<PAGE>
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
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1004 Farnam Street, Omaha, Nebraska 68102
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(Address of principal executive offices) (Zip Code)
(402) 444-1630
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(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
----- -----
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
FORM 10-Q
MARCH 31, 1996
TABLE OF CONTENTS
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PAGE
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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
</TABLE>
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
<TABLE>
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CONSOLIDATED BALANCE SHEETS
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March 31, 1996 December 31, 1995
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<S> <C> <C>
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
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Total Assets $2,333,113,212 $2,416,953,364
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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
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Total Liabilities 2,158,291,849 2,245,279,692
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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
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Total Partners' Capital 158,755,028 156,131,684
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Total Liabilities and Partners' Capital $2,333,113,212 $2,416,953,364
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF OPERATIONS
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For the For the
Quarter Ended Quarter Ended
March 31, 1996 March 31, 1995
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<S> <C> <C>
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
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Total interest income 42,248,955 38,682,099
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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
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Total interest expense 26,770,243 25,379,728
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Net interest income before provision for loan losses 15,478,712 13,302,371
Provision for loan losses 408,321 164,278
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Net interest income after provision for loan losses 15,070,391 13,138,093
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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
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Total non-interest income 1,418,602 2,028,225
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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
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Total non-interest expense 10,976,813 11,649,354
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Income before income taxes 5,512,180 3,516,964
Provision for income taxes - -
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Net income $5,512,180 $3,516,964
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Net income allocated to:
General Partner $598,638 $ 199,596
BUC Holders 4,913,542 3,317,368
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$5,512,180 $3,516,964
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Net income per BUC $ .8175 $ .5519
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the Three Months Ended March 31, 1996
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General
Partner BUC Holders Total
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<S> <C> <C> <C>
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)
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Balance at March 31, 1996 $5,359,528 $153,395,500 $158,755,028
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
<TABLE>
<CAPTION>
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the Three For the Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
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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
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Total adjustments (4,094,618) (5,903,301)
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Net cash provided (used) by operating activities 1,417,562 (2,386,337)
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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
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Net cash provided by investing activities 49,457,092 53,173,927
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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)
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Net cash used by financing activities (86,107,840) (74,085,928)
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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
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Cash and cash equivalents at end of period $ 37,082,479 $ 41,263,316
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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
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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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
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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:
<TABLE>
<CAPTION>
Allocation to
Non-compounded cumulative return of: BUC Holders : General Partner
------------------------------------ -----------------------------
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Up to 8% 99 : 1
>8% to 10% 90 : 10
>10% to 12% 80 : 20
>12% 75 : 25
</TABLE>
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
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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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
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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
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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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(000's)
--------------------------------------------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
--------------------- ---------------------- -----------------------
% of
% % Risk-Based
Amount of Assets Amount of Assets Amount Assets
-------- ---------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
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%
======== ==== ======== ==== ======== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 19,622,563
<INT-BEARING-DEPOSITS> 3,259,916
<FED-FUNDS-SOLD> 14,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,567,305
<INVESTMENTS-CARRYING> 764,261,214
<INVESTMENTS-MARKET> 764,764,318
<LOANS> 1,432,261,035
<ALLOWANCE> 7,106,707
<TOTAL-ASSETS> 2,333,113,212
<DEPOSITS> 1,753,330,202
<SHORT-TERM> 364,508,627
<LIABILITIES-OTHER> 20,553,020
<LONG-TERM> 19,900,000
16,066,335
0
<COMMON> 0
<OTHER-SE> 158,755,028
<TOTAL-LIABILITIES-AND-EQUITY> 2,333,113,212
<INTEREST-LOAN> 27,214,575
<INTEREST-INVEST> 15,034,380
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 42,248,955
<INTEREST-DEPOSIT> 19,726,180
<INTEREST-EXPENSE> 26,770,243
<INTEREST-INCOME-NET> 15,478,712
<LOAN-LOSSES> 408,321
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,976,812
<INCOME-PRETAX> 5,512,180
<INCOME-PRE-EXTRAORDINARY> 5,512,180
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,512,180
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 7,930,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,799,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,878,072
<CHARGE-OFFS> 120,405
<RECOVERIES> 16,719
<ALLOWANCE-CLOSE> 7,106,707
<ALLOWANCE-DOMESTIC> 7,106,707
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
