, and the accretion is recorded as interest expense on other borrowings. The accretion for the quarters ended March 31, 1997 and 1996 totaled approximately $599,000 and $524,000, respectively, and is included in interest expense. Under the terms of the Assistance Agreement, after May 27, 1998, the FDIC may engage an independent appraiser to perform a valuation based on the fair value of Eureka to determine if a final participation payment is due to the FDIC. The Assistance Agreement also contains provisions for distribution of any net sales proceeds among AFCA-5, BUC holders and the FDIC. ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK Eureka's Asset and Liability Management Committee ("ALCO") is a board of directors committee responsible for managing Eureka's assets and liabilities in a manner which balances profitability and risks, including interest rate risk ("IRR"). ALCO operates within policies and risk limits prescribed and reviewed regularly by the board of directors. IRR is the impact of market interest rates on Eureka's net income, both in the short-term and long-term. Interest rate changes impact earnings in several ways including an effect upon the yields on variable rate loans, and the cost of deposits and other sources of funds. In addition, borrowers are more motivated to repay and refinance loans when rates decline, and the market values of securities and other investments fluctuate based on interest rate changes. Eureka manages interest rate fluctuations by simulating (modeling) the impact of a variety of potential interest rate movements, customer behaviors, and market conditions to identify conditions under which profitability would be adversely affected. The simulation of various interest rate movements is used in determining loan pricing and terms, and also to estimate prepayments of loans in a declining rate environment. Various scenarios are simulated to determine an appropriate asset and liability mix which protects capital funds even under stress from unexpected changes in interest rates. A common measure of financial institution IRR is the interest rate "gap." This is the difference between the amount of assets and liabilities which are expected to mature or reprice within a specific time period (such as one or three years). A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest-rate sensitive assets maturing or repricing within a given period. At March 31, 1997, Eureka's cumulative one-year and three-year interest rate gaps were a positive four percent and a negative one percent of total assets, respectively. In the case of the one-year gap, this suggests that the net interest margin would be increased if interest rates were to rise. The comparable gap figures for March 31, 1996 were neutral (approximately zero). Management is of the opinion that simulating various interest rate scenarios is a more effective measure of IRR because it incorporates specific assumptions not considered in the "gap" analyses. The assumptions which are excluded from the "gap" analyses include: (a) how rate movements affect important borrower prepayment behavior, (b) that all loans and deposits will not reprice to the same degree or by the same magnitude, (c) that rate changes for assets and liabilities in the over one-year category have a greater long-term earnings impact than those assets and liabilities "under one year," and (d) some liabilities (such as checking accounts) do not have "repricing" maturities but are significantly affected by interest rate movements. The exposure to IRR as of March 31, 1997 is within the limits established by the board of directors, and the level of IRR is acceptable in view of the expected market conditions and the potential for adverse developments in interest rate levels. 11 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY LIQUIDITY Eureka derives its liquidity primarily from loan repayments, customer deposits, FHLB advances and securities sold under agreements to repurchase. Eureka manages 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, 1997 consisted of approximately $120 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, 1997. 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. Eureka was in compliance with this regulation during each of the first three months of 1997. For the month of March 31, 1997, Eureka's liquidity ratio was 5.89% compared to 5.74% for the month of December 1996. 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, 1997, 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 ...................... $ 174,132 $ 174,132 $ 174,132 Non-allowable assets: Excess deferred tax assets ..... (13,869) (13,869) (13,869) Intangible and other assets..... (2,971) (2,971) (2,971) Non-includable subsidiaries..... (2,311) (2,311) (2,311) Unrealized losses on securities available for sale ............. 581 581 581 Allowance for loan losses ......... 6,911 --------- --------- --------- Computed regulatory capital ....... 155,562 7.22% 155,562 7.22% 162,473 16.63% Minimum capital requirement ....... 32,332 1.50% 64,665 3.00% 78,142 8.00% --------- --------- --------- ---- --------- ----- Excess regulatory capital ......... $ 123,230 5.72% $ 90,897 4.22% $ 84,331 8.63% ========= ========= ========= ==== ========= =====
RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 128 ("SFAS No. 128"), "Earnings Per Share." This statement specifies the computation, presentation, and disclosure requirements for earnings per share. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; early adoption is not permitted. The adoption of SFAS No. 128 is not expected to have a material effect on the Partnership's financial statements. 12 AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY 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 SAIF. For the quarter ended March 31, 1997, Eureka paid deposit insurance premiums to the SAIF of $290,000, based on an annual assessment rate of .0648% of covered deposits. On September 30, 1996, the President signed an appropriations bill which included provisions to recapitalize the SAIF. Under the provisions of the bill, the SAIF was 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 Bank Insurance Fund ("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 the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"). The SAIF recapitalization provisions imposed a one-time special assessment of 65.7 basis points (approximately $11 million for Eureka) on deposits held by SAIF- insured institutions as of March 31, 1995, payable not later than 60 days after the enactment of the legislation, and reduced the annual assessment rate for SAIF-insured institutions from 23 basis points to 6.4 basis points (a reduction of approximately $3 million annually based upon Eureka's insured deposits at September 30, 1996) beginning in 1997. Although deposit premiums for thrifts will continue to be higher than the banking industry's through the year 2000, the premium reduction significantly reduced the inequity of Eureka paying a deposit premium significantly higher than that of a similarly sized commercial bank. Beginning January 1, 2000, SAIF-insured and BIF-insured deposits alike will be assessed on a pro-rata basis (expected to be at a rate of approximately 2.4 basis points) to repay the FICO bonds until the year 2017, and thereafter phased out, with the phase-out being completed in 2019. The BIF/SAIF recapitalization legislation also provides for a merger of the BIF and SAIF on January 1, 1999, if no SAIF-insured institutions exist on that date. This provision, therefore, will not become effective unless Congress enacts additional legislation abolishing the savings association charter effective prior to January 1, 1999. In this regard, in 1997, Congress is expected to consider additional reform measures involving the merger of the BIF and SAIF, and abolition of the thrift charter. Other provisions of the 1996 legislation: (i) authorized the bank regulatory agencies to take action to prevent depository institutions from taking advantage of the BIF/SAIF premium disparity by "deposit-shifting" from the SAIF to the BIF; (ii) strengthened existing prohibitions on the FDIC's increasing the risk-based premiums for deposit insurance which would result in the statutory Designated Reserve Ratio for the two federal deposit insurance funds (calculated as a percentage of insured deposits for each fund) exceeding 1.25%; (iii) authorized the FDIC to refund assessments paid in excess of amounts due; and (iv) prohibit the FDIC, prior to January 1, 1999, from setting SAIF premiums at levels less than BIF premiums. In August 1996, the President signed legislation which included provisions that repeal the thrift bad debt reserve method of calculation under the Internal Revenue Code, effective for tax years beginning after December 31, 1995. Most large savings associations (including Eureka) will be required to change to the specific charge-off method of accounting for bad debts and will be required to recapture statutory "excess reserves" as provided in the legislation. In the case of an institution that meets certain residential lending requirements of the legislation, recapture of statutory "excess reserves" can be deferred for up to two years. Eureka met the residential lending requirements of the legislation for 1996. Eureka's management expects to meet the residential lending requirements of the legislation and to defer the recapture of the statutory "excess reserves" for 1997. Management expects that the above provisions will not have a significant impact on Eureka due to the substantial amount of net operating loss carryforwards which are available. 13 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)). 14 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). 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)). 10(i). Form of Agreement between EurekaBank and certain executive officers and directors which amends certain provisions of the Long-Term Incentive Compensation Plan (incorporated herein by reference to Form 10-K dated December 31, 1996, 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(j). Form of Supplemental Agreement between EurekaBank and certain executive officers and directors which amends certain provisions of the Long-Term Incentive Compensation Plan (incorporated herein by reference to Form 10-K dated December 31, 1996, 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(k). EurekaBank Equity Appreciation Plan Effective April 1, 1996, for the benefit of certain officers, directors and employees of EurekaBank and America First Eureka Holdings, Inc. (filed hereto and replacing Exhibit 10(k). filed with Form 10-K dated December 31, 1996, 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 1997. 15 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 12, 1997 By /s/ George H. Krauss --------------------- George H. Krauss Chairman of the Board of Directors and Secretary (Principal Executive Officer) Date: May 12, 1997 By /s/ J. Paul Bagley ------------------- J. Paul Bagley Director, President and Treasurer (Principal Financial Officer) 16 EX-10.K 2 EUREKA BANK EQUITY APPRECIATION PLAN Exhibit 10(k). EurekaBank Equity Appreciation Plan Effective April 1, 1996 For the benefit of certain officers, directors and employees of EurekaBank and America First Eureka Holdings, Inc. (filed hereto) EQUITY APPRECIATION PLAN OF EUREKABANK PREAMBLE -------- The Equity Appreciation Plan of EurekaBank is an unfunded incentive compensation plan providing long-term compensation to a select group of officers, directors and key employees and is intended to provide additional incentive to participants to provide extraordinary efforts to increase the value of EurekaBank. ARTICLE I Definitions ----------- The following defined terms are indicated by capitalized initial letters whenever they appear in the Plan and, whenever used, shall have the following meanings: "AFEH" means America First Eureka Holdings, Inc., the parent corporation of ---- EurekaBank. "Aggregate Sale Price" means (i) in the event of sale of Eureka the amount -------------------- received by AFEH, (ii) in the event of sale of all or substantially all of the assets of Eureka, the amount available for distribution to AFEH, (iii) in the event of sale of AFEH, in which AFEH receives non-cash consideration, the value of such consideration shall be determined in good faith by the Board of Directors of AFEH and (iv) in the event of acquisition by any person or group of beneficial ownership (determined as provided in SEC Rule 13d-3 or any successor Rule) the highest price paid for units of AFEH by such person or group shown on the statement on Schedule 13D, or any amendment thereto, filed by such person or group, multiplied by the number of outstanding units of AFEH as of the acquisition that causes the Change of Control. "Beneficiary" means the person(s) who, in accordance with Section 9.01, ----------- will succeed to a Participant's right to payment hereunder upon the Participant's death. "Board" means the Board of Directors of AFEH. ----- "Cash Equity Value Per Right" means the Equity Per Right at Exercise Date --------------------------- with respect to such Right minus Equity Per Right at Grant Date. "Change of Control" means the occurrence of any of the following events: ----------------- (a) The date on which any person or group acquires beneficial ownership (determined as provided in SEC Rule 13d-3, or any successor Rule) of AFEH entitling the person or group to 40 percent or more of all votes to which all unitholders of AFEH would be entitled in the election of directors, were an election held on such date; 4 (b) The date on which there is a failure of individuals who are members of the board of directors of AFEH to constitute at least a majority of the board of directors of AFEH, unless the election (or the nomination for election by the shareholders) of each new director was approved by a vote of a least two-thirds of the total of such individuals then still in office and such other directors as may previously have been elected or nominated pursuant to such a two-thirds vote; or (c) The date of consummation of (i) the sale of Eureka or the sale of all or substantially all the assets of Eureka or (ii) the merger or consolidation of AFEH with another corporation in which AFEH is not the surviving corporation or the unitholders of AFEH immediately before such merger or consolidation do not hold at least 50% of the voting power of the surviving corporation. "Code" means the Internal Revenue Code of 1986, as amended. ---- "Committee" means the Compensation Committee of AFEH. --------- "Disability" means a Participant's permanent inability to perform his or ---------- her duties as employee or director of Eureka or AFEH as determined by a physician licensed to practice in California and selected by Eureka. "Effective Date" means March 31, 1996. -------------- "Equity" means the common stockholders' equity in Eureka, as determined ------ under generally accepted accounting principles consistently applied. Equity as of the Effective Date shall be $14. "Equity Per Right" means Equity determined as of any relevant date divided ---------------- by 10,000,000. "Equity Per Right at Grant Date" means $14 per Right. ------------------------------ "Equity Per Right at Exercise Date" means the Equity Per Right determined --------------------------------- as of the Exercise Date of any Right. "Eureka" means EurekaBank, a federal savings bank. ------ "Fund" means the America First Financial Fund 1987-A Limited Partnership. ---- "Grant Date" means, in the case of Participants issued Rights on or before ---------- December 31, 1996, the Effective Date, and, in the case of Participants who are subsequently issued Rights, the last day of the Year immediately preceding the Year in which they are admitted, if they are admitted on or before the last day of the sixth month of a Year or the last day of the Year in which they are admitted, if they are admitted on or after the first day of the seventh month of a Year. 5 "Participant" means any full-time or part-time employee or director of ----------- Eureka or AFEH whose participation in the Plan has been authorized by the Board, and any Beneficiary of a deceased Participant. "Plan" means the Equity Appreciation Plan of EurekaBank, as set forth ---- herein as it may be amended from time to time hereafter. "Rights" means Equity Appreciation Rights granted pursuant to the Plan. ------ "Year" means the fiscal year of Eureka (which is currently the calendar ---- year). ARTICLE II Rights ------ The Board, in its sole discretion based on recommendations from the Committee, shall determine the number of Rights granted to each Participant; provided that the aggregate number of Rights granted to all Participants pursuant to this Plan shall not exceed 320,000 plus the number of rights that are granted and expire unexercised. The Board may grant Rights to a Participant at any time prior to the termination of this Plan. Rights shall entitle a Participant to exercise the Rights during the periods set forth at Article III and to receive an amount of cash determined pursuant to Articles IV and V below, as the case may be. ARTICLE III Vesting, Exercise and Payment ----------------------------- All Rights held by a Participant will terminate immediately upon termination of such Participant's employment or service as a director to EurekaBank or AFEH for any reason other than death or Disability. Unless otherwise determined by the Board at the time of grant, all Rights shall be exercisable only during the period commencing on March 31, 1999 and ending on March 31, 2006; provided that if a Change of Control occurs at any time all Rights shall be exercisable only during the period commencing on the Change of Control and ending 90 days thereafter. Amounts payable pursuant to the Plan will be paid in cash within 30 days after exercise of the Rights; provided that if there is a sale of Eureka or all or substantially all of the assets of Eureka, payments will be made to Participants at the time and in proportion to the payments made to holders of AFEH units. 6 ARTICLE IV Value Determined With Respect to Increase in Equity --------------------- Upon exercise of the Rights, the Participant shall be entitled to receive an amount of cash equal to the number of Rights exercised multiplied by the Equity Value Per Right; provided that upon exercise, the Participant shall remit -------- or have withheld by Eureka in cash any applicable federal and state taxes and legal withholding taxes and provided further that such payments will not be ---------------- considered "Qualified" compensation for purposes of the Eureka Savings and Investment plan. ARTICLE V Value Determined With Respect to Change of Control ---------------------------- If a Change of Control occurs upon exercise of the Rights, the holder thereof shall be entitled to receive an amount of cash determined as a function of the Aggregate Sale Price; provided that upon exercise, the Participant shall -------- remit to or have withheld by Eureka in cash any applicable federal and state withholding and employment taxes and provided further that such payment will not ---------------- be considered "Qualified" compensation for purposes of the Eureka Savings and Investment plans. If the Aggregate Sale Price is less than $200 million, Equity Per Right at Exercise Date shall be the Aggregate Sale Price divided by 10 million. To incent Participants to maximize shareholder value, if the Aggregate Sale Price exceeds $200 million the Equity Per Right at Exercise Date shall be (a) the Aggregate Sales Price divided by 10 million plus (b) a fraction of the amount determined at (a), the numerator of which shall be the Aggregate Sale Price minus $200 million and the denominator of which shall be $200 million. The following table provides example of this calculation.
Cash Aggregate Sale Price Equity Per Right Equity Value (in millions) At Exercise Date Per Right - ---------------------- ---------------- ------------ $140 $14.00 $ 0 $160 $16.00 $ 2.00 $180 $18.00 $ 4.00 $200 $20.00 $ 6.00 $210 $22.05 $ 8.05 $220 $24.20 $10.20 $230 $26.45 $12.45 $240 $28.80 $14.80 $250 $31.25 $17.25 $260 $33.80 $19.80 $280 $39.20 $25.20 $290 $42.05 $28.05 $300 $45.00 $31.00
7 ARTICLE VI Termination of Employment As a Result of Death or Disability ------------------- If a Participant dies or incurs Disability while employed by or serving as a director of Eureka or AFEH, such Participant or his or her representative shall have the right to exercise such Participant's Rights in accordance with the terms of this Plan. ARTICLE VII Termination of the Plan ----------------------- This Plan shall terminate on the earlier of a Change of Control and March 31, 1999; provided that termination of the Plan will not effect the exerciseability of any then outstanding Rights. ARTICLE VIII Gross up for Excise Taxes ------------------------- Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by AFEH or Eureka to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any additional payments required under this Article VIII (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Participant with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Participant shall be entitled to receive an additional payment (a"Gross-Up Payment") in an amount such that after payment by the Participant of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. ARTICLE IX Miscellaneous Provisions ------------------------ Section 9.01. Designation of Beneficiaries. Each Participant shall have ------------ ----------------------------- the right to designate a person(s) who will succeed to the Participant's right to receive future payments hereunder in the event of the Participant's death. In case of Participant's failure to designate a Beneficiary or the death of a designated Beneficiary without a designated successor, distribution shall be made to the Participant's estate. No designation of a Beneficiary shall be valid unless in writing by the Participant, dated, and filed with the Committee. A Participant may change his or her Beneficiary without the consent of any prior Beneficiary. 8 Section 9.02. No Trust Created; Status of Unsecured General Creditor. ------------- ------------------------------------------------------ Nothing contained herein shall be deemed to create a trust of any kind or to create any fiduciary relationship. The amounts payable hereunder shall continue for all purposes to be a part of the general assets of Eureka, and no person other than Eureka shall, by virtue of the provisions of this Plan, have any interest in such amounts. To the extent that any person acquires a right to receive payments from Eureka under this Plan, such right shall be no greater than the right of any unsecured general creditor of Eureka. Section 9.03. Books and Records. The books and records to be maintained ------------ ----------------- for purposes of the Plan shall be maintained by the officers and employees of Eureka, at its expense, and shall be subject to the supervision and control of the Committee. Section 9.04. Nonassignability. To the maximum extent permitted by law, ------------ ---------------- the right of any Participant to any payment hereunder shall not be subject to attachment or any other legal process to satisfy the debts of such Participant. In addition, any such right and any payment made (or to be made) hereunder shall not be subject to pledge, anticipation, alienation, sale, transfer, assignment or other encumbrance, and any attempt to do so shall be void. Section 9.05. Indemnification. Eureka shall indemnify and hold harmless ------------ --------------- the members of the Board and the Committee, and the officers and employees of AFEH and Eureka, from and against all liabilities, claims, demands, costs and expenses, including reasonable attorneys' fees, arising out of any action taken or omitted in connection with the administration of this Plan, unless attributable to such person's own fraud or willful misconduct. Moreover, neither AFEH nor Eureka shall be liable to any person for any such action or omission, unless attributable to fraud or willful misconduct on the part of a director, officer or employee of AFEH or Eureka. Section 9.06. Amendment. The Board may amend this Plan, in whole or in ------------ --------- part, at any time and for any reason; provided, however, that no amendment may reduce the rights of any Participant under the Plan on the date the amendment is adopted. Notice of any amendment shall be given in writing to each Participant. Section 9.07. Governing Law. All rights and obligations arising under ------------ ------------- this Plan shall be governed by the laws of the State of California. Section 9.08. Accounting Determination. All determination of Equity, ------------ ------------------------ Equity Per Right, Equity Value Per Right and Aggregate Sale Price relating to this Agreement shall be made by AFEH's independent accountants in accordance with generally accepted accounting standards consistently applied as modified by the terms of this Agreement, and their determinations shall be final and binding on all participants, Eureka and AFEH. 9 ARTICLE X Execution --------- To record the adoption of the Plan, America First Eureka Holdings has caused this document to be executed by its duly authorized officer, of its subsidiary, EurekaBank on this ________ day of __________, 1996, effective immediately. AMERICA FIRST EUREKA HOLDING, INC. EUREKABANK By ____________________________________________ Stephen T. McLin Chairman, EurekaBank This is to record the award of ________________ units of Equity Appreciation Rights to _________________________________________ ------------------------------------------------ Participant (Signature) ------------------------------------------------ EurekaBank/AFEH Officer (Signature) ------------------------------------------------ Date 10 EX-27 3 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. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 21,209 1,365 22,037 0 43,007 592,108 590,369 1,436,217 7,178 2,183,062 1,890,504 57,481 18,288 17,700 18,347 0 0 180,742 2,183,062 26,762 12,191 0 38,953 21,490 23,701 15,252 252 0 10,322 6,394 6,394 320 0 6,074 0.87 0.87 0 3,053 0 1,752 0 7,051 90 13 7,178 7,178 0 0
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