<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the fiscal year ended December 31, 1995
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER: 0-16918
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 47-0713310
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1004 Farnam Street, Omaha, Nebraska 68102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(402) 444-1630
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates ("BUC") representing assignments of limited
partnership interests in America First Financial Fund 1987-A Limited
Partnership
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
--- ---
The aggregate market value of the BUCs on March 21, 1996, based upon the final
sales price per BUC of $27 3/4 reported in The Wall Street Journal on March 22,
1996, was $166,793,845.
DOCUMENTS INCORPORATED BY REFERENCE
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of the chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ____
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP
TABLE OF CONTENTS
-----------------
Page
----
PART I
------
Item 1. Business........................................... 1
Item 2. Properties......................................... 23
Item 3. Legal Proceedings.................................. 26
Item 4. Submission of Matters to a Vote of Security Holders 26
PART II
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Item 5. Market for Registrant's Common Equity and Related
BUC Holders Matters.............................. 26
Item 6. Selected Financial Data............................ 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 28
Item 8. Financial Statements and Supplementary Data........ 36
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure............. 36
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation............................. 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 46
Item 13. Certain Relationships and Related Transactions..... 47
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................ 48
SIGNATURES..................................................... 50
<PAGE>
PART I
ITEM 1. BUSINESS.
---------
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 purposes of acquiring one or more federally-insured financial
institutions through supervisory-assisted acquisitions. The general partner of
the Partnership is America First Capital Associates Limited Partnership Five
("AFCA-5"). The Partnership began operations with the first escrow closing on
July 1, 1987. The Partnership will terminate on December 31, 2036, unless
terminated earlier under provisions of the Partnership Agreement.
The Partnership sold a total of 6,010,589 Beneficial Unit Certificates ("BUCs")
at $20 per BUC for a total net capital contribution of $107,950,178 after
deducting sales commissions and organization and offering costs. BUCs represent
assigned limited partnership interests in the Partnership.
The Partnership formed a subsidiary corporation, America First Eureka Holdings,
Inc. ("AFEH"), formerly America First Holdings, for purposes of acquiring,
owning and managing one or more financial institutions. On May 27, 1988, AFEH
acquired EurekaBank ("Eureka" or the "Bank") under an Assistance Agreement with
the Federal Savings and Loan Insurance Corporation ("FSLIC") (the
"Acquisition"), whose obligations were assumed by the FSLIC Resolution Fund
("Resolution Fund") with the passage of the Financial Institutions Reform,
Recovery, and Enforcement Act ("FIRREA") in August 1989 and subsequently passed
to the Federal Deposit Insurance Corporation ("FDIC"). Prior to the
Acquisition, Eureka was an insolvent mutual association which had been operated
since 1985 by the Federal Home Loan Bank Board, the predecessor to the Office of
Thrift Supervision ("OTS") under its management consignment program. As a
result of the Acquisition, Eureka was recapitalized and received various types
of assistance from the FSLIC. On June 24, 1988, Eureka acquired the assets and
liabilities of Stanford Savings and Loan Association ("Stanford") from the
FSLIC. The Partnership and AFEH are unitary savings and loan holding companies
and are subject to regulation, examination, supervision and reporting
requirements of the OTS. See, "Regulation" and "Assistance and Related
Agreements."
Substantially all of the Partnership's business is conducted through Eureka,
which has 36 branch offices located in the greater San Francisco Bay Area. At
December 31, 1995, Eureka had total assets of approximately $2.4 billion and
customer deposits of approximately $1.7 billion. Eureka's executive offices are
located at 950 Tower Lane, Foster City, California 94404. The Partnership's
offices are located at 1004 Farnam Street, Omaha, Nebraska 68102.
Eureka's business consists primarily of attracting retail savings deposits from
the general public, and together with other borrowings, investing these funds in
residential mortgage loans, mortgage-backed securities and investments.
Eureka's income is derived primarily from interest on residential mortgage
loans, mortgage-backed securities and other real estate loans and, to a lesser
extent, interest on investments and fees received in connection with loans,
deposits and other services. Eureka's major expense is interest paid on
deposits and other borrowings. Eureka's operations, like those of other savings
institutions, are significantly influenced by national, regional and local
economic conditions, the interest rate environment, the related monetary, fiscal
and regulatory policies of the federal government, and the policies of
regulatory authorities. Deposit flows and costs of funds are influenced by
interest rates on competing investments, changes in the interest rate
environment and general economic conditions. Lending activities are affected by
the demand for residential mortgage financing and other types of financing,
which are primarily affected by the interest rates at which such financing may
be offered, and the availability of funds.
Eureka is a member of the Federal Home Loan Bank System and owns stock in the
Federal Home Loan Bank (the "FHLB") of San Francisco. Eureka is also subject to
regulations of the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") with respect to cash reserves required to be maintained against
deposits and certain other matters.
Eureka's deposits are insured by the FDIC up to the maximum amounts provided by
law through the Savings Association Insurance Fund ("SAIF"). See, "Insurance of
Deposits."
1
<PAGE>
PORTFOLIO REPRICING AND RATE SENSITIVITY
- ----------------------------------------
The composition of Eureka's interest earning assets consists principally of
mortgage loans, mortgage-backed securities and investments. These assets are
funded principally by retail savings deposits and supplemented with other
borrowings. Net interest income, the difference between the amounts earned on
interest earning assets and amounts paid on interest bearing liabilities, is
affected by the relative levels of interest earning assets and interest bearing
liabilities and the difference between rates of interest earned on interest
earning assets and rates paid on interest bearing liabilities. Eureka's net
interest income can fluctuate as interest rates paid on retail deposits and
other borrowings reprice at a more rapid rate than interest rates on adjustable
rate mortgage loans and other investments. Eureka manages its interest rate
risk by balancing the maturities and repricing characteristics of its assets,
liabilities, and capital so that rapid and marked changes in interest rates
would minimize the likelihood of capital being reduced below regulatory
minimums.
2
<PAGE>
The following table sets forth the projected repricing periods for the major
interest earning asset categories (adjusted for estimates of prepayments) and
interest bearing liability categories as of December 31, 1995 (before deductions
for allowances for loan losses and discounts and premiums). The interest rate
gap represents the excess or shortfall of interest-earning assets over interest-
bearing liabilities repricing during future periods and is adjusted for hedging
transactions.
AMERICA FIRST FINANCIAL FUND 1987-A
Portfolio Repricing Amounts
($ in 000's)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
WITHIN 1-3 3-5 5-10 OVER 10
1 YEAR YEARS YEARS YEARS YEARS TOTAL
---------- --------- -------- ------- -------- ----------
Interest earning assets:
Federal funds sold (1) $ 24,700 $ - $ - $ - $ - $ 24,700
Investments (1) 60,500 - - - - 60,500
Loans receivable:(2)
Adjustable rate mortgage (3) 894,258 480 72 134 - 894,944
Convertible mortgage 115,058 159,600 51,468 25,016 - 351,142
Fixed rate mortgage 45,190 57,800 28,204 27,824 8,796 167,814
Second mortgage 15,519 1,772 563 128 - 17,982
Consumer 2,901 2,934 20 - - 5,855
Mortgage-backed
securities (2) (3) 664,175 81,276 35,067 20,395 5,730 806,643
FHLB stock 21,509 - - - - 21,509
---------- --------- -------- ------- -------- ----------
Total $1,843,810 $ 303,862 $115,394 $73,497 $ 14,526 $2,351,089
========== ========= ======== ======= ======== ==========
Interest bearing liabilities:
Deposits:
Term certificates of deposit (1) $ 856,228 $ 335,080 $ 26,720 $ 1,344 $ - $1,219,372
Money market accounts 321,159 - - - - 321,159
Checking accounts 92,714 - - 31,016 - 123,730
Passbook accounts 20,103 - - 20,103 - 40,206
Borrowings (1) 484,562 26,681 4,375 1,325 - 516,943
Redeemable preferred stock (1) - 15,542 - - - 15,542
---------- --------- -------- ------- -------- ----------
Total $1,774,766 $ 377,303 $ 31,095 $53,788 $ - $2,236,952
========== ========= ======== ======= ======== ==========
Interest earning assets over
(under) interest bearing
liabilities (primary gap) $ 69,044 $ (73,441) $ 84,299 $19,709 $ 14,526
Effect of hedging activities (4) 80,000 (50,000) (30,000) - -
---------- --------- -------- ------- --------
Hedged GAP $ 149,044 $(123,441) $ 54,299 $19,709 $ 14,526
========== ========= ======== ======= ========
Cumulative hedged GAP $ 149,044 $ 25,603 $ 79,902 $99,611 $114,137
========== ========= ======== ======= ========
As a percent of interest
earning assets 6.34% 1.09% 3.40% 4.24% 4.85%
As a percent of total assets 6.17% 1.06% 3.31% 4.12% 4.72%
</TABLE>
- ----------
(1) Based upon contractual maturities of instruments.
(2) Maturity/repricing amount is based upon contract maturity taking into
consideration projected repayments and prepayments of principal.
(3) The interest rate on adjustable rate loans and mortgage-backed securities
generally adjusts every six to twelve month period depending on contract
terms.
(4) Hedging activities consist of interest rate exchange agreements.
3
<PAGE>
At December 31, 1995, approximately 78% of Eureka's interest earning assets were
rate sensitive (i.e., reprice within one year). In evaluating its exposure to
interest rate risk, Eureka takes into account certain limitations to the gap
measure. For example, certain assets and liabilities may have similar
maturities or repricing periods, but react in differing degrees to changes in
market interest rates. In addition, some assets such as adjustable rate and
convertible mortgages have product features which limit changes in interest
rates on a short-term basis and over the life of the asset. Further, the gap
measure includes assumptions about mortgage prepayments. Major shifts in
interest rates can cause assumptions regarding anticipated mortgage prepayment
levels to vary significantly from actual results. Eureka considers the
anticipated effects of these factors in managing its interest rate risk
position.
The table below sets forth certain information regarding changes in interest
income and interest expense of the Partnership for the periods indicated. For
each category of interest earning assets and interest bearing liabilities,
information is provided on changes attributable to (1) changes in volume
(changes in average balances multiplied by the old rate) and (2) changes in
rates (changes in rate multiplied by current year average balances).
AMERICA FIRST FINANCIAL FUND 1987-A
Rate Volume Analysis
($ in 000's)
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
----------------------- -------------------------
1995 versus 1994 1994 versus 1993
changes due to changes due to
----------------------- -------------------------
Volume Rate Total Volume Rate Total
------- ----------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and MBS (1) $3,166 $23,641 $26,807 $(4,304) $(1,805) $(6,109)
Investments (30) 794 764 (355) (323) (678)
FDIC Receivable - - - 268 - 268
------ ------- ------- ------- ------- -------
Total interest
income 3,136 24,435 27,571 (4,391) (2,128) (6,519)
------ ------- ------- ------- ------- -------
Interest expense:
Deposits (480) 12,452 11,972 (2,353) (4,826) (7,179)
Borrowings 3,196 8,241 11,437 758 4,444 5,202
------ ------- ------- ------- ------- -------
Total interest
expense 2,716 20,693 23,409 (1,595) (382) (1,977)
------ ------- ------- ------- ------- -------
Net interest
income $ 420 $ 3,742 $ 4,162 $(2,796) $(1,746) $(4,542)
====== ======= ======= ======= ======= =======
</TABLE>
- ----------
Notes:
(1) Loan origination fee (expense) amortization of ($239,000), $11,000 and
$416,000 is included in interest income for 1995, 1994 and 1993,
respectively.
4
<PAGE>
The following table sets forth at December 31, 1995 the total of all loans with
stated maturity dates after December 31, 1996 (before deductions for allowances
for loan losses, unearned loan fees, unearned income, discounts and premiums and
certain purchase accounting adjustments) which have fixed, convertible and
adjustable interest rates. Mortgage-backed securities and loans held for sale
are not included.
AMERICA FIRST FINANCIAL FUND 1987-A
Loans with a Stated Maturity After
December 31, 1996
($ in 000's)
<TABLE>
<CAPTION>
Fixed Rate Convertible Adjustable Rate Total
Loans Loans Loans Loans
---------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Real estate loans
Residential 1 - 4 family $125,645 $331,767 $826,417 $1,283,829
Multi-family residential loans 19,833 6,956 27,489 54,278
Commercial property and land loans 14,495 6,475 49,876 70,846
Second mortgage 4,195 - 13,779 17,974
-------- -------- -------- ----------
Total real estate loans 164,168 345,198 917,561 1,426,927
-------- -------- -------- ----------
Revolving credit 511 - 10 521
Other installment loans 2,418 - 486 2,904
Other consumer 1,218 - - 1,218
-------- -------- -------- ----------
Total consumer loans 4,147 - 496 4,643
-------- -------- -------- ----------
Total loans due after December 31, 1996 $168,315 $345,198 $918,057 $1,431,570
======== ======== ======== ==========
</TABLE>
5
<PAGE>
YIELDS EARNED AND RATES PAID
- ----------------------------
Yield/Interest on Earning Assets/Cost of Funds
- ----------------------------------------------
The following tables set forth, including the effects of discounts or premiums,
the average interest earning assets and interest bearing liabilities, interest
income and expense and the resultant average interest rate during the years
ended December 31, 1995, 1994 and 1993:
AMERICA FIRST FINANCIAL FUND 1987-A
Average Monthly Balances, Rates, and Yields
($ in 000's)
<TABLE>
<CAPTION>
For Years Ended
--------------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------- --------------------------------- -----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ ---------- ------ ------------- ---------- ------ -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans:
Real estate $1,404,604 $102,897 7.33% $1,446,206 $ 89,855 6.21% $1,563,385 $ 98,961 6.33%
Consumer 15,960 2,303 14.43% 24,946 3,534 14.17% 31,126 4,426 14.22%
FDIC receivable:
Covered Assets - - - - - - 7,709 297 3.85%
Preferred stock - - - - - - (4,665) (565) (12.11%)
Mortgage-backed
securities 776,008 53,818 6.94% 654,512 38,820 5.93% 569,309 34,932 6.14%
Investments:
Federal funds sold
and securities
purchased under
agreements to resell 68,937 3,419 4.96% 63,987 2,747 4.29% 69,716 3,621 5.19%
Investment in FHLB
stock 21,038 1,105 5.25% 20,263 983 4.85% 20,349 754 3.71%
Other taxable
short-term
investments 2,053 98 4.78% 4,399 130 2.96% 6,631 162 2.44%
---------- -------- ----- ---------- -------- ----- ---------- -------- ------
Total interest earning
assets 2,288,600 163,640 7.15% 2,214,313 136,069 6.14% 2,263,560 142,588 6.30%
Non-earning assets 74,616 90,695 100,747
---------- ---------- ----------
Total average assets $2,363,216 $2,305,008 $2,364,307
========== ========== ==========
Interest bearing
liabilities:
Deposits:
Checking $ 124,096 $ 1,302 1.05% $ 136,713 $ 1,435 1.05% $ 139,542 $ 1,888 1.35%
Money market/passbook 342,749 10,131 2.96% 390,054 9,228 2.37% 403,998 10,042 2.49%
Time certificates 1,217,707 64,339 5.28% 1,172,552 53,136 4.53% 1,214,037 59,048 4.86%
Short-term borrowings 489,401 29,898 6.11% 422,522 18,804 4.45% 422,516 14,401 3.41%
FDIC preferred stock 14,561 1,932 13.27% 12,792 1,590 12.43% 6,533 791 12.11%
---------- -------- ----- ---------- -------- ----- ---------- -------- ------
Total interest bearing
liabilities 2,188,514 107,602 4.92% 2,134,633 84,193 3.94% 2,186,626 86,170 3.94%
---------- -------- ----- ---------- -------- ----- ---------- -------- ------
Non-interest bearing
liabilities and
Partnership equity 174,702 170,375 177,681
---------- ---------- ----------
Total average liabilities
and Partnership equity $2,363,216 $2,305,008 $2,364,307
========== ========== ==========
Excess interest-earnings
assets/
Interest rate spread $ 100,086 2.23% $ 79,680 2.20% $ 76,934 2.36%
========== ===== ========== ===== ========== ======
Net interest income/
Net interest margin $ 56,038 2.45% $ 51,876 2.34% $ 56,418 2.49%
======== ===== ======== ===== ======== ======
</TABLE>
- ----------
Notes:
* Non-accrual loans are included with non-earning assets in 1995, 1994 and
1993. The principal balances of such loans at December 31, 1995, 1994 and
1993 totaled approximately $6.4 million, $8.3 million and $13.3 million,
respectively.
* Net loan origination fee (expense) amortization of ($239,000), $11,000 and
$416,000 is included in interest income for 1995, 1994 and 1993,
respectively.
* Average balances are net of purchase accounting adjustments. Interest
income reflects the effect of discount accretion and premium amortization.
* Net interest expense on interest rate exchange agreements is included as an
adjustment to interest income on real estate loans.
6
<PAGE>
ASSISTANCE AND RELATED AGREEMENTS
- ---------------------------------
In connection with the Acquisition, AFEH entered into an Assistance Agreement
with the FSLIC, whose obligations were assumed by the FSLIC Resolution Fund with
the passage of FIRREA, and subsequently passed to the FDIC. Under the terms of
the Assistance Agreement, Eureka issued 200,000 shares of preferred stock to the
FDIC under certain conditions. The non-voting Series A Preferred Stock is
mandatorily redeemable in 1997 and 1998 in the amount of $10 million each year
and has a liquidation value of $100 per share and is deemed to have been issued
to the FDIC effective with, and as a result of, the Partnership's Acquisition of
Eureka. Holders of this preferred stock are not entitled to dividends.
Generally accepted accounting principles ("GAAP") required recognition of the
probable future issuance of Series A Preferred Stock as of the Acquisition date
at the fair value of the obligation and subsequent periodic accretion to the
liquidation value. The preferred stock accretion was $1,932,000, $1,590,000 and
$1,356,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
In 1995 and 1994, the preferred stock accretion was recorded as interest expense
on other borrowings. In 1993, $565,000 of accretion expense was recorded as a
reduction of FDIC assistance and $791,000 was recorded as interest expense on
other borrowings.
The Assistance Agreement between Eureka and the FDIC entered into in 1988
expired on May 27, 1993. The prior Covered Asset portfolio consisted of real
estate loans, commercial loans, judgements, real estate acquired through
foreclosure and investment in subsidiary. The FDIC was responsible for losses
from operations or losses from disposition of these assets and received income
from the operations or gains from the disposition of these assets. The FDIC
was also obligated to pay a guaranteed yield to Eureka on the Covered Assets.
Prior to termination of the Assistance Agreement, the Covered Asset balance of
$18.9 million was written down to a fair value of $6.7 million, and Eureka was
reimbursed for the difference by the FDIC. In addition, the capital and
operating loss coverages and yield maintenance were discontinued as of May 27,
1993. At May 27, 1993, the preferred stock liability previously included as an
offset to Covered Assets was reclassified to liabilities. The former Covered
Assets of $6.7 million were transferred as follows: real estate loans ($5.0
million), real estate owned ($1.4 million), investment in subsidiary ($169,000)
and consumer loans ($139,000). See Note 3 to Notes to Consolidated Financial
Statements.
Under the Assistance Agreement, the FDIC is entitled to share in income of the
Partnership and certain tax benefits realized from the disposition of Covered
Assets and from the utilization of pre-acquisition net operating loss and tax
credit carryforwards and may share on a limited basis in increases in the fair
market value of Eureka. Such sharing is limited to cash distributions to or
increases in values allocable to AFCA-5. The FDIC's share of income and
realized tax benefits will first be applied to reduce Eureka's remaining
preferred stock obligations to the FDIC.
Under the Capital Maintenance Agreement, dated May 27, 1988, the FDIC may take
control of Eureka in the event there is a breach of this agreement, including
the failure to maintain minimum capital. The Partnership is not aware of any
other arrangement which may, at any subsequent date, result in a change in
control of the Partnership, AFEH or Eureka.
LENDING ACTIVITIES
- ------------------
GENERAL. The primary source of revenue to the Partnership is interest and fee
income from the lending activities of Eureka. Eureka's lending activities have
been focused principally on loans secured by first liens on 1-4 unit residential
properties located primarily in Northern California. Eureka purchases fixed,
convertible and adjustable rate residential mortgage loans which meet Eureka's
credit and underwriting standards from third parties. These purchases
supplement Eureka's internal loan production and provide Eureka with more
attractive long-term yields than is available from alternative sources.
Wholesale loans originations were implemented during 1995, and management
believes that wholesale loan originations will increase as a percentage of total
loan originations through 1996. Wholesale loan originations enable Eureka to
add assets that meet its credit and underwriting standards within its market.
In addition to interest earned on loans, Eureka receives fees related to loan
originations, loan prepayments, loan modifications, late payments, transfers of
loans due to changes in property ownership, loans serviced for others and other
miscellaneous services. All non-refundable loan origination fees, net of
certain direct loan origination costs, are deferred and accreted or amortized,
using the effective interest method over the term of the loan. Interest is not
accrued on loans which are 90 days or more delinquent.
7
<PAGE>
Eureka originates retail loans primarily in the San Francisco Bay area through
its 36 branches. All loan applications are forwarded to Eureka's central
processing offices in Foster City. Eureka's loan approval process is intended
to assess both the borrower's ability to repay the loan and the adequacy of the
proposed collateral. As part of the lending process, qualified staff appraisers
or outside independent appraisers inspect and appraise the real estate property.
When an appraisal is performed by an outside independent appraiser, it is
subsequently reviewed by a staff appraiser. In addition, information is
obtained concerning the financial condition, income, employment and credit
history of the borrower. Loans are approved at various levels of authority
depending on the amount of the loan.
Wholesale loans are originated through a number of approved mortgage brokers
located primarily in the San Francisco Bay Area. Loan application information
is submitted by the brokers to Eureka for reverification of certain data,
depending on the loan application credit risk, including customer income and
credit history, as well as independent appraisals of the properties. The
appraisal and funding policies and procedures for wholesale loans are the same
as the policies and procedures for retail loans.
ONE-TO-FOUR FAMILY RESIDENTIAL LENDING. Eureka currently offers several 1-4
family residential loan products with various fees, interest rates, maximum
dollar amounts and loan terms. Eureka offers conventional fixed, convertible
and adjustable rate loans secured by first deeds of trust.
Approximately 94% of the mortgage loans originated in 1995 were adjustable or
convertible rate loans for Eureka's own portfolio. The adjustable rate mortgage
loans currently offered are primarily indexed to the London Interbank Offered
Rates ("LIBOR"), constant maturity treasury or FHLB Eleventh District cost of
funds. The margin varies by type of loan, but is generally between 2.5% and
2.75% above the index. These adjustable rate mortgages are often made with
"teaser rates" which are 1.0% to 2.75% below the fully adjusted rate during the
initial "teaser period," and have penalties for prepayment. Most of these loans
have a six-month adjustment period with periodic rate changes capped at 1% per
adjustment and a maximum lifetime rate of 5.0% to 7.0% above the initial rate.
The convertible rate mortgage loans currently offered have fixed rates for three
to seven years, then change to adjustable rate loans which are indexed to
Treasury rates. Fixed rate loans conforming to the Federal Home Loan Mortgage
Corporation ("FHLMC") lending limits and underwriting standards are originated
by Eureka and generally sold to investors, principally the FHLMC, shortly after
they are funded as part of Eureka's overall asset/liability strategy to minimize
its interest rate risk.
Loans secured by 1-4 family residential properties generally have a maximum loan
to value ratio ("LTV") of 95%. Eureka requires private mortgage insurance for
all loans with LTVs above 80%. In addition, title insurance is required on all
mortgage loans. Fire and casualty insurance is required to be maintained on all
improved properties which are security for Eureka's loans. The original
contract loan payment period for residential loans is a maximum of 40 years.
MULTI-FAMILY RESIDENTIAL AND COMMERCIAL PROPERTY REAL ESTATE LENDING. The
majority of the multi-family residential and commercial property loan portfolio
was originated prior to the Acquisition. However, during 1995 and 1994, Eureka
originated $4.6 million and $8.3 million in multi-family and commercial loans,
respectively. In addition, during 1995 and 1994, Eureka purchased $2.2 million
and $27.2 million in multi-family loans, respectively. These loans generally
bear interest at a higher rate than loans on 1-4 family residential properties.
MORTGAGE-BACKED SECURITIES. Eureka maintains a portfolio of mortgage-backed
securities in addition to its real estate loan portfolio. As of December 31,
1995, this portfolio (held to maturity and available for sale) totaled
approximately $816 million. See Note 5 to Notes to Consolidated Financial
Statements.
SALES, PURCHASES, SECURITIZATION AND SERVICING OF REAL ESTATE LOANS. It is
generally management's intention to hold originated adjustable and convertible
rate loans, purchased loans and mortgage-backed securities for investment.
Eureka originates and sells fixed rate loans, the majority of which conform to
FHLMC standards. Loans which have been classified as held for sale are recorded
at the lower of amortized cost or market value. The principal balances of these
loans approximated $403,000 at December 31, 1995. Generally, Eureka retains
the responsibility for servicing the loans it sells and receives a fee for
performing this service. At December 31, 1995, Eureka was servicing mortgage
loans for others with outstanding principal balances totaling approximately $263
million. In addition, Eureka sold its BankCard receivables during 1995.
8
<PAGE>
Beginning in 1990, Eureka purchased fixed, convertible and adjustable rate
residential mortgage loans which met Eureka's credit and underwriting standards
from third parties. These purchases supplemented Eureka's internal loan
production and provided Eureka with more attractive long-term yields than were
available from alternative sources. In addition, Eureka sold its BankCard
receivables during 1995 which reduced loans receivable by $12.5 million.
Certain loans were sold with recourse by Eureka prior to Acquisition. The
remaining principal balances of these loans, which are secured by 1-4 family
residential mortgages totaled approximately $13.0 million at December 31, 1995.
Repurchases of loans sold with recourse amounted to less than $25,000 for each
of the years ended December 31, 1995, 1994 and 1993.
The following table summarizes loans receivable at December 31, 1995, 1994,
1993, 1992 and 1991 by type of collateral. These balances are before deductions
for discounts and premiums, unearned loan fees, unearned income, and allowances
for loan losses and certain purchase accounting adjustments. The
classifications are net of participation interests sold and loans serviced for
others. This table does not include mortgage-backed securities held at December
31, 1995, 1994, 1993, 1992 and 1991 of approximately $816 million, $791 million,
$630 million, $568 million and $288 million, respectively.
AMERICA FIRST FINANCIAL FUND 1987-A
Loan Composition
($ in 000's)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- -------------------
Percentage Percentage Percentage Percentage Percentage
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
---------- --------- ---------- --------- ---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $1,284,282 89.33% $1,269,970 87.93% $1,401,897 89.76% $1,413,363 87.55% $1,250,258 82.98%
Second mortgage 17,983 1.25% 14,825 1.03% 18,456 1.18% 40,052 2.48% 69,085 4.59%
Multi-family
residential loans 54,595 3.80% 57,786 4.00% 41,850 2.68% 53,839 3.34% 64,271 4.27%
Commercial property and
land loans 75,022 5.22% 78,432 5.43% 71,207 4.56% 71,697 4.44% 75,817 5.03%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total real estate loans 1,431,882 99.60% 1,421,013 98.39% 1,533,410 98.18% 1,578,951 97.81% 1,459,431 96.87%
Consumer loans:
Revolving credit 781 .05% 16,286 1.13% 18,558 1.19% 20,983 1.30% 23,576 1.56%
Other installment loans 3,205 .22% 4,033 .28% 5,288 .34% 8,151 .51% 14,013 .93%
Loans secured by savings
accounts 615 .04% 682 .05% 931 .06% 1,280 .08% 1,961 .13%
Financing leases - - - - - - - - 1,437 .10%
Timeshare 1,254 .09% 2,210 .15% 3,625 .23% 4,922 .30% 6,191 .41%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total consumer loans 5,855 .40% 23,211 1.61% 28,402 1.82% 35,336 2.19% 47,178 3.13%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total loans 1,437,737 100.00% 1,444,224 100.00% 1,561,812 100.00% 1,614,287 100.00% 1,506,609 100.00%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Less:
Loans held for sale 403 152 4,993 6,169 9,031
---------- ---------- ---------- ---------- ----------
Loans receivable $1,437,334 $1,444,072 $1,556,819 $1,608,118 $1,497,578
========== ========== ========== ========== ==========
</TABLE>
9
<PAGE>
The following table profiles net loan and mortgage-backed security origination,
purchase and sale activity of Eureka during the years ended December 31, 1995,
1994 and 1993.
AMERICA FIRST FINANCIAL FUND 1987-A
Loan and Mortgage-Backed Security Activity
($ in 000's)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Real estate and consumer loan activity:
Real estate mortgage loans originated:
Residential 1-4 family mortgage loans $ 163,761 $ 202,684 $ 436,367
Commercial mortgage and land loans 4,034 5,592 -
Multi-family mortgage loans 610 2,695 -
Second mortgage 10,149 2,453 1,684
Consumer loans originated 2,197 2,074 2,708
--------- --------- ---------
Total real estate and consumer loans
originated 180,751 215,498 440,759
Loans and participations purchased,
including mortgage-backed securities 253,874 361,768 415,090
Loans and participations sold (6,596) (26,637) (117,082)
Loan and mortgage-backed security
principal repayments, including
prepayments (389,808) (494,012) (731,810)
Transfer to foreclosed real estate (5,019) (8,559) (6,250)
Other increases (decreases) (9,867) (706) 16,812
--------- --------- ---------
Net loan and mortgage-backed security activity $ 23,335 $ 47,352 $ 17,519
========= ========= =========
</TABLE>
10
<PAGE>
The following table summarizes the contractual maturities of loans in Eureka's
loan portfolio at December 31, 1995. This schedule does not reflect normal
principal reductions or potential prepayments. Mortgage-backed securities of
approximately $816 million and loans held for sale of approximately $403,000 are
not included.
AMERICA FIRST FINANCIAL FUND 1987-A
Loan Maturities
at December 31, 1995
($ in 000's)
<TABLE>
<CAPTION>
Real Estate Mortgage Loans
--------------------------------------------------------
First Mortgage
---------------------------------------
Commercial
1 - 4 family mortgage Multi-family Second
mortgage and land mortgage mortgage Consumer Total
------------ ---------- ------------ --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Periods during which loans mature:
Within 1 year $ 51 $ 4,176 $ 317 $ 8 $1,212 $ 5,764
After 1 through 2 years 297 239 107 69 788 1,500
After 2 through 3 years 115 129 7 81 733 1,065
After 3 through 5 years 1,921 861 12 791 1,069 4,654
After 5 through 10 years 6,895 12,024 20,464 4,039 1,326 44,748
After 10 through 15 years 64,522 9,126 15,646 257 643 90,194
After 15 years 1,210,079 48,467 18,042 12,737 84 1,289,409
---------- ------- ------- ------- ------ ----------
$1,283,880 $75,022 $54,595 $17,982 $5,855 $1,437,334
========== ======= ======= ======= ====== ==========
Less:
(Discounts) and premiums, net $ (2,358) $ 1,215 $ 1,233 $ 418 $ - $ 508
Deferred loan fees (costs) (1,232) - - - - (1,232)
Allowance for loan losses 3,623 1,898 478 108 771 6,878
---------- ------- ------- ------- ------ ----------
Total loans, net $1,283,847 $71,909 $52,884 $17,456 $5,084 $1,431,180
========== ======= ======= ======= ====== ==========
</TABLE>
11
<PAGE>
The following table summarizes loan delinquencies at December 31:
<TABLE>
<CAPTION>
LOAN TYPE 1995
- --------- ----------------------------------------------------
31-60 DAYS 61-90 DAYS 90+DAYS TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Real estate:
Residential 1-4 mortgage $3,164,047 $2,024,260 $ 4,151,759 $ 9,340,066
Multi-family mortgage - - - -
Commercial mortgage and land - 440,641 2,225,469 2,666,110
Consumer 32,636 10,722 11,226 54,584
---------- ---------- ----------- -----------
Total delinquencies $3,196,683 $2,475,623 $ 6,388,454 $12,060,760
========== ========== =========== ===========
Percentage of loans 0.22% 0.17% 0.45% 0.84%
========== ========== =========== ===========
1994
----------------------------------------------------
31-60 DAYS 61-90 DAYS 90+DAYS TOTAL
---------- ---------- ----------- -----------
Real estate:
Residential 1-4 mortgage $3,978,869 $3,763,421 $ 6,290,446 $14,032,736
Multi-family mortgage - - - -
Commercial mortgage and land 487,376 - 1,791,888 2,279,264
Consumer 349,572 178,579 206,884 735,035
---------- ---------- ----------- -----------
Total delinquencies $4,815,817 $3,942,000 $ 8,289,218 $17,047,035
========== ========== =========== ===========
Percentage of loans .34% .27% .57% 1.18%
========== ========== =========== ===========
1993
----------------------------------------------------
31-60 DAYS 61-90 DAYS 90+ DAYS TOTAL
---------- ---------- ----------- -----------
Real estate:
Residential 1-4 mortgage $1,293,083 $1,147,337 $10,094,996 $12,535,416
Multi-family mortgage - - 400,000 400,000
Commercial mortgage and land - - 2,526,995 2,526,995
Consumer 535,392 222,643 282,526 1,040,561
---------- ---------- ----------- -----------
Total delinquencies $1,828,475 $1,369,980 $13,304,517 $16,502,972
========== ========== =========== ===========
Percentage of loans .12% .09% .85% 1.06%
========== ========== =========== ===========
1992
----------------------------------------------------
31-60 DAYS 61-90 DAYS 90+DAYS TOTAL
---------- ---------- ----------- -----------
Real estate:
Residential 1-4 mortgage $1,298,068 $3,932,007 $ 6,421,269 $11,651,344
Multi-family mortgage - - - -
Commercial mortgage and land 605,192 - 1,992,343 2,597,535
Consumer 686,556 248,759 221,176 1,156,491
---------- ---------- ----------- -----------
Total delinquencies $2,589,816 $4,180,766 $ 8,634,788 $15,405,370
========== ========== =========== ===========
Percentage of loans .16% .26% .53% .95%
========== ========== =========== ===========
1991
----------------------------------------------------
31-60 DAYS 61-90 DAYS 90+DAYS TOTAL
---------- ---------- ----------- -----------
Real estate:
Residential 1-4 mortgage $2,940,203 $1,282,341 $ 3,159,112 $ 7,381,656
Multi-family mortgage - - - -
Commercial mortgage and land 1,375,112 - 599,108 1,974,220
Consumer 936,220 423,392 278,228 1,637,840
---------- ---------- ----------- -----------
Total delinquencies $5,251,535 $1,705,733 $ 4,036,448 $10,993,716
========== ========== =========== ===========
Percentage of loans .35% .11% .27% .73%
========== ========== =========== ===========
</TABLE>
12
<PAGE>
Eureka made a provision for loan losses of approximately $792,000, $1.2 million,
$2.5 million, $2.7 million and $3.1 million during 1995, 1994, 1993, 1992 and
1991, respectively. Specific loss provisions have been provided when
appropriate. Eureka's loan loss reserves totaled $6.9 million at December 31,
1995. See Note 7 of Notes to Consolidated Financial Statements.
CLASSIFIED ASSETS
- -----------------
Loans, real estate owned, investments, debt securities and other assets are
criticized/classified as Special Mention, Substandard, Doubtful or Loss. Assets
designated as Special Mention possess minor risks but do not justify a
Substandard classification. The Special Mention category promotes, through
self-classification, the identification and monitoring of those assets that have
potential weaknesses which may, if not checked or corrected, weaken the asset or
inadequately protect the institution's position at some future date. Generally,
assets classified as Substandard are those assets inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, and have a well-defined weakness or weaknesses. Assets classified as
Doubtful have all of the weaknesses inherent in those classified as Substandard,
with the added characteristic that the weaknesses make collection or liquidation
in full highly questionable and improbable. Assets classified as Loss are
considered uncollectible and of such little value that their continuance as
assets without establishment of a specific allowance for losses is not
warranted. General and specific allowances for losses are established in
accordance with GAAP. Assets are charged-off in the period when they are no
longer deemed collectible.
Typically, loans have been classified because of the following reasons: (i)
inadequate cash flow from underlying collateral property on commercial and
multi-family real estate loans, (ii) non-current 1-4 family residential loans
that are 90 days or more delinquent, and (iii) other loans for which the paying
capacity of the borrower is in question due to either bankruptcy filings or
recurring short-term delinquencies. These loans do not represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity, or capital resources.
The following table summarizes Eureka's special mention and classified assets
before related allowances, in accordance with the reporting requirements of the
OTS at December 31, 1995:
<TABLE>
<CAPTION>
SPECIAL
MENTION SUBSTANDARD DOUBTFUL LOSS TOTAL
---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
1-4 family $1,548,862 $ 7,995,434 $ - $ 45,127 $ 9,589,423
Multi-family 812,383 - - - 812,383
Commercial 4,746,669 3,726,056 - 136,887 8,609,612
Consumer loans - - - 11,226 11,226
Real estate owned - 2,741,381 - - 2,741,381
Other - 1,000 5,000 26,000 32,000
---------- ----------- -------- -------- -----------
Special Mention/
Classified Assets $7,107,914 $14,463,871 $5,000 $219,240 $21,796,025
========== =========== ======== ======== ===========
</TABLE>
CREDIT RISK AND LOAN CONCENTRATION
- ----------------------------------
Eureka strives to minimize its credit risk exposure by maintaining its loan
portfolio principally with first mortgage loans secured by 1-4 family
residential properties located primarily in the San Francisco Bay area. In
addition, Eureka's internal loan review procedures allow management to assess
the credit risks associated with potential loan portfolio additions. See,
"Lending Activities" below, and Note 5 to Notes to Consolidated Financial
Statements.
13
<PAGE>
NON-ACCRUAL, PAST-DUE AND RESTRUCTURED LOANS: The following table shows
Eureka's non-accrual, past-due and restructured loans as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------------------- --------------------- --------------------- --------------------- --------------------
PRINCIPAL FOREGONE PRINCIPAL FOREGONE PRINCIPAL FOREGONE PRINCIPAL FOREGONE PRINCIPAL FOREGONE
BALANCE INTEREST BALANCE INTEREST BALANCE INTEREST BALANCE INTEREST BALANCE INTEREST
----------- -------- ----------- -------- ----------- -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual $ 6,388,454 $393,629 $ 8,289,218 $790,074 $13,304,518 $822,356 $ 2,395,301 $123,294 $1,189,419 $107,317
Accruing loans
contractually
past-due 90
days or more - - - - - - 6,239,487 - 2,847,028 -
Restructured 5,040,138 70,221 6,055,020 95,490 6,200,064 115,863 5,357,029 58,855 1,119,668 23,327
----------- -------- ----------- -------- ----------- -------- ----------- -------- ---------- --------
$11,428,592 $463,850 $14,344,238 $885,564 $19,504,582 $938,219 $13,991,817 $182,149 $5,156,115 $130,644
=========== ======== =========== ======== =========== ======== =========== ======== ========== ========
</TABLE>
Interest recognized on non-accrual loans was immaterial for all years reported
in the above table. Interest income recognized on restructured loans was
$423,000, $475,000 and $439,000 for the years ending December 31, 1995, 1994 and
1993, respectively.
INVESTMENT ACTIVITIES
- ---------------------
Income on investments is the Partnership's second most significant source of
interest income after interest on loans and mortgage-backed securities. At
December 31, 1995, funds were invested in federal funds sold, securities
purchased under agreements to resell and U. S. Treasury Notes. See Note 4 to
Notes to Consolidated Financial Statements for information on investments.
SOURCES OF FUNDS
- ----------------
GENERAL. Customer deposits are the principal source of Eureka's funds for use
in lending and other purposes. In addition to deposits, Eureka derives funds
from cash flows generated from operations, loan repayments and loan sales.
Funds are also available through various types of borrowings, including advances
from the FHLB and securities sold under agreements to repurchase.
DEPOSITS. Eureka offers an assortment of accounts with varying interest rates
and maturities including, passbook accounts, checking accounts, money market
accounts, fixed rate certificates of deposit and individual retirement accounts.
Deposit flows are affected by various factors, including competition among
depository institutions, changes in the interest rate environment, general
economic conditions and the yields on other investment opportunities. Eureka
believes that its retail branch office network enables it to offer a high level
of customer convenience and attract a relatively stable base of deposits.
Eureka does not actively solicit jumbo deposits or utilize brokerage firms to
obtain such funds. At the end of 1995, Eureka had approximately $1.7 billion in
deposits, comprising approximately 119,000 accounts.
14
<PAGE>
The table below shows the maturity of deposits at December 31, 1995, by various
interest rate ranges.
AMERICA FIRST FINANCIAL FUND 1987-A
Maturity of Deposits
<TABLE>
<CAPTION>
Year in which deposits mature
-----------------------------------------------------------------------------------------------
2001 and
Rate 1996 1997 1998 1999 2000 Thereafter Total
- ----------------- -------------- ------------ ----------- ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than 4.00% $ 616,512,084 $ 605,910 $ 64,494 $ - $ - $ - $ 617,182,488
4.01% - 6.00% 569,101,440 193,747,878 40,021,700 7,834,267 2,875,256 862,580 814,443,121
6.01% - 8.00% 151,670,745 83,040,398 15,879,738 2,071,464 3,892,318 498,942 257,053,605
8.01% - 10.00% 1,368,641 739,580 3,625,475 6,019,945 3,684,240 - 15,437,881
10.01% - 12.00% - 6,747 - 140,864 39,496 - 187,107
12.01% - 14.00% - - - 162,321 - - 162,321
-------------- ------------ ----------- ----------- ----------- ---------- --------------
$1,338,652,910 $278,140,513 $59,591,407 $16,228,861 $10,491,310 $1,361,522 $1,704,466,523
============== ============ =========== =========== =========== ========== ==============
</TABLE>
BORROWINGS. At December 31, 1995 and 1994, Eureka had securities sold under
agreements to repurchase identical securities of $206.9 million and $462.5
million, respectively. The weighted average maturity of these borrowings at
December 31, 1995 and 1994 was 36 days and 57 days, respectively. The weighted
average interest rate of these borrowings was 5.74% and 5.93% at December 31,
1995 and 1994, respectively.
At December 31, 1995 and 1994, short-term FHLB advances (maturing within one
year) totaled $277.7 million and $ 50.3 million, respectively, and had a
weighted average rate of 5.73% and 5.70%, respectively. At December 31, 1995,
long-term FHLB advances (maturing through 2002) totaled $32.4 million and had a
weighted average rate of 5.99%. There were no long-term FHLB advances at
December 31, 1994. The shift in other borrowings from repurchase agreements to
FHLB advances in 1995 was due to a FHLB program offered in the third quarter of
1995 that provided more effective leverage and attractive pricing than reverse
repurchase agreements. The principal purpose of the borrowings was to provide
additional liquidity.
COMPETITION
- -----------
Eureka faces strong competition in both attracting savings accounts and
originating real estate loans. The competition between commercial banks and
thrift institutions has intensified in recent years due to federal regulations
eliminating many of the distinctions between these two types of institutions.
The most direct competition for deposits comes from other savings institutions,
commercial banks, credit unions, corporate and government debt securities, and
money market mutual funds. Low interest rates can result in competition for
deposits from non-deposit investment products such as stocks and bonds, mutual
funds and other investments. The primary basis of competition for funds is the
rate of interest paid. Methods used by Eureka to attract deposits include
advertising, having convenient branch office locations and quality customer
service.
Competition for real estate loans comes principally from other savings
institutions, commercial banks, and mortgage banking companies. Consumer loan
competition is primarily from commercial banks, savings and loans, consumer
finance companies, and credit unions. Eureka competes for loans principally
through innovative products, pricing and quality services.
As a result of recent changes in federal law, including changes which will
facilitate the ability of banking organizations to conduct interstate banking
and branching operations, Eureka may face increased competition from other
depository institutions in the future. See, "Insurance of Deposits."
EMPLOYEES
- ---------
At December 31, 1995, Eureka had 397 full-time-equivalent employees. The
Partnership does not have any employees. Eureka provides its employees with a
comprehensive benefit program including basic and major medical coverage, dental
plan, life insurance, accident insurance, long-term disability coverage,
retirement benefits and a 401(k) plan. Eureka also offers loans with reduced
origination fees to its employees who qualify. None of Eureka's employees are
represented by a collective bargaining group. Management considers its
relations with its employees to be satisfactory.
15
<PAGE>
REGULATION
- ----------
GENERAL. Eureka is a federally-chartered savings bank, and, as such, is subject
to broad federal regulation and oversight extending to all of its operations.
As savings and loan holding companies, the Partnership and AFEH also are subject
to federal and state regulation and oversight.
The OTS has primary regulatory authority over Eureka and its holding company.
In addition, Eureka is a member of SAIF through which customers' deposits are
insured up to maximum levels provided by the FDIC. As a result, the FDIC has
certain regulatory and examination authority over Eureka. See, "Insurance of
Deposits."
The OTS has primary enforcement responsibility over savings associations, and
has broad enforcement powers allowing the OTS to take various types of
regulatory actions against savings institutions and their affiliated persons for
unsafe and unsound banking practices, or violations of laws, regulations,
written supervisory agreements or directives, or commitments given in writing by
the association. Such actions can include the imposition of cease-and-desist
orders which may require affirmative corrective actions (such as restitution or
other significant remedial acts), removing or suspending officers and directors
of the association, or imposing civil money penalties. Civil penalties cover a
wide range of violations and actions and range from $5,000 to $1 million a day.
In cases where the OTS determines not to take regulatory action against a
savings association, the FDIC has authority to recommend and, in some
circumstances, to compel enforcement action by the OTS. In addition, regulators
have broad discretion to take enforcement action against an institution that
fails to comply with regulatory requirements, including but not limited to
regulatory capital requirements. Possible enforcement action ranges from the
imposition of a capital plan to the termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System is the central credit facility
for savings institutions. As a federally chartered association, Eureka is
required by law to be a member of the FHLB System and to purchase and hold stock
in the FHLB of San Francisco in an amount equal to the greater of (i) 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or (ii) 5% of its FHLB advances
outstanding. Eureka was in compliance with this requirement at December 31,
1995.
The FHLB of San Francisco serves as a reserve or central bank for member
institutions within its assigned region. Advances from the FHLB of San
Francisco are secured by a member's shares of stock in the FHLB of San
Francisco, certain types of mortgages and other assets. Interest rates charged
for advances vary depending upon maturity, the cost of funds to the FHLB of San
Francisco and the purpose of the borrowing. At December 31, 1995, Eureka had
advances totaling approximately $310 million from the FHLB of San Francisco.
All long-term advances must be used by Eureka to provide funds for residential
mortgage loans. In addition, the FHLB has issued regulations that establish
community service or investment standards (including complying with the
Community Reinvestment Act and lending to first-time home buyers) for FHLB
members to follow as a condition to continued access to long-term advances.
LIQUIDITY REQUIREMENTS. Eureka is currently required to maintain an average
daily balance of liquid assets (including cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to at least 5% of the average daily balance of its net
withdrawable accounts plus short-term borrowings during the preceding calendar
month. Eureka is also required to maintain, for each calendar month, an average
daily balance of short-term liquid assets (generally those having maturities of
six months or less) equal to at least 1% of the average daily balance of its net
withdrawable accounts plus short-term borrowings during the preceding calendar
month. Monetary penalties may be imposed for failure to meet liquidity ratio
requirements. The liquidity ratio of Eureka at December 31, 1995 was 5.38%,
exceeding the applicable requirements.
INSURANCE OF DEPOSITS. Eureka's deposits are insured up to $100,000 per insured
deposit account (as defined by law and regulation) by SAIF. This insurance is
backed by the full faith and credit of the United States Government. SAIF is
administered and managed by the FDIC. As insurer, the FDIC is authorized to
conduct examinations of and to require reporting by SAIF-insured institutions.
It also may prohibit any SAIF-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious threat to SAIF.
SAIF members are required to pay an annual premium for deposit insurance in an
amount related to each institution's perceived risk to the deposit insurance
fund, based on the types and concentrations of its assets and liabilities and
other factors deemed relevant by the FDIC. Institutions are placed in one of
three capital groups, then further categorized into one of three supervisory
subgroups within the assigned capital group. In turn, an institution's "risk-
based" deposit insurance assessment is based upon the institution's capital
group and supervisory subgroup classifications. In 1995, the FDIC's deposit
insurance assessments for SAIF-insured institutions ranged from .23% to .31%;
Eureka's assessment rate for 1995 was .23%. Current law provides no statutory
cap on SAIF premium rates.
16
<PAGE>
In contrast, the FDIC has 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).
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines, after a hearing, that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
order or any condition imposed by or an agreement with the FDIC. Management
does not know of any current practice, condition or violation that might lead to
termination of Eureka's FDIC insurance.
Omnibus budget legislation has been passed by both Houses of Congress, but
vetoed by the President, which includes a provision that would recapitalize the
SAIF 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, which would 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 impose 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. The bill also would provide for a merger of BIF and SAIF by no
later than January 1, 1998, provided that no insured savings associations are in
existence on that date. The legislation also would repeal the thrift bad debt
reserve method of calculation under the Internal Revenue Code, effective for tax
years beginning after December 31, 1995. Hence, most large SAIF-insured
institutions (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 bill. At the present time, the
House and Senate are discussing means to resolve outstanding differences over
the broader budget bill and obtain Presidential approval of the revised
legislation.
Eureka cannot predict whether, when or in what form any such legislation will
ultimately be enacted, or what the effective date of any legislation will be.
If SAIF legislation as described above is adopted, 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.
The impact on Eureka of the change in the accounting and tax treatment of
statutory bad debts under the new legislation would be negligible.
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.
REGULATORY CAPITAL REQUIREMENTS. Savings institutions must satisfy three
separate tests of capital adequacy: A leverage standard, a tangible capital
standard and a risk-based capital standard.
The OTS leverage limit requires savings associations to maintain "core capital"
in an amount equal to at least 3% of adjusted total assets. Core capital is
defined as common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries and qualifying supervisory goodwill (until
January 1, 1995), less intangible assets, other than certain purchased mortgage
servicing rights, purchased credit card relationships and qualifying
identifiable intangible assets.
The tangible capital requirement adopted by the OTS requires a savings
institution to maintain tangible capital in an amount equal to at least 1.5% of
adjusted total assets. Tangible capital is defined as core capital less all
intangible assets (including supervisory goodwill), other than purchased
mortgage servicing rights valued at the lower of the maximum percentage
established by the FDIC or the amount includable in core capital.
Under the OTS risk-based capital requirement, a savings association must
maintain risk-based capital equal to at least 8% of risk-weighted assets. A
savings association must calculate its risk-weighted assets by multiplying each
asset and off-balance sheet item by various risk factors, which range from 0%
for cash and securities issued by the U.S. Government or its agencies to 100%
for commercial loans and real estate owned. Total capital is defined as core
capital (as defined above) plus supplementary capital, which may include, among
other items, cumulative perpetual preferred stock, perpetual
17
<PAGE>
subordinated debt, mandatory convertible subordinated debt, intermediate-term
preferred stock and a certain portion of the allowance for loan losses.
Supplementary capital may not exceed 100% of core capital.
In meeting the leverage limit, tangible capital and risk-based capital
standards, a savings institution must deduct from capital, subject to certain
limited exceptions, its entire investment in and loans to a subsidiary engaged
in activities not permissible for a national bank. Eureka has one such
subsidiary whose primary purpose is to hold real estate acquired by Eureka
during the acquisition of Stanford from the FSLIC in 1988.
On August 31, 1993, the OTS issued final rules to add an interest rate risk
("IRR") component to risk-based capital standards. Under these rules, a savings
association with a greater than normal level of interest rate risk exposure will
be subject to a deduction from total capital for purposes of calculating its
risk-based capital. The IRR deduction will equal one-half the difference
between an institution's "measured interest rate risk" and a "normal" level of
interest rate exposure. The measured interest rate risk is calculated by
determining the decline that would occur in the thrift's net portfolio value due
to a 200 basis point increase or decrease in market interest rates (whichever
would produce the lowest net portfolio value). When the 3-month Treasury bond
equivalent yield falls below 4%, the hypothetical decline in rates will be one-
half the Treasury rate (at year-end, 1.5%). Any decline in net portfolio value
of up to 2% of an institution's assets will be considered a "normal" level. The
IRR capital requirement, which was to go into effect as of June 30, 1995, has
been waived. When a decision is reached by the OTS on the effective date of the
IRR capital requirement, institutions will be appropriately notified.
Effective November 1994, the OTS no longer required savings institutions to
include unrealized gains and losses on available-for-sale debt securities
established under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", in regulatory capital. Under the revised OTS policy,
institutions must value available-for-sale debt securities at amortized cost for
regulatory capital purposes. Adoption of this uniform interagency policy is
responsive to the general goal of regulatory uniformity set forth in Section 303
of the Riegle Community Development and Regulatory Improvement Act of 1994.
This decision reverses the interim OTS policy issued in August 1993 under which
institutions computed their regulatory capital in accordance with SFAS No. 115.
A savings institution which fails to maintain minimum levels of required capital
may be required to take certain corrective actions specified in OTS regulations,
including reducing the rate of interest that may be paid on savings accounts,
limiting its receipt of deposits and issuance of new accounts and restricting
its lending and investment activities. The OTS may also require the institution
to reduce its operational expenditures and increase its regulatory capital or
liquid assets to specified levels. If a savings association fails to comply
with the capital standards, the Director of the OTS will restrict asset growth
and either issue a capital directive or require the institution to submit a
capital plan. At December 31, 1995, Eureka was in compliance with all
regulatory capital requirements.
In addition to the corrective actions available under these OTS regulations, the
FDIC Improvement Act of 1991 ("FDICIA") established a statutory framework for
capital-based corrective action. The law sets out five categories for
depository institutions and imposes increasingly strict regulatory restrictions
and supervisory actions at each successive level. As implemented by OTS
regulation, a well-capitalized institution under this framework must have a
total risk-based capital ratio of at least 10%, a core capital ratio of at least
6%, a leverage ratio of at least 5% and not be subject to any agreement, order,
capital directive, or prompt corrective action. At December 31, 1995, Eureka
was classified as a "well-capitalized" institution; this classification,
however, is a regulatory capital classification used for internal regulatory
purposes and is not necessarily indicative of Eureka's condition and operations.
QUALIFIED THRIFT LENDER TEST. Eureka is required to meet a Qualified Thrift
Lender (QTL) test for continued eligibility for FHLB advances and other
purposes. To pass this test, an institution must have at least 65% of its
portfolio assets invested in residential mortgage loans or other qualifying
assets, and must maintain this level of qualifying investments as measured on a
monthly average basis in 9 out of every 12 months. For purposes of the QTL
test, portfolio assets are total assets less intangibles, properties used to
conduct business and liquid assets (up to 20% of total assets).
The definition of qualified investments includes domestic residential housing or
manufactured housing loans, home equity loans and mortgage-backed securities
backed by residential housing or manufactured loans, shares of stock issued by
any
18
<PAGE>
FHLB, certain obligations of the FDIC and other related entities, and certain
other assets. At December 31, 1995, Eureka's ratio of QTL qualifying assets to
total assets was 97%.
If the holding company of a savings association is a unitary savings and loan
holding company, as the Partnership and AFEH are, among other things, it becomes
subject to the activity restrictions imposed on a multiple savings and loan
holding company if its savings and loan subsidiary fails to pass the QTL test,
and may be required to register and be regulated as a bank holding company if
the subsidiary savings association fails to requalify under the QTL test within
one year.
INVESTMENT PORTFOLIO POLICY AND ACCOUNTING. The Statement of Policy on
Investment Portfolio Policy and Accounting Guidelines issued by the OTS requires
that the board of directors of a savings institution adopt a written investment
policy that addresses investment policies and strategies for each category of
investments in the savings institution's portfolio and requires extensive
documentation to justify such strategies. The Partnership's and Eureka's
present investment policy, as adopted by the Partnership and Eureka Board of
Directors, provides that assets be designated as available for sale or held to
maturity at purchase date. Present investment policies prohibit the
establishment of a trading portfolio.
CAPITAL DISTRIBUTIONS. The OTS regulations impose limitations upon all "capital
distributions" by savings institutions, including cash dividends, payments by a
savings institution to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other distributions
charged against capital. The regulations establish a three-tiered system of
regulation, with the greatest flexibility being afforded to well-capitalized
institutions ("Tier 1 Institution").
A Tier 1 Institution can, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year up to 100% of its net
income to date during the calendar year, plus the amount that would reduce its
"surplus capital ratio" (the percentage by which the ratio of its capital to
assets exceeds the ratio of its fully phased-in capital requirement to assets)
to not less than one-half of its surplus capital ratio at the beginning of the
calendar year. Any additional amount of capital distributions would require
prior regulatory approval. Capital distributions are generally prohibited, if
after the distribution, the institution would be undercapitalized. At December
31, 1995, Eureka was a Tier 1 Institution. Dividend payments by Eureka are
subject to the limitations under the FDIC capital maintenance agreement, which
are discussed in the Capital Resources section of Management's Discussion and
Analysis.
Under OTS regulations, a Tier 1 institution, such as Eureka, can make capital
distributions during a calendar year, without specific OTS approval, up to the
higher of : 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its surplus capital ratio at the beginning
of the calendar year; or 75 percent of its net income over the most recent four-
quarter period.
The OTS recently has proposed for comment changes to its capital distribution
regulations to replace the current three-tier system with a requirement tied to
the FDICIA framework for capital based corrective action, discussed above.
Under this proposal, a savings association, other than one which is in a
troubled condition, generally would be permitted to make capital distributions,
provided that these capital distributions would not cause the association's
capital to drop below the level required to remain adequately capitalized for
OTS purposes.
TRANSACTIONS WITH AFFILIATES AND INSIDERS. Transactions between a savings
institution and its affiliates are subject to Sections 23A and 23B of the
Federal Reserve Act. Generally, these sections restrict certain types of
transactions between affiliates to a percentage of a savings institution's
capital and require all such transactions to be on terms at least as favorable
to a savings institution as are available in transactions with non-affiliates.
In addition, savings institutions are prohibited from lending to any affiliate
engaged in activities not permissible for a bank holding company and from
acquiring shares of most affiliates.
These provisions apply to transactions between Eureka and the Partnership or
Eureka and the Partnership's non-savings association subsidiaries. Under OTS
regulations, Eureka's subsidiaries are not deemed affiliates unless the OTS
determines that the subsidiary poses a risk to Eureka's safety or soundness, or
either the OTS or the Federal Reserve Board determines that it is an "affiliate"
based on the nature of its relationship to Eureka. Any company that would be an
affiliate under Sections 23A and 23B except for the fact that it is a subsidiary
of a savings institution is deemed to be an affiliate unless the
19
<PAGE>
OTS determines otherwise. Savings institutions are further prohibited from
paying management fees to an affiliate if the institution would be
undercapitalized after making the payment.
Savings institutions also are subject to Section 22(h) of the Federal Reserve
Act, which restricts the aggregate loans by a savings institution to its
executive officers, directors or principal shareholders or any related interest
of such persons. In addition, savings institutions are subject to Section 22(g)
of the Federal Reserve Act, which places additional restrictions on loans by a
savings institution to an executive officer.
LENDING RESTRICTIONS. Savings institutions are required to follow the national
bank loans-to-one borrower restrictions subject to certain exceptions. For
loans not fully secured, the total loans and extensions of credit to any one
borrower or group of borrowers outstanding at one time may not exceed 15% of the
unimpaired capital and unimpaired surplus of the institution. In addition, a
savings institution separately may have outstanding total loans and extensions
of credit not to exceed 10% of the unimpaired capital and unimpaired surplus of
the institution to any one borrower or group of borrowers which are fully
secured by readily marketable collateral having a market value, as determined by
reliable and continuously available price quotations, at least equal to the
amount of the funds outstanding.
FIRREA permits certain exceptions to these national bank requirements. A
savings institution may make loans to one borrower of up to $500,000 for any
purpose. A savings institution may make loans to one borrower of up to the
lesser of $30 million or 30% of unimpaired capital and unimpaired surplus to
develop domestic residential housing units provided the purchase price per
single family unit is $500,000 or less, the Director of the OTS approves the
making of the loans, the institution is and continues to be in compliance with
its fully phased-in capital standards, the loans comply with applicable loan-to-
value requirements, and loans to all borrowers made under this higher limit do
not in the aggregate exceed 150% of the institution's unimpaired capital and
unimpaired surplus.
Beginning March 19, 1993, savings associations were subject to OTS regulations
regarding real estate lending standards. Under these regulations, Eureka
adopted real estate lending policies addressing issues such as loan-to-value
limits, loan administration procedures, portfolio diversification standards, and
documentation, approval and reporting requirements. Eureka is currently subject
to OTS regulations requiring independent appraisals in connection with certain
real estate related transactions. In addition, a rule phased in between
December 19, 1992 and June 19, 1995, placed restrictions on extensions of credit
by Eureka to correspondent depository institutions.
FEDERAL RESERVE SYSTEM. Savings institutions are subject to Federal Reserve
Board regulations requiring reserves to be maintained against transaction
accounts (primarily NOW accounts) and non-personal time deposits. The
regulations generally require that reserves of 3% must be maintained against
transaction accounts of up to $54.0 million (subject to adjustment by the
Federal Reserve Board) and that an additional reserve of 10% must be maintained
against that portion of aggregate transaction accounts in excess of $54.0
million; effective December 15, 1995, this regulatory benchmark was adjusted to
$52.0 million. Reserve requirements for non-personal time deposits that have
maturities of less than 18 months currently are at zero percent. Thrift
institutions also have authority to borrow from the appropriate Federal Reserve
Bank under certain circumstances, but Federal Reserve System policy generally
requires thrift institutions to exhaust all other sources before borrowing from
the Federal Reserve System. At December 31, 1995, 1994 and 1993, Eureka met its
reserve requirements, and had no borrowings from the Federal Reserve Bank.
SAVINGS AND LOAN HOLDING COMPANY REGULATION. AFEH and the Partnership
(references to the Partnership in this section shall be deemed to include AFEH)
are non-diversified unitary savings and loan holding companies subject to
regulatory oversight of the OTS. As such, the Partnership is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Partnership and its non-savings institution subsidiaries. Among other things,
this authority permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings institution. Eureka
must notify the OTS at least 30 days before declaring any dividend to AFEH.
As a unitary savings and loan holding company, the Partnership generally is not
subject to regulatory limitations on the scope of its permissible activities so
long as Eureka continues to meet the QTL test. If the Partnership acquires
control of another savings institution as a separate subsidiary, it would become
a multiple savings and loan holding company, and the activities of the
Partnership and any of its subsidiaries (other than Eureka or any other SAIF-
insured savings institution) would be restricted by law.
20
<PAGE>
The Partnership must obtain approval from the OTS before acquiring control of
any other SAIF-insured institution. Such acquisitions generally may be
prohibited if they result in a multiple savings and loan holding company
controlling savings institutions in more than one state. However, such
interstate acquisitions may be permitted based on specific state authorization
or in a supervisory acquisition of a failing savings institution.
Pursuant to the holding company regulations of the OTS, Eureka is subject to
certain restrictions in its dealings with the Partnership and with other
companies affiliated with the Partnership. See, "Transactions with Affiliates."
FEDERAL TAXATION
- ----------------
THE PARTNERSHIP. The Partnership is classified as a partnership for federal
income tax purposes and, as a result, is not subject to federal income taxes.
Instead, each holder of BUCs, who is treated as a partner of the Partnership, is
required to include his allocable share of the income, gain, loss and other
items of the Partnership in computing his income for federal income tax
purposes. The Partnership's primary sources of income were periodic dividends
with respect to the stock of AFEH owned by the Partnership and interest income
on temporary investments.
AFEH. AFEH and Eureka file a consolidated federal income tax return on a
calendar year basis and report their income on an accrual basis.
Eureka is the principal contributor to the consolidated group's taxable income.
Because Eureka may be entitled to special deductions and other tax benefits in
computing its separate taxable income, as discussed below, the group may have a
lower effective tax rate than that applicable to corporations generally.
Eureka's net operating loss carryovers as of December 31, 1995 and their
expiration dates and effective tax rates are set forth in Note 17 to Notes to
Consolidated Financial Statements.
EUREKA. Under presently applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), savings institutions such as Eureka, which
qualify by meeting certain definitional tests relating primarily to the correct
composition of their assets (requiring that 60% of total assets constitute
certain "qualifying assets") and the nature of their business are permitted to
establish a reserve for bad debts and to make annual additions thereto, which
additions may, within specified formula limits, be deducted in arriving at the
institution's taxable income. Reserve additions for qualifying real property
loans (defined generally as loans secured by an interest in improved real estate
or by an interest in real property that is to be improved out of the proceeds of
the loan) may be computed under either a percentage of taxable income method
("percentage method") or an experience method, the latter of which is based on
Eureka's actual loss experience for the current year and the five preceding
taxable years. With respect to "non-qualifying loans" (all loans other than
qualifying loans), the bad debt deduction, if available, must be calculated
under the experience method. For 1995, 1994 and 1993, Eureka used the
experience method to compute its reserve additions for qualifying real property
loans as well as non-qualifying loans.
If less than 60% of Eureka's total assets are "qualifying assets," as provided
under the Code, Eureka will lose the ability to make deductible additions to bad
debt reserves and will be required to include some or all of its existing
reserves in income as provided in the Code. As of December 31, 1995, 1994 and
1993, the percentage of Eureka's assets constituting qualifying assets was
approximately 95%, 92% and 91%, respectively.
Eureka will not be able to use the percentage of taxable income method for
computing the annual bad debt deduction unless it has taxable income after
utilization of allowable net operating loss carryforwards. Under this method, a
thrift institution's bad debt reserve deduction for qualifying real property
loans is calculated by multiplying the institution's taxable income, determined
without regard to any bad debt reserve deduction and modified by certain items
of income and loss, by 8%. The deduction so computed is reduced by the amount
permitted as a deduction for non-qualifying loans under the experience method.
Additions to a thrift institution's bad debt reserves determined under the
percentage method cannot, however, cause such reserves to exceed 6% of
qualifying loans at the end of the taxable year. Also, under the percentage
method, the annual bad debt deduction is limited to the amount by which 12% of a
thrift institution's savings deposits or withdrawable accounts at the end of the
taxable year exceeds the sum of its surplus, undivided profits and reserves at
the beginning of such year.
21
<PAGE>
A thrift institution organized in stock form that has utilized the percentage
method to calculate its bad debt deduction is subject to recapture tax if it
makes certain types of distributions to its stockholders. Dividends may be paid
out of retained earnings without the imposition of any such tax to the extent
that the amounts paid as dividends do not exceed the institution's current or
accumulated earnings and profits as calculated for federal income tax purposes.
However, dividends paid in excess of an institution's current or accumulated
earnings and profits and other distributions made with respect to an
institution's stock, such as distributions in redemption of stock or in partial
or complete liquidation, are deemed, for tax purposes, to be made from the
institution's bad debt reserves to the extent the balance in such reserves
exceeds the amount that would have been accumulated under the experience method.
The amount of tax payable upon any distribution that is treated as having been
made from the institution's bad debt reserves for tax purposes is also deemed to
have been paid from those reserves to the extent thereof.
In connection with the Acquisition of Eureka by AFEH, AFEH entered into an
Assistance Agreement with FDIC pursuant to which FDIC provided Eureka with a
capital contribution and agreed to provide Eureka with capital loss coverage and
yield maintenance on certain of its assets. See Note 3 to Notes to Consolidated
Financial Statements. Under current law, payments to Eureka by FDIC pursuant to
this Assistance Agreement are not subject to federal income tax and do not
result in reduction of Eureka's net operating loss carryovers or other tax
benefits, provided Eureka continues to meet the business and 60% qualifying
asset tests discussed above. Under the Assistance Agreement, FDIC is entitled
to participate in certain of the tax benefits utilized by Eureka. For the year
ended December 31, 1995, none of the tax benefits in which FDIC would
participate were realized.
Depending on the composition of its items of income and expenses, a thrift
institution may be subject to the alternative minimum tax. A corporation's
alternative minimum taxable income ("AMTI") generally consists of its taxable
income plus certain adjustments and "items of tax preference." A corporate
taxpayer's AMTI in excess of the exemption amount ($40,000, subject to phasing
out as AMTI increases) generally is subject to the 20% corporate alternative
minimum tax ("AMT") to the extent that the AMT exceeds the regular corporate
income tax. For taxable years beginning after 1989, AMTI is increased by 75% of
the amount by which adjusted current earnings (an amount based on earnings and
profits as calculated for federal income tax purposes) exceed AMTI, computed
without regard to such adjustment and the alternative tax net operating loss
deduction. Most of the payments by FDIC to Eureka pursuant to the Assistance
Agreement are not included in net book income, but all such payments to be
received after 1989 will be included in adjusted current earnings and,
therefore, may have an impact on the computation of AMTI. AMTI may be reduced
by net operating loss carryovers only up to 90% of AMTI, but AMTI attributable
to most preferences can be credited against regular tax due in later years.
STATE TAXATION. AFEH and Eureka are subject to the California franchise tax
with respect to income apportioned to California, and file a combined unitary
California return, which has the effect of eliminating intercompany
distributions, including dividends, in the computation of combined taxable
income. Savings and loan associations are subject to tax on their net income at
a rate of approximately 11.3%, which rate is subject to adjustment in subsequent
years to a maximum rate of 11.7%. "Net income" for this purpose generally means
federal taxable income, subject to certain adjustments. Under current
California law, 50% of any losses incurred during the years ending December 31,
1988 through 1996 may be carried forward 5 years. California permits a bad debt
deduction based on a method similar to the federal experience method, but does
not allow use of the percentage method. California has adopted the federal
treatment of FDIC assistance payments. California also has an alternative
minimum tax at a rate of 9.0% for financial institutions which is computed
similarly to the Federal AMT. In addition, California has a de minimus minimum
tax.
AUDITS. The Internal Revenue Service has examined Eureka's federal income tax
returns for previous fiscal years through June 30, 1985. There have been no
audits of state income tax returns of Eureka or any of its subsidiaries.
SUBSIDIARIES. Eureka has subsidiaries which were formed primarily for the
purpose of investing in real estate. In addition, Eureka maintains a
subsidiary, Eureka Financial Services, Inc., that is engaged in the sale of non-
deposit investments, and recorded net income of approximately $170,000 in 1995.
22
<PAGE>
ITEM 2. PROPERTIES.
-----------
The following table sets forth information with respect to Eureka's offices as
of December 31, 1995. In addition, the Partnership leases office space of 4,385
square feet at 555 California Street, San Francisco, under a lease arrangement
which expires in 1998.
EUREKABANK
OFFICES OWNED OR LEASED
<TABLE>
<CAPTION>
Owned Lease Date Square
or Expiration Facility Footage
Location Leased Date Opened Occupied
- -------------------------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Main Office:
- --------------------------------
950 Tower Lane Leased 2000 1990 48,900
Foster City, CA
Administrative Offices:
- --------------------------------
2600 El Camino Real Land Lease/ 2040 1975 19,000
San Mateo, CA Own Building
5700 Stoneridge Mall Leased 1997 1991 6,238
Pleasanton, CA
815 Willow Street Leased 2000 1980 42,000
2225 Spring Street
Redwood City, CA
Branch Offices:
- --------------------------------
783 Rio Del Mar Boulevard Leased 1998 1976 3,500
Aptos, CA
750 W. Hamilton Avenue Leased 2003 1974 3,725
Campbell, CA
1965 Diamond Boulevard Land Lease/ 2003 1978 4,000
Concord, CA Own Building
10050 N. Wolfe Road Leased 1996 1993 3,606
Cupertino, CA
720 San Ramon Valley Boulevard Land Lease/ 2004 1974 4,000
Danville, CA Own Building
39390 Fremont Boulevard Leased 2002 1963 7,500
Fremont, CA
</TABLE>
23
<PAGE>
EUREKABANK
OFFICES OWNED OR LEASED
<TABLE>
<CAPTION>
Owned Lease Date Square
or Expiration Facility Footage
Location Leased Date Opened Occupied
- --------------------------- ------ ---------- -------- --------
<S> <C> <C> <C> <C>
1 Strawflower Leased 2000 1975 2,500
Half Moon Bay, CA
3492 Mt. Diablo Boulevard Leased 1998 1979 2,490
Lafayette, CA
300 Main Street Own N/A 1980 3,201
Los Altos, CA
127 N. Santa Cruz Avenue Own N/A 1992 3,518
Los Gatos, CA
810 Main Street Leased 1996 1981 1,600
Martinez, CA
825 Santa Cruz Avenue Leased 2001 1978 2,075
Menlo Park, CA
368 Ignacio Boulevard Leased 1997 1974 2,500
Novato, CA
1655 Oceana Boulevard Leased 2000 1959 6,429
Pacifica, CA
301 University Avenue Leased 1997 1988 6,815
Palo Alto, CA
5870 Stoneridge Mall Leased 2001 1991 3,887
Pleasanton, CA
400 San Mateo Avenue Leased 2004 1953 4,650
San Bruno, CA
1200 San Carlos Avenue Leased 1999 1953 14,903
San Carlos, CA
1371 E. 14th Street Leased 2000 1980 6,765
San Leandro, CA
915 Ralston Avenue Leased 2004 1995 3,500
Belmont, CA
400 S. El Camino Real Leased 1999 1991 3,617
San Mateo, CA
</TABLE>
24
<PAGE>
EUREKABANK
OFFICES OWNED OR LEASED
<TABLE>
<CAPTION>
Owned Lease Date Square
or Expiration Facility Footage
Location Leased Date Opened Occupied
- ---------------------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
443 Castro Street Own N/A 1961 2,036
San Francisco, CA
1200 Irving Street Leased 2003 1982 1,406
San Francisco, CA
4610 Mission Street Leased 2000 1958 8,900
San Francisco, CA
201 Montgomery Street Leased 1996 1991 10,000
San Francisco, CA
1435 Stockton Street Leased 1996 1978 4,697
San Francisco, CA
5670 Almaden Expressway Land Lease/ 2008 1972 6000
San Jose, CA Own Building
1099 Lincoln Avenue Land Lease/ 1999 1991 6,053
San Jose, CA Own Building
1780 Saratoga Avenue Leased 1996 1993 4,500
San Jose, CA
3200 Northgate Drive Leased 2003 1972 3,215
San Rafael, CA
110 N. Morrissey Boulevard Leased 2003 1975 4,000
Santa Cruz, CA
50 Old Courthouse Square Leased 2000 1963 5,405
Santa Rosa, CA
2751 4th Street Leased Monthly 1980 430
Santa Rosa, CA
40 Chestnut Avenue Leased 2003 1973 4,049
South San Francisco, CA
1307 S. Mary Avenue Leased 1999 1992 5,800
Sunnyvale, CA
801 Alamo Drive Leased 2003 1973 4,000
Vacaville, CA
</TABLE>
The aggregate net carrying value of premises owned by Eureka and leasehold
improvements of leased offices at December 31, 1995 was $13.3 million. See Note
9 to Notes to Consolidated Financial Statements.
25
<PAGE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of the Partnership's BUC Holders during the
fourth quarter of the fiscal year ending December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED BUC HOLDERS MATTERS.
----------------------------------------------------------------------
(a) MARKET INFORMATION. Prior to their listing on the NASDAQ System on May
22, 1989, there was no established trading market for BUCs. On June 6,
1989, the BUCs were included in the NASDAQ National Market System and
began trading on the NASDAQ Stock Market under the trading symbol "AFFFZ."
The following table sets forth the high and low sale prices for the BUCs
for each quarterly period during 1995 and 1994. Quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
------------------
1995 High Low
---- ------ ---------
<S> <C> <C>
1st Quarter $24.50 $19.50
2nd Quarter $27.25 $23.25
3rd Quarter $28.38 $24.50
4th Quarter $30.25 $27.00
1994
----
1st Quarter $25.75 $21.75
2nd Quarter $25.00 $21.25
3rd Quarter $24.00 $21.00
4th Quarter $22.75 $18.50
</TABLE>
(b) BUC HOLDERS. The approximate number of BUC holders on December 31, 1995
was 9,847.
(c) DISTRIBUTIONS. Total cash distributions paid or accrued for the fiscal
years ended December 31, 1995 and 1994 to BUC Holders equaled $9,616,944
and $9,616,943, respectively. Cash distributions were paid quarterly, and
totaled $1.60 per BUC for the fiscal years ended December 31, 1995 and
1994.
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds
used for cash distributions and for a discussion of factors, if any, which
may adversely affect the Partnership's ability to make cash distributions
at the same levels in 1996 and thereafter.
26
<PAGE>
America First Financial Fund 1987-A Limited Partnership and Subsidiary
Selected Financial Data
ITEM 6. SELECTED FINANCIAL DATA. Set forth below is selected financial data
for the Partnership. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto filed in
response to Item 8 hereof.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------
Selected Financial Condition Information 1995 1994 1993 1992 1991
- ------------------------------------------ --------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Total assets $2,416,953,364 $2,393,577,257 $2,348,382,187 $2,361,199,866 $2,093,257,915
Loans receivable, net(1) 1,431,583,207 1,433,148,528 1,547,159,130 1,591,524,631 1,475,498,932
Mortgage-backed securities 815,802,149 790,900,746 629,538,711 567,653,979 287,910,252
Investments(1) 85,195,619 83,690,607 64,374,853 86,281,358 189,621,000
Due from FDIC - - - 10,592,307 45,928,199
Customer deposits 1,704,466,523 1,696,291,789 1,713,207,365 1,735,433,974 1,741,878,431
Other borrowings(1) 516,943,421 512,763,000 441,865,000 450,368,376 80,278,000
Partners' capital 156,131,684 144,595,341 143,249,047 152,633,917 141,080,840
For the Year Ended December 31,
--------------------------------------------------------------------------------------
Selected Operations Information 1995 1994 1993 1992 1991
- ------------------------------- --------------- --------------- ---------------- ---------------- ----------------
Interest income $ 163,639,692 $ 136,068,738 $ 142,855,763 $ 156,570,963 $ 176,051,600
FDIC assistance, net - - (267,610) 379,648 2,733,174
-------------- -------------- -------------- -------------- --------------
Total interest income 163,639,692 136,068,738 142,588,153 156,950,611 178,784,774
Interest expense (107,602,066) (84,193,124) (86,169,894) (94,933,410) (118,820,831)
-------------- -------------- -------------- -------------- --------------
Net interest margin before
provision for loan losses 56,037,626 51,875,614 56,418,259 62,017,201 59,963,943
Provision for loan losses (792,167) (1,245,426) (2,508,610) (2,691,896) (3,109,950)
-------------- -------------- -------------- -------------- --------------
Net interest margin after
provision for loan losses 55,245,459 50,630,188 53,909,649 59,325,305 56,853,993
-------------- -------------- -------------- -------------- --------------
Non-interest income 9,423,050 9,991,002 14,420,801 10,201,740 7,544,574
Non-interest expense (47,433,391) (45,428,868) (68,122,588) (48,402,265) (43,197,783)
-------------- -------------- -------------- -------------- --------------
Net non-interest expense (38,010,341) (35,437,866) (53,701,787) (38,200,525) (35,653,209)
-------------- -------------- -------------- -------------- --------------
Income before income taxes 17,235,118 15,192,322 207,862 21,124,780 21,200,784
Income tax expense - - - (9,400) (10,189)
-------------- -------------- -------------- -------------- --------------
Net income $ 17,235,118 $ 15,192,322 $ 207,862 $ 21,115,380 $ 21,190,595
============== ============== ============== ============== ==============
Net income per BUC $2.6292 $2.3573 $.3618 $3.1501 $3.2023
Total cash distributions paid or
accrued per BUC $1.6000 $1.6000 $1.6000 $1.5750 $1.5000
</TABLE>
- ----------
(1) Loans receivable includes loans held for sale; investments include federal
funds sold and securities purchased under agreements to resell; and other
borrowings include securities sold under agreements to repurchase.
27
<PAGE>
<TABLE>
<CAPTION>
Selected Other Information
- ----------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Return on investment(1) 13.15% 11.79% 1.81% 15.75% 16.01%
Return on average assets(2) .73% .66% .01% .99% 1.10%
Average equity/average
earning assets(3) 6.57% 6.46% 6.62% 7.24% 7.23%
Dividend payout ratio(4) 60.85% 67.87% 442.00% 50.00% 46.84%
Return on average equity(5) 11.46% 10.62% .14% 14.34% 15.63%
Loans to deposits ratio(6) 83.99% 84.49% 90.31% 91.71% 84.71%
Loan loss reserves $6,878,072 $7,820,406 $9,455,778 $8,989,020 $8,277,960
</TABLE>
- ----------
(1) Annualized return on investment is calculated based on earnings allocable to
the BUC holders divided by their original investment of $120,211,780, which
equals the total number of BUCs times $20.
(2) Net earnings divided by monthly average consolidated assets.
(3) Monthly average consolidated equity divided by monthly average earning
assets.
(4) Total dividends paid to BUC holders divided by net earnings allocated to BUC
holders.
(5) Net earnings divided by monthly average consolidated equity.
(6) Consolidated loans receivable divided by total consolidated deposits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
----------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
RESULTS OF OPERATIONS
- ---------------------
The Partnership recorded earnings of approximately $17.2 million or $2.63 per
BUC for the year ended December 31, 1995, compared to earnings of approximately
$15.2 million or $2.36 per BUC for the year ended December 31, 1994, and
approximately $.2 million or $.36 per BUC in 1993. The earnings in 1993
reflected a third quarter charge of $20.4 million which related to interest rate
exchange agreements. See, "Provision for Loss on Interest Rate Exchange
Agreements" below for further discussion. The Partnership's income for 1995,
1994 and 1993 consisted primarily of the earnings of Eureka. Eureka's principal
income component is net interest income which is the difference between interest
income on earning assets and interest expense on interest bearing liabilities.
Earning assets primarily consist of mortgage loans and mortgage-backed
securities ("MBS"), and are financed by customer deposits and other borrowings.
Eureka's earning assets are obtained through retail and wholesale loan
originations, and are supplemented with purchased loans and MBS. At December
31, 1995, the Partnership had total assets of approximately $2.4 billion, which
consisted primarily of the assets of Eureka and its subsidiaries.
The business strategy for 1995 was focused on managing interest rate risk,
credit risk and controlling non-interest expense. The increase in earnings in
1995 was primarily the result of the following:
o Although interest rates declined somewhat during 1995, the rate
environment during 1995 was more stable than in 1994 and 1993. A slow
down in loan prepayments allowed the yields on adjustable rate loans to
adjust upwards to their more fully indexed rates. Interest expense for
the interest rate exchange agreements which was an adjustment to the
yield on loans, decreased during 1995 as compared to 1994 due to the
maturity of approximately $228 million in swap agreements. The above
factors resulted in an increase in the net interest margin from 2.25% in
1994 to 2.36% in 1995.
o The provision for loan losses decreased from $1.2 million in 1994 to
$792,000 in 1995. The decrease in the provision was due to the continued
improvement in asset quality which is discussed in the Credit Risk
section.
o Non-interest expense before interest rate swap provisions (recoveries)
decreased from 1994 to 1995 due to management's focus on controlling costs
for professional services, advertising expenses and other general and
administrative expenses. In addition, the reduction in loan originations
in 1995 reduced the loan agent commissions, and staffing levels for 1995
for Eureka were at a record low of 397 full time employees as of December
31, 1995.
28
<PAGE>
The above factors contributed to the increase in earnings, but future changes in
the interest rate environment could impact the above factors and the current
year's earnings may not be indicative of any future period's earnings.
Eureka's business approach is characterized by continued strong capital ratios
and low exposure to credit losses. Eureka's tangible and risk-based capital
ratios were 5.95% and 14.41%, respectively, at December 31, 1995, as compared to
5.52% and 13.50%, respectively, at December 31, 1994. Non-performing assets
declined to approximately .37% of total assets at December 31, 1995, as compared
to .56% at December 31, 1994, despite the difficult California economy.
Eureka's ratio of non-performing assets is well below the December 31, 1995
average of 1.05% reported by the Office of Thrift Supervision ("OTS") for
thrifts located in California.
The Partnership's earning assets totaled $2.30 billion and $2.33 billion at
December 31, 1995 and 1994, respectively. Eureka's earning assets to total
assets ratio was 97% at December 31, 1995 and 1994. During 1995, Eureka
originated $172 million of mortgage loans (net of loan sales of $7 million) in
primarily 1-4 unit residential properties, and purchased $91 million of mortgage
loans and $163 million of MBS for a total of $426 million in additions to
mortgage loans and MBS. Of the $172 million originated during 1995, $80 million
were wholesale originations and $92 million were retail originations. The
wholesale loan origination system was established during 1995, and management
believes that the wholesale loan originations will increase as a 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.
These additions to earning assets were partially offset by mortgage loan and MBS
paydowns of $390 million. Mortgage loan prepayments were 16% for 1995, as
compared to 21% for 1994. Adjustable rate loans and MBS held by Eureka totaled
$1.5 billion at December 31, 1995, and approximately $1 billion consisted of
loans indexed to LIBOR or Treasury rates. Fixed rate loans and MBS totaled
$364 million and $412 million at December 31, 1995 and 1994, respectively.
Convertible loans totaled $351 million and $257 million at December 31, 1995 and
1994, respectively. During 1995, customer preferences shifted from adjustable
rate loans to convertible loan products which have fixed rates for three to
seven years, then change to adjustable rate loans which are for the most part
indexed to Treasury rates. Convertible loan additions to the loan portfolio
totaled $120 million for 1995, as compared to $45 million for 1994. As part of
its asset/liability management strategy, Eureka typically sells originated fixed
rate loans and retains originated variable and convertible rate loans for its
portfolio.
Customer deposits are Eureka's primary source of funds for lending and
investing. Customer deposits totaled $1.70 billion at December 31, 1995 and
1994. Other borrowings at December 31, 1995 consisted of short-term reverse
repurchase agreements and FHLB advances totaling approximately $517 million,
compared to $513 million at December 31, 1994. Other borrowings supplemented
retail deposits as a funding source for the origination or purchase of earning
assets.
NET INTEREST INCOME
- -------------------
Net interest income from Eureka is the Partnership's principal income component
and is the difference between interest rates received on earning assets and
interest rates paid on interest bearing liabilities. Net interest income before
the provision for loan losses was approximately $56.0 million in 1995, compared
to approximately $51.9 million in 1994, and $56.4 million in 1993. The net
interest margin was 2.36%, 2.25% and 2.39% for 1995, 1994 and 1993,
respectively.
Interest rates declined during 1995, but the changes were not as significant as
the interest rate changes which occurred during 1994 and 1993, and customers'
responses to the decline in interest rates during 1995 were less dramatic. Loan
prepayments were 16% for 1995, as compared to 21% and 34% for 1994 and 1993,
respectively. The slow down in prepayments allowed the interest rates on
adjustable rate loans to increase towards their fully indexed rates, which
increased the yield on the loan portfolio. In addition, interest income in
previous periods was more significantly reduced by the interest expense on the
interest rate exchange agreements, net of accretion of the liability established
in 1993. Net interest expense for interest rate exchange agreements was $2.4
million for 1995, as compared to $6.3 million and $16.5 million for 1994 and
1993, respectively. The decrease was due to the expiration of $228 million
(notional amount) of interest rate exchange agreements from December 31, 1994 to
December 31, 1995. See, "Provision for Loss on Interest Rate Exchange
Agreements" below for further discussion.
29
<PAGE>
During 1995, repayments of mortgage loans and MBS totaled $390 million, and
originations and purchases totaled $426 million. Repayments totaled $489
million and originations and purchases totaled $547 million for 1994.
Originations and purchases of adjustable rate loans and MBS during 1995 totaled
$301 million, of which $186 million were indexed to LIBOR or Treasury rates,
and $88 million were indexed to the six-month certificate of deposit. Of the
$491 million in adjustable rate loans and MBS purchased or originated in 1994,
$442 million were indexed to LIBOR or Treasury rates. Convertible loan
additions to the loan portfolio totaled $120 million for 1995, as compared to
$45 million for 1994. During 1995, customer preferences shifted from adjustable
rate loans to convertible loan products which have fixed rates for three to
seven years, then change to adjustable rate loans which are for the most part
indexed to Treasury rates.
Eureka generally maintained its customer deposit base by providing attractive
deposit products and promotions. Customer deposits as a percentage of total
interest bearing liabilities were 77% at December 31, 1995, compared to 76% at
December 31, 1994. Reverse repurchase agreements and FHLB advances made up the
remaining 23% of interest bearing liabilities for 1995 (24% for 1994). FHLB
advances totaled $310 million and $50 million, and reverse repurchase agreements
totaled $207 million and $462 million, at December 31, 1995 and 1994,
respectively. The shift in other borrowings from repurchase agreements to FHLB
advances in 1995 was due to a FHLB program offered in the third quarter of 1995
that provided more effective leverage and attractive pricing than reverse
repurchase agreements. Future changes in the funding sources may have an impact
on the net interest margin.
PROVISION FOR LOAN LOSSES
- -------------------------
Eureka recorded loan loss provisions of $.8 million, $1.2 million and $2.5
million during 1995, 1994 and 1993, respectively. Net loan charge-offs were
$1.1 million in 1995, $2.2 million in 1994 and $2.0 million in 1993. Of the
total net charge-offs recorded during 1995, $840,000 was for Eureka's consumer
loan portfolio, as compared to $1.2 million for 1994. Of the $840,000 in
consumer loan portfolio net charge-offs for 1995, $801,000 was related to the
BankCard receivables. Eureka sold its BankCard receivables in the third quarter
of 1995. Future provisions and charge-offs for the consumer loan portfolio are
expected to decline due to the sale of the BankCard receivable portfolio.
Charge-off ratios for the mortgage loan portfolio for 1995 and 1994 were .02%
and .07%, respectively.
The decrease in the provision for loan losses from 1994 to 1995 was due to
improvements in asset quality, specifically the decline in the level of non-
performing and delinquent loans. Non-performing loans at December 31, 1995
totaled $6.4 million as compared to $8.3 million at December 31, 1994.
Consequently, the allowance for loan losses as a percentage of non-performing
loans improved from 94% at December 31, 1994 to 108% at December 31, 1995. In
addition, the ratio of delinquent loans to total loans was .84% at December 31,
1995, as compared to 1.18% at December 31, 1994.
The requirements for the loan loss provision for 1996 will depend on the loan
portfolio performance and economic conditions affecting customers' abilities to
repay loans, in particular mortgage loans. See, "Credit Risk" below for
additional information.
NON-INTEREST INCOME
- -------------------
Non-interest income totaled approximately $9.4 million for the year ended
December 31, 1995, compared to $10.0 million in 1994, and $14.4 million in 1993.
The principal components of non-interest income are deposit and loan related
fees, net gains on the disposition of loans and investments and other non-
interest income.
Deposit and loan related fees were approximately $3.8 million in 1995, as
compared to $4.1 million for 1994, and $4.5 million for 1993. The decrease in
fees in 1995 was largely due to the lower volume of loan originations in 1995,
as compared to 1994 and 1993. Retail and wholesale mortgage loan originations
for 1995 were $172 million, as compared to $213 million for 1994.
During 1995, Eureka originated and sold fixed rate loans which conformed to
Federal Home Loan Mortgage Corporation ("FHLMC") standards with principal
balances totaling $7 million, compared to $27 million and $117 million in 1994
and 1993, respectively. The loan sales resulted in net gains of $67,000 in
1995, compared to $117,000 and $1.9 million in 1994 and 1993, respectively.
During 1995, customer preferences shifted from adjustable rate loans to
convertible loan products
30
<PAGE>
which have fixed rates for three to seven years, then change to adjustable rate
loans. Eureka currently retains these loans for its portfolio. Saleable fixed
rate loan originations totaled $11 million in 1995, as compared to $34 million
for 1994, and $144 million for 1993. The low volume of fixed rate loans
originated in 1995 reduced the opportunities to sell loans in the secondary
market. Investment securities sold during 1993 resulted in a net gain of $1.9
million. There were no investment securities sold in 1994 and 1995.
Other non-interest income totaled $5.6 million, $5.8 million and $6.1 million
for 1995, 1994 and 1993, respectively. Other income included rental income,
revenue from the sale of non-deposit investment products, income from real
estate held for investment, gain on sale of real estate owned ("REO"), servicing
fee income from loans serviced for others and other non-operating income items.
The net gain on the sales of REO totaled $786,000, $1.3 million and $250,000 in
1995, 1994 and 1993, respectively. The volume of foreclosures on mortgage loans
and gains or losses from the disposition of these properties cannot be
predicted, and transactions for 1995 and prior years may not be indicative of
1996 results. Income from the sale of non-deposit investment products
approximated $1.0 million, $1.3 million and $2.2 million in 1995, 1994 and 1993,
respectively. The 27% decline in non-deposit investment sales from $33 million
in 1994 to $24 million in 1995 was due to a customer trend to more liquid
investments such as deposits. Income from real estate investments totaled
$293,000, $1.2 million and $1.3 million in 1995, 1994 and 1993, respectively.
During the third quarter in 1995, real estate held for sale or investment with a
recorded value of $2.3 million was sold for a net gain of $100,000 which was
offset by valuation adjustments or write-downs of $700,000 recorded during 1995.
The property which was sold in 1995 accounted for $292,000 and $214,000 in
other non-interest income in 1995 and 1994, respectively. Income from real
estate held for sale or investment is expected to continue to decline in 1996
since the remaining real estate property is undeveloped lots and does not
produce income. Servicing fee income from loans serviced for others totaled
$663,000, $659,000 and $608,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
NON-INTEREST EXPENSE
- --------------------
Excluding the provision (recovery) for loss on interest rate exchange agreements
which is discussed below, total non-interest expense was $45.5 million for the
year ended December 31, 1995, compared to $49.7 million in 1994, and $47.7
million in 1993. Non-interest expense includes compensation and benefits
expense, occupancy and equipment expense, FDIC insurance premiums, professional
and advertising expense, and other administrative expenses.
Compensation and benefits expense was $19.9 million in 1995, compared to $21.4
million in 1994, and $20.7 million in 1993. In addition to management's general
effort to reduce controllable costs, the decline in retail loan funding volume
in 1995 reduced loan agent commissions for 1995 as compared to 1994 and 1993.
For 1995, the expense for management incentive compensation was approximately
$784,000, as compared to $1 million for 1994.
Occupancy expense was $8.9 million in 1995, compared to $10.2 million in 1994
and $9.3 million in 1993. The decrease from 1994 to 1995 was due to the sales
of real estate investments. These sales reduced occupancy expense by
approximately $800,000 for 1995, as compared to 1994. Professional and
advertising expenses were $2.2 million, $2.7 million and $2.5 million for 1995,
1994 and 1993, respectively. Other non-interest expense totaled $10.3 million,
$11.2 million and $11.6 million for 1995, 1994 and 1993, respectively. The
decrease in these expenses from 1994 to 1995 was primarily attributable to
management's general effort to manage these controllable costs.
PROVISION FOR LOSS ON INTEREST RATE EXCHANGE AGREEMENTS
- -------------------------------------------------------
The earnings in 1993 reflected a third quarter charge of $20.4 million which
related to interest rate exchange agreements arranged predominantly in 1988,
1990 and 1991 that were intended to hedge yields on fixed rate mortgages funded
by variable rate liabilities. For reference, the Federal Funds rate averaged
7.7% during the four years from the beginning of 1988 through 1991, while it
averaged 3.0% for 1993. The sustained decline in interest rates and the
resultant prepayment of mortgage loans associated with interest rate exchange
agreements caused Eureka to establish a liability based on the estimated fair
value of exchange agreements that were no longer deemed effective as hedges.
During 1995, Eureka recorded provisions to non-interest expense totaling $1.9
million. The provisions reflect the effect of interest rate decreases on the
market value of Eureka's obligations under interest rate exchange agreements
deemed ineffective as hedges. During 1994, Eureka recorded credits to non-
interest expense totaling $4.3 million which reflected the effect of interest
rate increases on
31
<PAGE>
the market value of these interest rate exchange agreements. Net interest
expense on interest rate exchange agreements of approximately $2.4 million was
included as an adjustment to interest income on loans during 1995, as compared
to $6.3 million and $16.5 million in 1994 and 1993, respectively. No additional
interest rate exchange agreements were undertaken in 1995, 1994 and 1993. During
1995, $228 million (notional amount) of interest rate exchange agreements
expired reducing the total notional amount from $373 million at January 1, 1995,
to $145 million at the end of 1995. By the end of 1996, an additional $45
million of these agreements will expire, a reduction of nearly 73% in a two year
period. Future changes in interest rates in either direction could impact the
fair market value of the interest rate exchange agreements. Such changes in
interest rates may result in future recoveries or provisions, depending upon the
direction of movement in interest rates.
INCOME TAXES
- ------------
At the Partnership level, items of income, expense and gain or loss are reported
in the tax returns of the BUC holders according to their proportionate interest
in the Partnership. At the America First Eureka Holdings, Inc. ("AFEH") and
Eureka levels, no regular income tax liability was incurred during 1995, 1994 or
1993 due to the utilization of net operating loss carryforwards and other tax
benefits in connection with the acquisition of Eureka by AFEH. AFEH paid
alternative minimum taxes of $496,000, $149,000 and $445,000 during 1995, 1994
and 1993, respectively. Alternative minimum taxes paid, which generate
alternative minimum tax credit carryforwards, are recorded as deferred tax
assets with an indefinite life and will be used to offset future regular tax
liabilities.
Recent federal deficit reduction legislation contains a provision that
eliminates the deductibility of asset disposition losses to the extent such
losses are reimbursed by FSLIC financial assistance paid to acquirers of failed
thrift institutions after March 4, 1991. Management has concluded that the
earnings impact of this provision in the deficit reduction tax bill on AFEH will
be negligible.
CREDIT RISK
- -----------
Eureka's loan portfolio, which consists primarily of loans collateralized by 1-4
unit residential properties located in California, is characterized by a high
level of credit quality in spite of California's difficult real estate market.
That strong credit quality is evidenced by a .37% ratio of non-performing assets
to total assets at December 31, 1995, and is the result of two factors: the
prudent lending practices followed since AFEH's acquisition of Eureka, and the
seasoning of the pre-acquisition loan portfolio. Eureka's lending activities
subsequent to the Acquisition have been focused on loans secured by 1-4 unit
residential properties primarily located in northern California. Multi-family,
commercial and land mortgage loans constitute 9% and 10% of Eureka's mortgage
portfolio at December 31, 1995 and 1994, respectively. Eureka does not have any
construction loans or construction loan commitments outstanding.
32
<PAGE>
The following schedule outlines the delinquencies, non-performing loans, and
loan loss reserves by category for the loan portfolio:
<TABLE>
<CAPTION>
1995 1994
------------------------------------- ---------------------------------------
Delinquent Mortgage Consumer Total Mortgage Consumer Total
- -------------------- ------------ --------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
30-60 Days $ 3,164,047 $ 32,636 $ 3,196,683 $ 4,466,245 $ 349,572 $ 4,815,817
61-90 Days 2,464,901 10,722 2,475,623 3,763,421 178,579 3,942,000
90+ Days 6,377,228 11,226 6,388,454 8,082,334 206,884 8,289,218
----------- -------- ----------- ----------- ---------- -----------
Total $12,006,176 $ 54,584 $12,060,760 $16,312,000 $ 735,035 $17,047,035
=========== ======== =========== =========== ========== ===========
Non-performing
loans $ 6,377,228 $ 11,226 $ 6,388,454 $ 8,082,334 $ 206,884 $ 8,289,218
=========== ======== =========== =========== ========== ===========
Loan loss
reserves $ 6,106,408 $771,664 $ 6,878,072 $ 5,352,105 $2,468,301 $ 7,820,406
=========== ======== =========== =========== ========== ===========
Loan loss reserves
as a % of non-
performing loans 96% 6874% 108% 66% 1193% 94%
=========== ======== =========== =========== ========== ===========
</TABLE>
The ratio of loans which are thirty or more days delinquent to total loans
outstanding was .84% as of December 31, 1995, compared to 1.18% as of December
31, 1994. Eureka's delinquency ratio is well below the 1.70% average as of
December 31, 1995, reported by the OTS for California savings institutions. The
Bank's ratio of non-performing assets (loans which were ninety or more days
delinquent and real estate acquired through foreclosure) to total assets was
.37% at December 31, 1995, compared to .56% at the end of 1994. Eureka's non-
performing asset ratio was also well below the 1.05% average as of December 31,
1995, reported by the OTS for California savings institutions.
Eureka's ratio of loan loss reserves to non-performing loans was 108% at
December 31, 1995. Loan loss reserves were .48% and .54% of total loans
outstanding at December 31, 1995 and 1994, respectively. The decline from 1994
to 1995 in the loan loss reserves to total loans ratio is due to the improvement
in non-performing assets and delinquent loans.
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.
INTEREST RATE RISK
- ------------------
As of December 31, 1995, Eureka had a positive one-year interest rate repricing
gap of approximately six percent, and a negative three-year interest rate
repricing gap of approximately one percent. At December 31, 1994, Eureka had a
negative one-year interest rate repricing gap of approximately three percent,
and a negative three-year repricing gap of approximately four percent. The
interest rate repricing gap reported at December 31, 1995 assumes higher
prepayment levels on mortgage loans due to the lower interest rate environment,
as compared to December 31, 1994. Additionally, the interest rate repricing gap
reported at December 31, 1995 has been impacted by a larger percentage of
deposits and borrowings maturing over one year, as compared to December 31,
1994.
In evaluating Eureka's exposure to interest rate risk, certain limitations to
the gap measure should be considered. For example, certain assets and
liabilities may have similar maturities or repricing periods, but react in
differing degrees to
33
<PAGE>
changes in market interest rates. In addition, some assets such as adjustable
rate mortgages, have product features which limit changes in interest rates on a
short-term basis and over the life of the asset. Further, the gap measures
include assumptions about mortgage prepayments. Major shifts in interest rates
can cause assumptions regarding anticipated mortgage prepayment levels to vary
significantly from actual results. Eureka considers the anticipated effects of
these various factors in managing its interest rate risk position. At December
31, 1995, approximately 78% of Eureka's interest earning assets were rate
sensitive and reprice within a year.
Future potential impacts on the industry and Eureka's earnings include: 1)
deposit costs may not decline as quickly as wholesale borrowing costs if market
interest rates continue to decline; 2) a shift in origination volume from
adjustable rate mortgages that reprice every six months to convertible rate
mortgages with initial fixed rates for periods of three, five and seven years,
which may adversely impact asset and liability matching if loan repayments vary
materially from anticipated levels; and 3) net interest margin compression, due
to various factors including short-term funding costs rising faster than ARM
index rates, and interest rate caps and adjustment intervals on ARM loans
delaying full adjustment to market rates.
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.
The OTS regulations require a savings institution to maintain a liquidity ratio
of at least 5% of cash and specified securities to net withdrawable accounts and
borrowings due in one year. At December 31, 1995, Eureka had a liquidity ratio
of 5.25%.
CAPITAL RESOURCES
- -----------------
At December 31, 1995, Partnership equity totaled approximately $156 million,
compared to $145 million at December 31, 1994. The Partnership made
distributions to BUC holders at an annualized rate of $1.60 per BUC in 1995,
1994 and 1993. The return on average Partnership total equity was 11.46% for
the year ended December 31, 1995 compared to 10.62% in 1994. The primary
sources of the Partnership's distributions are dividends received from AFEH and
interest earned on temporary investments. Management expects that the present
level of distributions will continue throughout 1996. Future distributions will
depend primarily on the levels of dividends paid to the Partnership from AFEH,
which depends on the profitability of Eureka. Dividend payments by Eureka are
subject to the following limitations under the FDIC Capital Maintenance
Agreement:
- - No dividends may be paid if regulatory capital is less than required levels.
- - Aggregate dividends paid subsequent to the Acquisition may not exceed 50% of
the capital contributed upon and after the Acquisition, plus 50% of
aggregate net income earned subsequent to the Acquisition.
- - Dividends in any calendar year may not exceed the greater of $12 million or
50% of net income for the year.
34
<PAGE>
OTS regulations require that savings institutions meet three separate capital
tests: a risk-based capital standard, a core capital standard and a tangible
capital standard. At December 31, 1995, Eureka maintained regulatory capital as
follows:
<TABLE>
<CAPTION>
($'s in 000's)
--------------------------------------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
--------------------- -------------------- ----------------------
%
% % Risk-Based
Amount of Assets Amount of Assets Amount Assets
--------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $149,985 $149,985 $149,985
Non-allowable assets:
Other intangible assets (4,344) (4,344) (4,344)
Non-includable subsidiaries (2,718) (2,718) (2,718)
Unrealized gains on securities:
Available for sale (111) (111) (111)
Additional capital item:
General valuation allowances - - 4,019
-------- -------- --------
Computed regulatory capital 142,812 5.95% 142,812 5.95% 146,831 14.41%
Minimum capital requirement 36,018 1.50% 72,036 3.00% 81,533 8.00%
-------- ---- -------- ---- -------- ------
Excess regulatory capital $106,794 4.45% $ 70,776 2.95% $ 65,298 6.41%
======== ==== ======== ===== ======== ======
</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,"SFAS No. 122,
"Accounting for Mortgage Servicing Rights," and SFAS No. 123, "Accounting for
Stock-based Compensation." These pronouncements must be adopted for fiscal
years beginning after December 15, 1995, and the adoption of these
pronouncements is not expected to be material to the Partnership's financial
statements. See Note 1 of Notes to Consolidated Financial Statements for
further discussion of these pronouncements.
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 year ended December 31, 1995,
Eureka paid deposit insurance premiums to the SAIF of $3.8 million based on an
annual assessment rate of .23% of covered deposits. In contrast, the FDIC has
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).
Omnibus budget legislation has been passed by both Houses of Congress, but
vetoed by the President, which includes provision that would recapitalize the
SAIF 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, which would 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 impose 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. The bill also would provide for a merger of BIF and SAIF by no
later than January 1, 1998, provided that no insured savings associations are in
existence on that date. The legislation also would repeal the thrift bad debt
reserve method of calculation under the Internal Revenue Code, effective for tax
years beginning after December 31, 1995. Hence, most large SAIF-insured
institutions (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 bill. At the present time, the
House and Senate are discussing means to resolve outstanding differences over
the broader budget bill and obtain Presidential approval of the revised
legislation.
35
<PAGE>
Eureka cannot predict whether, when or in what form any such legislation will
ultimately be enacted, or what the effective date of any legislation will be.
If SAIF legislation as described above is adopted, 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.
The impact on Eureka of the change in the accounting and tax treatment of
statutory bad debts under the new legislation would be negligible.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The Consolidated Financial Statements of the Partnership and its subsidiaries
are set forth in Item 14 hereof and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
There were no changes in and disagreements with the Partnership's independent
accountants on accounting principles and practices or financial disclosure
during the fiscal years ended December 31, 1995 and 1994.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The Partnership has no directors or officers. Management of the Partnership
consists of the general partner of the Partnership, AFCA-5 and its corporate
general partner, AFCA-5 Management Corporation. In addition, AFEH and Eureka
each have their own board of directors and executive officers. The executive
officers and directors of AFCA-5 Management Corporation, AFEH and Eureka are set
forth below. All executive officers and directors serve for terms of one year.
All information is as of March 14, 1996.
AFCA-5 Management Corporation
-----------------------------
Directors
---------
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- -------------------- ------------------------------ -------------------
<S> <C> <C>
George H. Krauss Director/Chairman of the Board 1994
J. Paul Bagley Director 1987
Charles T. Hagel Director 1994
Thompson H. Rogers Director 1994
</TABLE>
Officers
--------
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- ------------------ ------------------------------- -------------------
<S> <C> <C>
George H. Krauss Chairman of the Board/Secretary 1995
J. Paul Bagley President/Treasurer 1995
</TABLE>
America First Eureka Holdings, Inc.
-----------------------------------
Directors
---------
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- -------------------- ------------------------------ -------------------
<S> <C> <C>
George H. Krauss Director/Chairman of the Board 1993
J. Paul Bagley Director 1988
Gregory D. Erwin Director 1988
Charles T. Hagel Director 1994
Stephen T. McLin Director 1988
Thompson H. Rogers Director 1994
</TABLE>
Officers
--------
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- ------------------ ---------------------------------------- -------------------
<S> <C> <C>
Stephen T. McLin Chief Executive Officer/President 1993/1988
Wm Mack Terry Executive Vice President/Chief Financial
Officer 1996
</TABLE>
37
<PAGE>
EurekaBank
----------
Directors
---------
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- --------------------- ------------------------------ -------------------
<S> <C> <C>
Stephen T. McLin Director/Chairman of the Board 1988/1993
J. Paul Bagley Director 1988
David B. Baker Director 1992
George E. Bull, III Director 1996
Mariann Byerwalter Director 1988
Gregory D. Erwin Director 1988
John Lee Guillory Director 1996
George H. Krauss Director 1993
Byron A. Scordelis Director 1988
Wm Mack Terry Director 1992
Michael Thesing Director 1989
</TABLE>
Officers
--------
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- -------------------- ------------------------------------- -------------------
<S> <C> <C>
Byron A. Scordelis President and Chief Executive Officer 1988
Peggy Hiraoka Executive Vice President/ 1991/1988
Director of Human Resources
Paul Holmes Executive Vice President/ 1991
Chief Operating Officer
Wm Mack Terry Executive Vice President/ 1996
Chief Financial Officer
Grant Harmon Senior Vice President/Secretary 1988
</TABLE>
J. Paul Bagley, 53, is the President and CEO of Laidlaw Holdings, Inc. He is
also a founding principal of Stone Pine Capital, an investment banking group
which owns a controlling interest in Laidlaw. For more than twenty years prior
to October 1988, Mr. Bagley was engaged in investment banking activities with
Shearson Lehman Hutton Inc. and its predecessor, E.F. Hutton & Company Inc. He
served in various capacities with Shearson and E.F. Hutton, including Executive
Vice President and Director, Managing Director, Head of Direct Investment
Origination and Manager of Corporate Finance. Mr. Bagley controls Fiduciary
Capital, a U.S. registered investment advisor which provides mezzanine debt and
equity capital to corporations. He is also Chairman and CEO of American
National Security, which provides security services to commercial and
residential customers. Mr. Bagley serves as Chairman of the Board of Directors
of Silver Screen Management, Inc. and International Film Investors, Inc., which
manage film portfolios with aggregate assets of $1.0 billion.
David B. Baker, 42, is Managing Partner of Moore & Baker, Certified Public
Accountants in Walnut Creek, California, serving in that capacity since 1982.
Previously, he was an accountant with KPMG Peat Marwick from 1979 to 1982.
George E. Bull, III, 47, is Chairman and Chief Executive Officer of Redwood
Trust, Inc. of Mill Valley, California (RWTI-NASDAQ), serving in such capacity
since April, 1994. Mr. Bull is also the President of GB Capital, and has served
in such capacity since he founded the predecessor of GB Capital in 1983. From
1991 through 1993, Mr. Bull oversaw the management of the $350 million portfolio
of commercial real estate investments and the $8 billion securities portfolio of
Executive Life Insurance Company on behalf of the California Department of
Insurance.
Mariann Byerwalter, 35, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of AFEH and EurekaBank from 1988 to January 1996. Ms. Byerwalter was
Chief Financial Officer and Chief Operating Officer of AFEH, and Chief Financial
Officer of EurekaBank from 1993 to January 1996. She was an officer of
BankAmerica Corporation and its venture capital subsidiary from 1984 to 1987.
She served
38
<PAGE>
as Vice President and Executive Assistant to the President of Bank of America
and was a Vice President in the bank's Corporate Planning and Development
Department, managing several acquisitions and divestitures. During 1986, Ms.
Byerwalter managed five divestitures, representing a total purchase price of
over $100 million with assets aggregating more than $5.0 billion.
Gregory D. Erwin, 55, is one of the founders and organizers of America First
Companies and has been instrumental in the structuring and development of the
public investment funds sponsored by affiliates of AFCA-5. Mr. Erwin is an
attorney and private investor. He serves as President of Corporation One, a
personal holding company which is a limited partner of AFCA-5. Mr. Erwin is the
President of Big Red Companies, which has the contract for the Omaha and
Lincoln, Nebraska municipal lotteries. From 1974 until 1985, he was a partner
of Kutak Rock in Omaha, Nebraska, and previously practiced law with Dewey,
Ballantine, Bushby, Palmer and Wood in New York.
John Lee Guillory, 50, is Chairman and Chief Executive Officer of Northridge
Group, Inc. of San Francisco, a commercial real estate advisory and management
firm, serving in that capacity since 1992. Previously, he held a variety of
senior management positions with Grubb & Ellis Company, a real estate management
and brokerage company from 1970 to 1991.
Charles T. Hagel, 49, is currently a Republican candidate for the United States
Senate in Nebraska. He recently resigned as President of McCarthy & Co.
McCarthy & Co. is a privately owned investment banking firm based in Omaha,
Nebraska. Mr. Hagel was a Founder, Director and Executive Vice President of
VANGUARD Cellular Systems, Inc., a publicly traded corporation, and a Founder
and Chairman of Communications Corporation International, LTD, a subsidiary of
VANGUARD. He is Chairman of the Board of Directors of American Information
Systems. Inc. (AIS), Omaha, Nebraska; serves on the Board of Directors of MTT
Corporation, a Hungarian telephone & cable TV company; Board of Trustees of
Manville Personal Injury Settlement Trust; Free Enterprise Council, National
Federation of Independent Business Foundation; Eisenhower World Affairs
Institute; The Fund for Democracy and Development; Advisory Boards of the
National D-Day Museum and The German American Business Association; and Board of
Trustees of the Constitutional Heritage Institute. He served as Deputy
Administrator of the Veterans Administration in the first Reagan Administration.
Grant S. Harmon, 42, has been Senior Vice President, Chief Counsel and Corporate
Secretary of Eureka since July 1985. Prior thereto, he was an attorney with the
law firm of Collette & Erickson in San Francisco, California from 1979 to 1985.
Peggy Hiraoka, 41, has been Director of Human Resources at Eureka since
September 1988. She was promoted to Executive Vice President in March 1991.
Previously, she was Vice President and Director of Human Resources of Bank of
America from 1973 to 1988.
Paul Holmes, 46, has been Executive Vice President, Chief Operating Officer of
Eureka since March 1991. Previously, he was Executive Vice President and
Director of Loan Administration of Banc Boston Mortgage Company from December
1987 to March 1991. Prior thereto, he was Senior Manager in charge of the
Financial Institutions Operations consulting practice of KPMG Peat Marwick, San
Francisco, California from April 1985 to December 1987.
George H. Krauss, 54, is acting general counsel of EurekaBank and is a partner
of Kutak Rock, which acts as general counsel for various America First entities.
Mr. Krauss has practiced law for approximately 20 years, primarily with respect
to federal and state regulation of financial institutions. Mr. Krauss is or has
been a principal shareholder of a number of privately owned banks and is a
director of Gateway 2000, Inc. Mr. Krauss holds an MBA degree, in addition to
his law and undergraduate degrees.
Stephen T. McLin, 49, was an officer of BankAmerica Corporation and various
subsidiaries, including Bank of America, from 1974 to 1987. In addition to
other positions, he served as Executive Vice President in charge of strategic
planning, acquisitions and divestitures and as Chairman of the Board of three
venture capital subsidiaries. Mr. McLin was the officer principally responsible
for arranging BankAmerica's acquisition of a variety of financial institutions
with assets aggregating over $10 billion, as well as for negotiating the sale of
different financial institutions with assets aggregating over $7 billion.
During his more than 12 years at Bank America, Mr. McLin was engaged in a wide
variety of other types of executive activities relating to financial institution
management and operations. Mr. McLin serves as a director of the Charles Schwab
Corporation.
39
<PAGE>
Thompson H. Rogers, 42, is a General Partner of Stone Pine Capital Ltd. and
Chairman of Laidlaw Holdings Asset Management, Inc. From 1984 through 1987 Mr.
Rogers was with FirsTier Banks, a $3.5 billion financial institution based in
Omaha, Nebraska. Mr. Rogers organized and managed the bank's Loan Analysis
Department. He subsequently became a First Vice President of Corporate Banking.
In 1981, Mr. Rogers joined First Commerce Bancshares, Inc., a $1.8 billion bank
holding company based in Lincoln, Nebraska. At First Commerce Mr. Rogers
assumed audit and credit analysis responsibilities of First Commerce's seven
financial institutions. Mr. Rogers joined The Philadelphia Company, a regional
wholesale distributor of consumer and commercial products, as Administrative
Manager in 1977, advancing to General Manager until his departure in 1981. Mr.
Rogers serves on the Board of Directors of Bank of Papillion, a $100 million
financial institution in Papillion, Nebraska and Havelock Bank, a $120 million
financial institution in Lincoln, Nebraska.
Byron A. Scordelis, 46, has been President and Chief Executive Officer of Eureka
since August 1988. Prior to August 1988 he was with Bank of America from 1974,
where he served as Director of Strategic Planning for Bank of America's Retail
Financial Services of San Francisco. From 1984 to 1987 he was Senior Vice
President and Area Manager for the San Jose group. From 1987 to August 1988 he
was Senior Vice President and Manager of the 225 branch Bay Area Region.
Wm Mack Terry, 52, assumed the duties of Executive Vice President and Chief
Financial Officer of EurekaBank and of AFEH in January 1996. He is Managing
Principal of the Monterey Group and of Intercept, which entities have consulted
since 1991 on strategy and re-engineering projects for financial service firms.
From 1990 to 1991 he was a Senior Manager in the San Francisco consulting
offices of Deloitte & Touche. From 1986 to 1990, Mr. Terry was a principal of
Tavistock Capital Corporation (a management consulting and merchant banking firm
in San Francisco), and was President of Diversified Corporate Loans (an
investment banking organization in San Francisco). From 1968 to 1986, Mr. Terry
served as Senior Vice President in various BankAmerica operations, including
Financial Analysis & Planning, Retail New Product Development, and the Capital
Markets Group.
Michael Thesing, 41, has been Vice President and Chief Financial Officer of
AFCA-5 since July 1984, and was Vice President and Treasurer of AFEH from 1990
to February 1996. From January 1984 until July 1984 he was employed by various
America First entities. Mr. Thesing was a certified public accountant with
Coopers & Lybrand from 1977 through 1983.
Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's
directors, executive officers, and persons who own more than 10 percent of the
Partnership's BUCs, to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of the
Partnership. Executive officers, directors and greater than 10 percent BUC
holders are required by SEC regulation to furnish the Partnership with copies of
all Section 16(a) reports they file.
The Partnership believes to the best of its knowledge for the year ended
December 31, 1995, its executive officers, directors and greater than 10 percent
beneficial owners complied with all applicable Section 16(a) filing
requirements, except that Michael Thesing, director of Eureka and Vice President
and Treasurer of AFEH from 1990 to February 1996, inadvertently did not timely
file a year-end report covering 33.7251 BUCs, with a market value of $952.73 as
of March 6, 1996, acquired through a dividend reinvestment program during the
year ended December 31, 1995. Mr. Thesing submitted his required filing with
the SEC on February 20, 1996, six days after the regulatory filing requirement
of February 14, 1996. His total ownership at December 31, 1995 was 542.4712
BUCs.
40
<PAGE>
Item 11. Executive Compensation
----------------------
The Partnership is organized as a limited partnership and, accordingly, has no
directors and officers. Remuneration paid to AFCA-5 (the general partner of the
Partnership) pursuant to the terms of the Partnership's limited partnership
agreement during the year ended December 31, 1995, is described in Note 22 of
Notes to Consolidated Financial Statements filed in response to Item 8 hereof.
The directors and executive officers of AFCA-5 Management Corporation (the
corporate general partner of AFCA-5) did not receive any remuneration from the
Partnership, and neither AFCA-5 nor AFCA-5 Management Corporation receive any
reimbursement from the Partnership for any portion of the salaries of the
directors and executive officers of AFCA-5 Management Corporation. Accordingly,
no presentation of the compensation of the executive officers and directors of
AFCA-5 Management Corporation is included in this report.
The Compensation Committee ("Committee") of EurekaBank's Board of Directors is
comprised of two outside directors who are not employees of EurekaBank or any of
its subsidiaries. The Committee has overall responsibility for EurekaBank's
executive compensation policies and practices. The Committee recommends
compensation plans and levels for the five senior officers of EurekaBank to the
full Board of Directors; it independently reviews and approves other executive
officers' compensation plans and levels, including salary and any payments under
bonus plans.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for fiscal years ending December 31, 1995, 1994, and
1993, certain compensation including salary, bonuses, long-term incentive
payments, and certain other compensation paid by AFEH and EurekaBank to the
Chief Executive Officer and the four other most highly compensated executive
officers of AFEH and EurekaBank at December 31, 1995.
41
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION(1)
---------------------------------------- -------------------------
OTHER ANN. LTIP ALL OTHER
NAME/PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($) PAYOUTS($)(3) COMP($)(4)
- ----------------------- ---- --------- ----------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
STEPHEN T. MCLIN...................... 1995 385,870 231,588 8,469 29,281 24,457
President & Chief Executive 1994 385,000 29,281 14,493 126,127 12,000
Officer-America First Eureka 1993 330,833 -0- 28,809 11,320 5,111
Holdings; Chairman-EurekaBank
BYRON A. SCORDELIS.................... 1995 300,000 191,880 13,650 31,374 16,161
President & Chief Executive Officer 1994 298,333 31,373 22,892 189,190 15,851
EurekaBank 1993 280,000 -0- 46,472 16,980 10,182
MARIANN BYERWALTER.................... 1995 265,112 172,588 7,533 29,281 25,939
Chief Operating Officer- 1994 234,540 54,281 11,609 99,097 14,843
America First Eureka Holdings; 1993 196,054 -0- 22,782 8,894 5,350
Executive Vice President and
Chief Financial Officer-EurekaBank
PAUL HOLMES........................... 1995 175,000 53,960 1,511 5,229 12,000
Executive Vice President and 1994 175,000 40,229 2,455 22,518 10,500
Chief Operating Officer 1993 175,000 35,000 3,928 2,021 5,538
EurekaBank
PEGGY HIRAOKA......................... 1995 147,923 53,960 3,931 10,458 11,884
Executive Vice President and 1994 143,446 40,457 4,179 22,518 11,390
Chief Administrative Officer 1993 141,231 25,000 6,779 2,021 4,374
EurekaBank
</TABLE>
- ------------------------
1 No stock options, restricted stock grants or stock appreciation rights (SARs)
have been made to the listed officers.
2 The amounts disclosed in this column for 1995 include the first cash
installment paid for 1995 pursuant to the EurekaBank Long Term Incentive Plan
(LTIP) and 1995 performance bonuses of $192,500, $150,000, $133,500, $40,000
and $40,000 for Mr. McLin, Mr. Scordelis, Ms. Byerwalter, Mr. Holmes and Ms.
Hiraoka, respectively.
3 The amounts disclosed as LTIP Payouts are in connection with EurekaBank's Long
Term Incentive Plan (LTIP). The amount shown for fiscal 1995 includes the
second cash installment paid from the 1994 LTIP. No Beneficial Unit
Certificates (BUCs) were distributed in connection with 1995 earnings for the
1993 LTIP. For all officers, the 1993 LTIP award was $0 due to 1993 earnings.
4 The amounts disclosed in this column include employer matching contributions
to the officer's 401(k) Savings Plan and the EurekaBank Service Investment
Plan, both of which are defined contribution plans, and payment by EurekaBank
for supplemental term life insurance premiums for Mr. McLin ($12,486), Mr.
Scordelis ($4,161) and supplemental disability insurance for Ms. Byerwalter
($4,441). The value of future premiums for this supplemental insurance are
contingent upon continued employment and is therefore not included.
EurekaBank did not pay for supplemental term life or supplemental disability
insurance for Mr. Holmes or Ms. Hiraoka. In October, the Committee voted to
provide Ms. Byerwalter with a one-time cash payment of $5,000, grossed-up for
tax purposes, to offset losses in benefits under the frozen EurekaBank
Retirement Plan.
42
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN 1995
Nine eligible EurekaBank senior officers receive payment under the Eureka Long
Term Incentive Plan ("LTIP") based on net revenue above an ROE threshold. The
LTIP requires minimum Return on Equity ("ROE") thresholds to be met on a one,
two and three-year basis for full payment to be received. 50% of the payment is
made in deferred Beneficial Unit Certificates. The Committee believes that this
risk/reward design is ultimately in the best interest of the shareholders,
assuring that executive pay will be closely correlated with both share price and
EurekaBank's financial results over time.
EXECUTIVE COMPENSATION PROGRAM
The executive cash compensation program for AFEH and EurekaBank contains three
elements: base salary, the annual bonus plan and the LTIP. Base salaries are
established at levels which, based on an independent study conducted by an
outside consultant, are between the 50th and 75th percentile for a peer group of
similar banks and thrifts. The LTIP was implemented in 1989 and subsequently
modified in 1991. The purpose of the LTIP is to ensure a consistent focus on
maximizing the Bank's LONGER-TERM financial performance by linking annual
payments to one-year, two-year, and three-year performance results. LTIP units
are granted each year and performance is measured after one year, at which time
25% of the earned award is paid, with the remainder deferred. These deferred
awards are subject to forfeiture if EurekaBank's financial performance does not
meet minimum ROE thresholds established in the LTIP. The Committee reviews the
effects of the executive compensation program including the LTIP, LTIP grants
and annual bonuses in light of the Bank's performance and the LTIP objectives to
ensure the program continues to meet the Committee's compensation philosophy.
Based on the overall results achieved for fiscal 1995, all five executives
participated in the LTIP and received annual performance bonuses of 22% to 50%
of base salary.
Each year, the prior year's LTIP award is earned based on the extent to which
the Bank's net income exceeds a pre-established ROE threshold. Earned awards
represent a percentage of net income in excess of the pre-established threshold.
No award is earned if the Bank's ROE is below the pre-established threshold.
Twenty-five percent of the earned award is paid in cash following the release of
audited financial statements for the subject year. An additional 25% is paid in
cash one year later, but only if the Bank's ROE for the preceding year exceeds a
pre-established level. The remaining 50% of the total LTIP award is paid in the
form of deferred Beneficial Unit Certificates ("BUCs") which link executives
directly to share price, and which are paid free of restrictions two years after
the end of the plan year, only if the Bank's average ROE exceeds a pre-
established ROE level.
Executives participating in the LTIP are paid dividends on deferred BUCs. In
addition, the LTIP contains a provision which allows for participation in the
excess of the sales price over the book value in the event of a sale of
EurekaBank.
LTIP AWARDS FOR 1995 PERFORMANCE
Based on the ROE minimum threshold established in the LTIP, executives earned
LTIP awards in connection with 1995 performance. There was no LTIP award earned
for 1993 performance based on 1993 ROE, therefore, there was no BUC distribution
from 1993. The effect of 1993's results continues to impact overall
performance-based compensation for the listed executives. The Committee
concluded that the LTIP appropriately adjusted 1993 total cash compensation
against 1993 financial results for EurekaBank and AFEH.
During 1995, Stephen T. McLin, the Chief Executive Officer and the highest paid
officer of AFEH, received a base salary, annual bonus and a payout under the
LTIP. Mr. McLin's base salary was $385,870, unchanged from 1994. The annual
bonus for Mr. McLin was $192,500 which reflected the outstanding results for the
year. The LTIP payout for 1995 included a cash payment of $39,088 for 1995
performance, $29,281 in connection with 1994 performance and $0 of deferred BUCs
distributed in connection with 1993 performance. Mr. McLin received dividend
payments in the amount of $8,469 in connection with the 1994 deferred BUCs.
43
<PAGE>
The following information is furnished for the year ended December 31, 1995,
with respect to the Chief Executive Officer of America First Eureka Holdings
(AFEH) and each of the four other most highly compensated executive officers of
AFEH and EurekaBank for awards under the 1995 EurekaBank Long Term Incentive
Plan (LTIP).
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NO. OF SHARES ------------------------------------------------------
UNITS OR PERIOD UNTIL
NAME OTHER RIGHTS(1) MATURATION(2) THRESHOLD(3) TARGET($)(4) MAXIMUM(5)
- ---- --------------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Stephen T. McLin.... 14.0 12-31-97 -0- 156,352
Byron A. Scordelis.. 15.0 12-31-97 -0- 167,520
Mariann Byerwalter.. 14.0 12-31-97 -0- 156,352
Paul Holmes......... 5.0 12-31-97 -0- 55,840
Peggy Hiraoka....... 5.0 12-31-97 -0- 55,840
</TABLE>
_____________
(1) This column reflects the LTIP units granted for 1995 in accordance with the
plan as included as an exhibit to the Partnership's annual report on Form
10-k for the year ended December 31, 1991.
(2) The dates in this column reflect the point at which the last of the 1995
LTIP payments is made. The first installment of the 1995 LTIP (1/4 of the
total award) was made in cash and is already reflected in the Annual
Compensation Chart. The remainder of the award is deferred and subject to
forfeiture, in whole or in part, under the terms of the LTIP if certain
performance thresholds are not achieved during the two year period following
1995.
(3) See footnote 2 above.
(4) The amount shown under "Target" represents the total LTIP award for 1995.
The first installment of the 1995 LTIP (1/4 of the total award) was made in
cash and is already reflected in the Annual Compensation Chart. The
remainder of the award is deferred and subject to forfeiture, in whole or in
part, if certain performance thresholds established under the LTIP are not
achieved during the two year period following 1995. 50% of the deferred
award is paid in BUCs, the value of which may increase or decrease depending
upon the price of BUCs at the time they are awarded.
(5) This column is not applicable to the EurekaBank LTIP.
EUREKABANK RETIREMENT PLAN
As of December 31, 1993, the EurekaBank Retirement Plan, EurekaBank's pension
plan, was frozen. As of the date of the freeze, all benefits earned through
that date were 100% vested on behalf of the named executive. The pension
benefits were based on gross annual compensation up to the $200,000 compensation
limit (indexed annually pursuant to IRC sections 401(a)(17), 404(l), 408(k))
including base salary, certain cash bonuses and cash payments from the LTIP.
For Mr. McLin and Ms. Byerwalter, the vested benefit only considers such amounts
paid by EurekaBank and excludes any amounts paid by AFEH.
The annual benefits payable upon retirement at age 65, based on a single life
annuity under the vested and frozen benefits under the EurekaBank Retirement
Plan as of December 31, 1995 for each of the named executives were as follows:
Stephen T. Mclin $17,648; Byron Scordelis $21,705; Mariann Byerwalter $5,746;
Paul Holmes $10,852; and Peggy Hiraoka $14,125.
44
<PAGE>
EMPLOYMENT SEVERANCE AGREEMENTS
In the event of an involuntary termination for other than cause, Messrs.
Scordelis and McLin and Ms. Byerwalter would receive severance payments equal to
their annual base salary. These severance payments will not be payable in the
event of a sale of EurekaBank or AFEH, regardless of whether the executives are
terminated by the buyer other than for cause. No other employment agreements or
severance arrangements exist for the executive officers included in the
compensation table.
DIRECTORS' COMPENSATION
Director's compensation in 1995 was paid only to Messrs. Baker, Krauss and
Terry. Each of these directors received a $15,000 annual Board retainer and a
$1,000 per meeting fee. In addition, Messrs. Baker and Terry constituted the
Audit Committee of the Board and received a retainer of $3,000, and a $1,000 per
meeting fee in connection with the Audit Committee. Mr. Baker received an
additional $1,000 annual retainer for his role as Audit Committee Chairman. Mr.
Terry received a fee of $1,000 per month for his role as Chairman of the Asset
Liability Committee which meets a minimum of once a month. Messrs. Baker,
Krauss and Terry also received an annual grant of 100 BUCs each for service in
1995. On January 24, 1996, Mr. Terry was appointed Executive Vice President and
Chief Financial Officer of EurekaBank and as of that date no longer received
remuneration specific to his services on the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee ( the "Committee") of the Board of Directors includes
Mr. Bagley and Mr. Krauss. Mr. Krauss is an officer of America First Eureka
Holdings, Inc. (AFEH). AFEH and America First Service Corp., an affiliate of
AFCA-5, have entered into a licensing agreement through which America First
Service Corp. provides services to AFEH and EurekaBank, including: earnings
improvement studies, management enhancement programs, development of marketing
programs, product development and similar business, economic and financial
advice and consultation. Pursuant to the licensing agreement, AFEH is committed
to pay America First Service Corp. an annual fee equal to 0.5% of the total of
Eureka's interest income and other income without deduction for interest and
other expenses. During 1995, 1994 and 1993, $863,793, $761,963 and $863,993,
respectively, of the annual fee had been paid or accrued. AFEH may also
reimburse America First Service Corp. for certain accountable expenses.
However, no reimbursements were made in 1995, 1994 or 1993.
Mr. McLin, executive officer and director of AFEH and Eureka, and Ms.
Byerwalter, a former executive officer and director of AFEH and a current
director of Eureka, were paid compensation based upon the profit performance of
AFCA-5 and America First Service Corp. Messrs. Bagley, McLin and Erwin are
shareholders of America First Service Corp. and Mr. McLin is a director of
America First Service Corp.
The Committee determines Mr. McLin's compensation and, upon recommendation of
the Chief Executive Officer, reviews and approves all executive officers'
compensation.
45
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
(a) No person is known by the Partnership to own beneficially more than 5% of
its BUCs.
(b) The following table sets forth the number of BUCs beneficially owned by
directors and executive officers, individual and as a group, of AFEH and
Eureka as of March 12, 1996, unless otherwise indicated:
<TABLE>
<CAPTION>
Amount and Nature Percent
Name of Beneficial Ownership/(1)/ of Class
---- ---------------------------- ---------
<S> <C> <C>
J. Paul Bagley 100 BUCs *
David B. Baker 400 BUCs/(7)/ *
Mariann Byerwalter 10,464 BUCs/(2)/ *
Gregory D. Erwin - *
Peggy Hiraoka Fitzgerald 1,133 BUCs/(3)/ *
Charles T. Hagel - *
Paul Holmes 1,133 BUCs/(4)/ *
George H. Krauss 5,200 BUCs/(8)/ *
Stephen T. McLin 19,438 BUCs/(5)/ *
Thompson H. Rogers - *
Byron A. Scordelis 29,082 BUCs/(6)/ *
Wm Mack Terry 400 BUCs/(7)/ *
Michael Thesing 542.4712 BUCs/(9)/ *
All directors and executive
officers as a group
(13 persons) 67,892.4712 BUCs 1.13%
</TABLE>
(c) Under the Capital Maintenance Agreement, dated May 27, 1988, among the
FDIC, the Partnership, AFEH, Eureka and certain of their affiliates, FDIC
may take control of Eureka in the event there is a breach of such
agreement, including the failure to maintain minimum capital. The
Partnership is not aware of any other arrangement the operation of which
may, at any subsequent date, result in a change in control of the
Partnership, AFEH or Eureka.
- ----------
* Less than 1% of class.
(1) Each of the named persons owns BUCs directly and has sole voting and
investment power with respect to the BUCs unless otherwise indicated.
(2) Excludes BUCs credited under the Long-Term Incentive Compensation
Plan of EurekaBank (the "Plan") of 2,827 and 2,748 to be distributed
in 1997 and 1998, respectively.
(3) Excludes BUCs credited under the Plan of 1,009 and 981 to be
distributed in 1997 and 1998, respectively.
(4) Excludes BUCs credited under the Plan of 504 and 981 to be
distributed in 1997 and 1998, respectively.
(5) Excludes BUCs credited under the Plan of 2,827 and 2,748 to be
distributed in 1997 and 1998, respectively.
(6) Excludes BUCs credited under the Plan of 3,029 and 2,945 to be
distributed in 1997 and 1998, respectively.
(7) 100 shares issued as director's compensation in each of March 1993,
March 1994, February 1995 and March 1996.
(8) Includes 100 shares issued as director's compensation in 1995.
(9) Mr. Thesing shares voting power with wife with respect to all BUCs.
46
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The general partners of AFCA-5 are Michael Yanney and AFCA-5 Management
Corporation whose sole shareholder is Mr. Yanney. The limited partners of AFCA-
5 include Paul Bagley, Gregory Erwin, Corporation One, whose sole shareholder is
Mr. Erwin and Yanney Holdings Inc., whose sole shareholder is Mr. Yanney.
Messrs. Erwin and Bagley also serve as directors of Eureka and AFEH.
Except as described herein, neither the Partnership, AFEH nor Eureka is a party
to any transaction or proposed transaction with any person who is (i) a director
or executive officer of AFCA-5 Management Corporation, AFEH or Eureka or any
general partner of AFCA-5, (ii) a nominee for election as a director of AFCA-5
Management Corporation, AFEH or Eureka, (iii) an owner of more than 5% of the
BUCs or (iv) a member of the immediate family of any of the foregoing persons.
During 1995, the Partnership or AFEH paid or reimbursed AFCA-5 for certain costs
and expenses incurred in connection with the operation of the Partnership,
including legal and accounting fees and investor communication costs, such as
printing and mailing charges. See Note 22 to Notes to Consolidated Financial
Statements filed in response to Item 8 hereof for a description of these costs
and expenses. In addition, during 1995, the Partnership or Eureka paid legal
fees to Kutak Rock, a law firm in which Mr. Krauss is a partner.
AFEH and America First Service Corp., an affiliate of AFCA-5, have entered into
a licensing agreement through which America First Service Corp. 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. Pursuant to
the licensing agreement, AFEH is committed to pay America First Service Corp. an
annual fee equal to 0.5% of the total of Eureka's interest income and other
income without deduction for interest and other expenses. During 1995, 1994 and
1993, $863,793, $761,963 and $863,993, respectively, of the annual fee had been
paid or accrued. AFEH may also reimburse America First Service Corp. for
certain accountable expenses. However, no reimbursements were made in 1995,
1994 or 1993.
Mr. Stephen T. McLin, executive officer and director of AFEH and Eureka, and
Mariann Byerwalter, a former executive officer and director of AFEH and current
director of Eureka, were paid compensation based upon the profit performance of
AFCA-5 and America First Service Corp. Messrs. McLin, Erwin and Bagley are
shareholders of America First Service Corp., and Mr. McLin is a director of
America First Service Corp.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS. The following consolidated financial statements
of the Partnership and subsidiaries are included in response to Item 8
of this report:
Report of Independent Certified Public Accountants dated
February 9, 1996.
Consolidated Balance Sheets at December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Partners' Capital for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES. All financial information required by
Regulation S-X, with regard to financial statement schedules, is
included in the financial statements discussed in Item 14(a)(1).
3. EXHIBITS. The following exhibits were filed as required by Regulation
S-K:
3. Articles of Incorporation and Bylaws of America First Fiduciary
Corporation Number Nine (incorporated herein by reference to
Amendment No. 3 to the Registration Statement on Form S-11 filed
March 31, 1987 with the Securities and Exchange Commission by
America First Financial Funds (Commission File No. 33-10286)).
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-11 filed March 31, 1987 with the Securities
and Exchange Commission by America First Financial Fund 1987-A
Limited Partnership (Commission File No. 33-10286)).
10(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-11 filed March 31, 1987 with the Securities and Exchange
Commission by America First Financial Fund 1987-A Limited
Partnership (Commission File No. 33-10286)).
10(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)).
48
<PAGE>
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)).
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)).
25. Power of Attorney.
(b) The Partnership did not file any Current Reports on Form 8-K during the
fourth quarter of 1995.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ George H. Krauss
--------------------------------------
Date: March 21, 1996 George H. Krauss, Chairman of the
Board of Directors and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 21, 1996 By /s/ George H. Krauss
--------------------------------------
George H. Krauss, Chairman of the Board
of Directors and Secretary (Principal
Executive Officer)
Date: March 21, 1996 By /s/ J. Paul Bagley *
--------------------------------------
J. Paul Bagley, Director, President and
Treasurer (Principal Financial Officer)
Date: March 21, 1996 By /s/ Thompson H. Rogers *
--------------------------------------
Thompson H. Rogers, Director
*By: George H. Krauss By
Attorney-in-Fact ______________________________________
Charles T. Hagel, Director
By /s/ George H. Krauss
--------------------------
George H. Krauss
50
<PAGE>
Independent Auditors' Report
----------------------------
To the Partners
America First Financial Fund 1987-A Limited Partnership:
We have audited the accompanying consolidated balance sheets of America First
Financial Fund 1987-A Limited Partnership and Subsidiary (the "Partnership") as
of December 31, 1995 and 1994 and the related consolidated statements of income,
partners' capital and cash flows for each of the years in the three year period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of America First
Financial Fund 1987-A Limited Partnership and Subsidiary as of December 31, 1995
and 1994 and the results of their operations and their cash flows for each of
the years in the three year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick, LLP
San Francisco, California
February 9, 1996
1
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 27,115,665 $ 23,861,654
Federal funds sold 24,700,000 38,000,000
Securities purchased under agreements to resell 20,500,000 5,700,000
Investments held to maturity 39,995,619 39,990,607
Mortgage-backed securities, net
Held to maturity 763,770,159 737,896,536
Available for sale 52,031,990 53,004,210
Loans receivable, net 1,431,180,207 1,432,997,028
Loans held for sale 403,000 151,500
Accrued interest receivable 13,500,436 11,624,961
Premises and equipment, net 9,535,178 10,638,292
Federal Home Loan Bank stock, at cost 21,508,600 20,460,600
Real estate held for sale or investment, net 2,385,712 4,653,517
Real estate owned, net 2,542,684 4,964,934
Other assets 7,784,114 9,633,418
-------------- --------------
Total Assets $2,416,953,364 $2,393,577,257
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Customer deposits $1,704,466,523 $1,696,291,789
Securities sold under agreements to repurchase 206,856,000 462,485,000
Other borrowings 310,087,421 50,278,000
Distributions payable 2,436,725 2,436,725
Other liabilities and accrued expenses 21,433,023 23,880,176
-------------- --------------
Total Liabilities 2,245,279,692 2,235,371,690
Redeemable Preferred Stock; Series A, no par value:
200,000 shares issued; $20 million liquidation value 15,541,988 13,610,226
Partners' Capital
General Partner 4,883,801 2,772,295
Beneficial Unit Certificate (BUC) Holders;
6,010,589 BUCs authorized, issued and outstanding 151,247,883 141,823,046
-------------- --------------
Total Partners' Capital 156,131,684 144,595,341
-------------- --------------
Total Liabilities and Partners' Capital $2,416,953,364 $2,393,577,257
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Consolidated Statements of Income
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $105,198,541 $ 93,389,879 $103,386,428
Interest on mortgage-backed securities 53,818,218 38,820,300 34,932,304
Interest and dividends on investments 4,622,933 3,858,559 4,537,031
------------ ------------ ------------
Interest income before FDIC assistance 163,639,692 136,068,738 142,855,763
FDIC assistance, net - - (267,610)
------------ ------------ ------------
Total interest income 163,639,692 136,068,738 142,588,153
------------ ------------ ------------
INTEREST EXPENSE:
Interest on customer deposits 75,771,695 63,799,338 70,978,095
Interest on other borrowings 31,830,371 20,393,786 15,191,799
------------ ------------ ------------
Total interest expense 107,602,066 84,193,124 86,169,894
------------ ------------ ------------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 56,037,626 51,875,614 56,418,259
Provision for loan losses 792,167 1,245,426 2,508,610
------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 55,245,459 50,630,188 53,909,649
------------ ------------ ------------
NON-INTEREST INCOME:
Deposit related fees 2,157,031 2,148,165 2,164,849
Loan related fees 1,600,711 1,929,482 2,322,651
Gain on disposition of loans, net 67,486 116,917 1,866,082
Gain on sale of investments - - 1,924,475
Other 5,597,822 5,796,438 6,142,744
------------ ------------ ------------
Total non-interest income 9,423,050 9,991,002 14,420,801
------------ ------------ ------------
NON-INTEREST EXPENSE:
Compensation and benefits 19,867,210 21,381,911 20,732,291
Occupancy and equipment 8,918,000 10,202,541 9,276,002
FDIC premiums and special assessments 4,210,068 4,287,965 3,616,600
Professional services 892,753 1,092,134 714,459
Advertising and promotion 1,285,209 1,569,031 1,807,792
Provision for loss (recovery) on interest rate
exchange agreements 1,934,000 (4,274,000) 20,414,000
Other 10,326,151 11,169,286 11,561,444
------------ ------------ ------------
Total non-interest expense 47,433,391 45,428,868 68,122,588
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 17,235,118 15,192,322 207,862
Provision for income taxes - - -
------------ ------------ ------------
NET INCOME $ 17,235,118 $ 15,192,322 $ 207,862
============ ============ ============
NET INCOME (LOSS) ALLOCATED TO:
General Partner $ 1,431,837 $ 1,023,278 $ (1,967,050)
BUC Holders 15,803,281 14,169,044 2,174,912
------------ ------------ ------------
$ 17,235,118 $ 15,192,322 $ 207,862
============ ============ ============
NET INCOME PER BENEFICIAL UNIT CERTIFICATE $2.6292 $2.3573 $.3618
============ ============ ============
DIVIDEND PER BENEFICIAL UNIT CERTIFICATE $1.6000 $1.6000 $1.6000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
AMERICA FIRST FINANCIAL FUND L987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Consolidated Statements of Partners' Capital
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1992 $ 4,771,533 $ 47,862,384 $152,633,917
Net income (1,967,050) 2,174,912 207,862
Cash distributions paid or accrued (138,158) (9,616,942) (9,755,100)
Direct credits:
Net unrealized gains on mortgage-backed
securities available for sale 231,071 924,284 1,155,355
Pension plan additional minimum liability (198,597) (794,390) (992,987)
------------ ------------ ------------
Balance at December 31, 1993 2,698,799 140,550,248 143,249,047
Net income 1,023,278 14,169,044 15,192,322
Cash distributions paid or accrued (129,956) (9,616,943) (9,746,899)
Direct (charges):
Net unrealized (losses) on mortgage-backed
securities available for sale (1,018,423) (4,073,693) (5,092,116)
Reduction in pension plan additional
minimum liability 198,597 794,390 992,987
------------ ------------ ------------
Balance at December 31, 1994 2,772,295 141,823,046 144,595,341
Net income 1,431,837 15,803,281 17,235,118
Cash distributions paid or accrued (129,956) (9,616,944) (9,746,900)
Direct credits:
Net unrealized gains on mortgage-backed
securities available for sale 809,625 3,238,500 4,048,125
------------ ------------ ------------
Balance at December 31, 1995 $4,883,801 $151,247,883 $156,131,684
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,235,118 $ 15,192,322 $ 207,862
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of:
Investments and mortgage-backed securities net premium 750,750 1,680,788 1,061,653
Loan discount (1,561,551) (570,908) (2,986,866)
Intangibles 1,339,968 1,339,968 1,266,301
Proceeds from sales of loans originated and held for sale 6,663,136 26,752,608 118,948,391
Originations of loans held for sale (6,847,150) (21,794,663) (115,906,168)
Gain on sale of investment securities - - (1,924,475)
Gain on disposition of mortgage loans held for sale (67,486) (116,917) (1,866,082)
Provision for loan losses 792,167 1,245,426 2,508,610
Provision for loss (recovery) on interest rate exchange agreements 1,934,000 (4,274,000) 20,414,000
Decrease (increase) in accrued interest receivable (1,875,475) (749,296) 1,819,190
Increase in accrued interest payable 35,819 836,002 2,723,693
Depreciation and amortization of premises and equipment 1,992,602 2,267,528 1,982,778
Decrease (increase) in other assets (7,694) 776,538 (1,412,004)
Decrease in other liabilities (4,416,974) (7,250,684) (7,868,758)
Other, net 169,587 97,010 (121,092)
------------- ------------- -------------
Total adjustments (1,098,301) 239,400 18,639,171
------------- ------------- -------------
Net cash provided by operating activities 16,136,817 15,431,722 18,847,033
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated and held for investment (173,904,913) (193,703,056) (324,853,220)
Purchases of investment securities - (42,985,937) -
Purchases of mortgage-backed securities (164,910,329) (308,058,444) (194,468,817)
Purchases of real estate loans (92,708,721) (59,085,893) (229,201,334)
Purchases of premises and equipment (888,399) (647,430) (2,130,592)
Purchases of Federal Home Loan Bank stock - - (3,013,800)
Principal payments on mortgage-backed securities 143,301,289 139,993,688 133,290,018
Principal payments on loans 252,000,718 354,018,354 598,520,013
Proceeds from the maturities of investment securities 3,000,000 10,000,000 -
Proceeds from sales of investment securities - - 42,936,807
Proceeds from sales of Federal Home Loan Bank stock - 1,781,400 -
Proceeds from sales of real estate held for sale 1,684,273 6,578,798 -
Proceeds from sales of real estate owned 7,437,436 9,613,520 3,394,480
Proceeds from sale of consumer loans 12,959,309 - -
Cash reimbursed from FDIC - - 13,672,777
Other, net 1,038,273 10,537 (496,040)
------------- ------------- -------------
Net cash provided by (used in) investing activities (10,991,064) (82,484,463) 37,650,292
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in checking and savings accounts 3,057,789 (62,699,060) (23,459,761)
Proceeds from issuance of certificates of deposit 249,059,945 253,849,560 187,830,922
Deposits acquired through branch acquisitions - - 176,262,631
Payments for maturing or early withdrawal of certificates of deposit (243,943,000) (208,066,076) (362,860,401)
Net increase (decrease) in short-term repurchase agreements and dollar rolls (255,629,000) 45,898,000 51,496,624
Increase (decrease) in Federal Home Loan Bank advances 259,809,424 25,000,000 (60,000,000)
Capital distributions (9,746,900) (9,746,899) (9,746,898)
------------- ------------- -------------
Net cash provided by (used in) financing activities 2,608,258 44,235,525 (40,476,883)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 7,754,011 (22,817,216) 16,020,442
Cash and cash equivalents at beginning of period 64,561,654 87,378,870 71,358,428
------------- ------------- -------------
Cash and cash equivalents at end of period $ 72,315,665 $ 64,561,654 $ 87,378,870
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non cash investing and financing activities:
Additions to real estate acquired through foreclosure $ 4,768,326 $ 8,049,862 $ 6,249,533
Additions to real estate and loans acquired through the expiration
of the Assistance Agreement $ - $ - $ 6,722,747
Loans made to facilitate the sale of real estate $ 11,900,420 $ 7,466,061 $ -
Cash paid for interest (including interest credited) $ 106,055,610 $ 82,125,135 $ 82,907,642
Cash paid for alternative income and minimum franchise taxes $ 445,000 $ 149,000 $ 389,00
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
------------
(A) Partnership Formation
---------------------
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. AFEH acquired
EurekaBank ("Eureka") on May 27, 1988 (the "Acquisition"). 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.
(B) Partnership Income, Expenses and Cash Distributions
---------------------------------------------------
The Partnership Agreement contains provisions for the distribution of
Distributable Cash and Net Sales Proceeds, as defined by the Partnership
Agreement, and for the allocation of income and loss from operations for
both tax and financial reporting purposes among AFCA-5 and the BUC
holders.
Cash distributions are presently made on a quarterly basis but may be
made monthly or semiannually if AFCA-5 so elects. The cash distributions
included in the consolidated financial statements represent the actual
cash distributions made through December 31, 1995 or accrued at December
31, 1995 for payment on January 31, 1996. Effective April 1992, the
Partnership elected to pay quarterly distributions at an annualized rate
of $1.60 per BUC.
2. Summary of Significant Accounting Policies
------------------------------------------
(A) Principles of Accounting and Consolidation
------------------------------------------
The consolidated financial statements of the Partnership include the
accounts of the Partnership, AFEH (its wholly owned subsidiary) and
AFEH's wholly owned subsidiary, Eureka and its subsidiaries. The
consolidated financial statements are prepared on the accrual method of
accounting in accordance with generally accepted accounting principles
("GAAP") and industry practices applicable to savings and loan
associations. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and income and expenses during the reporting period.
Actual results could differ from those estimates. All significant
intercompany transactions have been eliminated. Certain amounts in the
consolidated financial statements for prior years have been reclassified
to conform to the current consolidated financial statement presentation.
(B) Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. These
include cash and amounts due from depository institutions, federal funds
sold and securities purchased under agreements to resell.
(C) Investments and Mortgage-Backed Securities
------------------------------------------
Investments and mortgage-backed securities, other than securities
available for sale, are carried at amortized cost. Premiums and discounts
are amortized or accreted as an adjustment of yield using a method that
approximates the interest method over the term of each security, adjusted
for actual and anticipated prepayments. These investments are carried at
cost because management intends and has the ability to hold them to
maturity. Gains or losses on sales of securities are recognized at the
time of sale using the specific identification method. Interest and
dividends on investments include interest on investments, the
amortization and accretion of related premiums and discounts, and
dividends on Federal Home Loan Bank ("FHLB") stock.
The Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on December 31, 1993. The adoption of SFAS No. 115 did not
have a material effect on the Partnership's financial statements.
(D) Loans Receivable
----------------
Loans receivable originated subsequent to Eureka's acquisition by AFEH
are stated at the unpaid principal balance. Loans receivable held by
Eureka at Acquisition were stated at unpaid principal balance discounted
to the fair market value at the date of Acquisition. The Acquisition fair
market value discount is being amortized
6
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
as an adjustment of yield using a method that approximates the interest
method over the expected lives of the underlying mortgage loans adjusted
for actual and anticipated prepayments. Loans receivable is shown net of
deferred loan origination fees, premiums, unearned discounts and the
allowance for losses. Management intends and has the ability to hold
until maturity all loans which are not designated as held for sale. If a
decision is made to dispose of loans held at cost or should the
Partnership become unable to hold loans until maturity, they would be
reclassified to held for sale at the lower of amortized cost or market
value.
All non-refundable loan origination fees, net of certain direct loan
origination costs, are deferred and accreted or amortized, using the
interest method over the term of the loan or until the loan is sold.
Interest is not accrued on loans which are 90 days or more delinquent.
The Partnership adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," in 1993. SFAS No. 114 was amended during 1994 by
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures," and was adopted by the Partnership on
December 31, 1994. The adoptions of SFAS No. 114 and SFAS No. 118 did not
have a material effect on the Partnership's financial statements. A loan
is impaired when it is probable that the Partnership will be unable to
collect all amounts due according to the original contractual terms of
the loan agreement. Impairment is measured based on the present value of
expected future cash flows discounted at the loan's original effective
interest rate, or the fair value of the collateral less estimated selling
costs if the impaired loan is collateral dependent. If the present value
of expected future cash flows, or the fair value of the collateral less
estimated selling costs, is less than the recorded investment, a
valuation allowance is created by a charge to the provision for loan
losses or by adjusting an existing valuation allowance. Interest income
on impaired loans 90 days or more delinquent was recorded on a cash
basis. Interest income was recognized on the cash basis for restructured
loans performing under the terms of the restructured agreement.
(E) Loans Held for Sale
-------------------
Loans held for sale are recorded at the lower of amortized cost or market
value. Gains or losses from sales of mortgage loans are recognized at the
time of sale by comparing the net sales proceeds to the net carrying
value of the asset sold. If loan servicing is retained, a deferred
premium is recorded when the interest rate on the loan adjusted for a
normal servicing fee exceeds the pass through yield to the buyer. The
deferred premium or discount is amortized or accreted over the estimated
remaining lives of the loans as an adjustment of yield using a method
that approximates the interest method, adjusted for actual and
anticipated prepayments. Normal servicing fees are included in non-
interest income.
(F) Provisions for Possible Loan Losses
-----------------------------------
Provisions for losses on loans are charged to operations based upon
management's periodic evaluation of potential losses in the loan
portfolio. In addition to providing valuation allowances on specific
assets, Eureka establishes general valuation allowances and evaluates the
adequacy of the allowances based on Eureka's past loan loss experience,
known and inherent risks in the portfolio, estimated value of any
underlying collateral and current and prospective economic conditions.
However, the allowance for losses is subjective and may be adjusted in
the future depending upon economic conditions. Management believes that
the allowance for losses on loans is adequate. Additionally, various
regulatory agencies, as an integral part of their examination process,
periodically review Eureka's allowance for losses on loans. Such agencies
may require Eureka to recognize additions to the allowance based on their
judgment and information available to them at the time of their
examination.
(G) Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation of premises and equipment is generally
computed using the straight-line method over the estimated useful lives
of the assets. Amortization of leasehold improvements is computed using
the straight-line method over the remaining terms of the leases.
Improvements are capitalized and maintenance and repairs are charged to
expense.
(H) Real Estate
-----------
Real estate held for investment is recorded at the lower of cost or net
realizable value. Real estate acquired through foreclosure and real
estate held for sale are recorded at the lower of cost or estimated fair
market value, less disposition costs. Costs related to the development
and improvement of the properties are capitalized. Valuations, based on
market information, are performed periodically by management and an
allowance for losses is established by a charge to operations, if
determined necessary.
7
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(I) Income Taxes
------------
The Partnership is a limited partnership for federal income and state
franchise tax purposes. Accordingly, the Partnership is not subject to
federal income and state franchise taxes. Instead, the Partners are
required to report their allocable share of the taxable income, gain,
loss and other Partnership items in their individual tax returns.
(J) Interest Rate Exchange Agreements
---------------------------------
The Partnership adopted SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," on
December 31, 1994. The adoption of SFAS No. 119 did not have a material
effect on the Partnership's financial statements. Eureka uses interest
rate exchange agreements ("swaps") for purposes other than trading, which
are intended to reduce the impact of future fluctuations in interest
rates on fixed rate loans funded by variable rate liabilities. A swap is
an agreement between two parties in which one party exchanges cash
payments based on a floating rate of interest for a counterparty's cash
payment based on a fixed rate or a different floating rate of interest
calculated on a notional principal amount. The net interest received or
paid on these contracts is reflected as an adjustment to interest income
on loans receivable.
(K) Goodwill
--------
The cost in excess of net assets from branch acquisitions is recorded as
goodwill and amortized using the straight-line method over a period of
seven years, which represents the estimated period of benefit.
(L) Recent Accounting Pronouncements
--------------------------------
During 1995, the Financial Accounting Standards Board issued 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.
8
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
3. Financial Assistance from the FDIC
----------------------------------
The Assistance Agreement between Eureka and the Federal Deposit Insurance
Corporation ("FDIC") entered into in 1988 in connection with the assisted
acquisition of the assets and liabilities of Eureka Federal Savings and Loan
Association expired on May 27, 1993 with respect to all Covered Assets,
except for one commercial loan with a net book value that was written down to
zero. The capital and operating loss coverages and yield maintenance were
also discontinued as of May 27, 1993, and the preferred stock liability
previously included as an offset to Covered Assets was reclassified to
liabilities. Subsequent to the termination date, the preferred stock
accretion is included in interest expense. The components of FDIC assistance
and related items for the period ended December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1993
------------
<S> <C>
Yield maintenance $ 297,390
Preferred stock accretion (565,000)
-----------
Net FDIC assistance interest income (expense) (267,610)
Reimbursement from the FDIC 14,437,118
-----------
Total FDIC assistance and related items $14,169,508
===========
</TABLE>
Under the terms of the Assistance Agreement, Eureka issued preferred stock to
the FDIC. The non-voting Series A Preferred Stock is mandatorily redeemable
in 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. Eureka Series A Preferred Stock, with a
liquidation value of $20 million (200,000 shares), is deemed to have been
issued to the FDIC effective with and as a result of the Partnership's
acquisition of Eureka. The components of preferred stock accretion are as
follows for the periods ending December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest expense on other borrowings $1,931,762 $1,590,000 $ 791,000
Total FDIC assistance and related items - - 565,000
---------- ---------- ----------
Preferred stock accretion $1,931,762 $1,590,000 $1,356,000
========== ========== ==========
</TABLE>
4. Cash and Investments
--------------------
The Partnership is not required to maintain compensating cash balances for
agreements with other financial institutions. Federal funds sold represent
short-term instruments which are generally held overnight.
Securities purchased under agreements to resell identical securities are
carried at cost which approximates market value and are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Balance at December 31: $20,500,000 $ 5,700,000
Average balance during year $12,823,130 $ 9,745,580
Maximum balance at any month-end $22,500,000 $30,000,000
Weighted average days to maturity at December 31: 9 days 25 days
Weighted average interest rate 5.92% 3.99%
</TABLE>
As of December 31, 1995, all of these repurchase agreements had maturities
within three months and were considered cash and cash equivalents. The
underlying collateral for these agreements which is held by a third party
custodian, consisted of U. S. Treasury Notes and mortgage-backed securities.
Investments held to maturity at December 31, 1995 are due in less than one
year and have a weighted average yield of 4.41%. Investments held to
maturity are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------ ------------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Market Amortized unrealized unrealized Market
cost gains losses value cost gains losses value
----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Notes $39,995,619 $ - $283,119 $39,712,500 $39,990,607 $ - $2,278,207 $37,712,400
=========== ========== ========== =========== =========== ========== ========== ===========
</TABLE>
There were no sales of investment securities during 1995 or 1994. During
1993, the Partnership sold $41 million of U. S. Treasury Notes resulting in
gross realized gains of $1.9 million.
9
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
5. Mortgage-Backed Securities
----------------------------
The following table summarizes mortgage-backed securities held at December
31:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------------- ----------------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Market Amortized unrealized unrealized Market
cost gains losses value cost gains losses value
------------- ------------ ------------ ------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
- ----------------
FHLMC $ 93,545,793 $ 377,947 $ 14,819 $ 93,908,921 $115,080,091 $ 523,644 $ 1,914,941 $113,688,794
FNMA 162,599,087 3,535,637 1,195,019 164,939,705 185,135,239 1,220,738 8,742,385 177,613,592
Collateralized
Mortgage
obligations 61,430,088 69,511 485,117 61,014,482 77,682,571 - 4,058,854 73,623,717
Other non-agency 446,195,191 3,050,044 1,115,186 448,130,049 359,998,635 89,224 8,914,306 351,173,553
------------ ---------- ---------- ------------ ------------ ---------- ----------- ------------
763,770,159 7,033,139 2,810,141 767,993,157 737,896,536 1,833,606 23,630,486 716,099,656
AVAILABLE FOR SALE
- ------------------
GNMA 37,103,009 634,090 - 37,737,099 42,119,407 - 1,838,204 40,281,203
Collateralized
mortgage
obligations 14,817,617 - 522,726 14,294,891 14,821,564 - 2,098,557 12,723,007
------------ ---------- ---------- ------------ ------------ ---------- ----------- ------------
51,920,626 634,090 522,726 52,031,990 56,940,971 - 3,936,761 53,004,210
------------ ---------- ---------- ------------ ------------ ---------- ----------- ------------
$815,690,785 $7,667,229 $3,332,867 $820,025,147 $794,837,507 $1,833,606 $27,567,247 $769,103,866
============ ========== ========== ============ ============ ========== =========== ============
Weighted average yield 7.12% 6.61%
==== ====
</TABLE>
The following table sets forth the contractual maturities, amortized costs,
market values and weighted average yields for the Partnership's mortgage-backed
securities at December 31, 1995:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------------------------- ----------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
------------ ------------ -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Due one year through five years $ 31,651,424 $ 32,044,902 6.65% $ - $ - -
Due after ten years through twenty years 90,221,397 91,134,824 6.63% 14,817,617 14,294,891 6.22%
Due after twenty years 641,897,338 644,813,431 7.24% 37,103,009 37,737,099 6.98%
------------ ------------ ---- ----------- ----------- ----
$763,770,159 $767,993,157 7.15% $51,920,626 $52,031,990 6.77%
============ ============ ==== =========== =========== ====
</TABLE>
The following table summarizes mortgage-backed securities pledged as collateral
at December 31:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Mortgage-backed securities pledged for:
Reverse repurchase agreements $215,458,730 $217,337,795 $514,427,387 $497,922,548
Interest rate exchange agreements 15,901,891 16,652,752 22,015,848 22,303,521
------------ ------------ ------------ ------------
$231,360,621 $233,990,547 $536,443,235 $520,226,069
============ ============ ============ ============
</TABLE>
10
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
6. Loans Receivable
------------------
The following table summarizes loans receivable at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Real estate loans:
Residential, 1-4 units $1,284,282,078 $1,269,970,227
Second mortgage 17,982,406 14,824,881
Multi-family residential loans 54,595,364 57,785,687
Commercial property and land loans 75,022,216 78,432,342
-------------- --------------
Total real estate loans 1,431,882,064 1,421,013,137
-------------- --------------
Consumer loans:
Revolving credit and overdrafts 781,091 16,286,356
Other installment loans 3,205,383 4,032,690
Loans secured by savings accounts 614,596 682,436
Timeshare 1,254,200 2,209,838
-------------- --------------
Total consumer loans 5,855,270 23,211,320
-------------- --------------
Total loans 1,437,737,334 1,444,224,457
Less: Unearned loan fees (deferred costs) (1,231,592) (611,864)
Discounts and premiums, net 507,647 3,867,387
Allowance for losses 6,878,072 7,820,406
-------------- --------------
Total loans, net 1,431,583,207 1,433,148,528
Less: Loans held for sale 403,000 151,500
-------------- --------------
Loans receivable, net $1,431,180,207 $1,432,997,028
============== ==============
Weighted average interest rate 7.70% 6.95%
============== ==============
</TABLE>
The above classifications are net of participation interests sold and loans
serviced for others. Eureka was servicing mortgage loans for others with
principal balances totaling approximately $263 million, $253 million and $276
million at December 31, 1995, 1994 and 1993, respectively. Servicing fee income
from loans serviced for others totaled $663,000, $659,000 and $608,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. At December 31,
1995, mortgage loans with principal balances approximating $380 million were
pledged to the FHLB of San Francisco as collateral for other borrowings with the
FHLB and as collateral for future additional borrowings.
Credit Risk and Concentration
- -----------------------------
Eureka's loan portfolio consists principally of mortgage loans secured by
residential property in California and consumer loans extended to Eureka's
retail customers within Northern California. Eureka's lending activities are
focused almost entirely on loans secured by 1-4 unit residential properties
located primarily in Northern California.
Beginning in 1990, Eureka purchased fixed and adjustable rate residential
mortgage loans which met Eureka's credit and underwriting standards from
mortgage banks and savings institutions. These purchases supplemented Eureka's
internal loan production and provided Eureka with more attractive long-term
yields than were available from alternative sources. The wholesale loan
origination system was established during 1995 and enables Eureka to add assets
that meet its credit quality guidelines within its market area. In addition,
Eureka sold its BankCard recievables during 1995.
As of December 31, 1995, Eureka's portfolios of multi-family and commercial
real estate loans are highly seasoned and have a very low delinquency rate.
Concentration risk is also limited as the average loan size is approximately
$220,000 for multi-family and $436,000 for commercial loans.
The following table shows Eureka's investment in loans for which impairment has
been recognized or restructured in accordance with SFAS No. 114 and SFAS No. 118
at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------ ------------------------------------ -------------------------------------
Recorded Average Interest Recorded Average Interest Recorded Average Interest
Investment Investment Recognized Investment Investment Recognized Investment Investment Recognized
----------- ----------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Impaired loans
without valuation
allowances:
1-4 units $3,387,664 $2,399,561 $ 17,712 $5,238,797 $4,181,747 $51,036 $ 8,129,221 $3,882,164 $14,575
Multi-family - - - - 66,667 - 400,000 200,000 -
Commercial
real estate 1,767,508 1,881,156 91,845 2,377,353 1,445,748 6,111 2,526,996 1,176,805 -
---------- ---------- -------- ---------- ---------- ------- ----------- ---------- ----------
5,155,172 4,280,717 109,557 7,616,150 5,694,162 57,147 11,056,217 5,258,969 14,575
Impaired loans
with valuation
allowances:
1-4 units 45,127 124,831 - 389,790 194,895 - 2,463,832 1,081,492 -
Commercial
real estate 1,144,935 574,209 - - - - 802,420 549,296 2,571
Allowance
for credit
loss (310,986) (245,787) - (124,740) (78,442) - (645,646) (241,106) -
---------- ---------- -------- ---------- ---------- ------- ----------- ---------- ----------
879,076 453,253 - 265,050 116,453 - 2,620,606 1,389,682 2,571
---------- ---------- -------- ---------- ---------- ------- ----------- ---------- ----------
Total $6,034,248 $4,733,970 $109,557 $7,881,200 $5,810,615 $57,147 $13,676,823 $6,648,651 $17,146
========== ========== ======== ========== ========== ======= =========== ========== ==========
</TABLE>
11
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
The allowance for credit losses for impaired loans was included in the
total allowance for loan losses at December 31, 1995, 1994 and 1993. Non-
accrual loans were $6.4 million, $8.3 million and $13.3 million at December
31, 1995, 1994 and 1993, respectively. Interest income which was not
recognized on non-accrual loans totaled $394,000, $790,000 and $822,000 for
1995, 1994 and 1993, respectively.
7. Allowance for Loan Losses
-------------------------
The following table summarizes the activity in the allowance for losses on
loans:
<TABLE>
<CAPTION>
Real Estate Loans Timeshare Loans Consumer Loans Total Loans
-------------------- -------------------- -------------------- --------------------
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
------------ ----- ------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1992 $ 5,106,985 .32% $2,204,906 44.80% $ 1,677,129 5.54% $ 8,989,020 .56%
===== ===== ===== =====
Provision for losses 539,527 165,373 1,803,710 2,508,610
Charge-offs (263,305) (67,317) (1,808,784) (2,139,406)
Recoveries - - 170,372 170,372
Transfers/(1)/ 560,325 - 16,857 577,182
Reductions/(2)/ - (650,000) - (650,000)
------------ ----- ------------ ----- ------------ ----- ------------ -----
December 31, 1993 5,943,532 .39% 1,652,962 45.60% 1,859,284 7.50% 9,455,778 .61%
===== ===== ===== =====
Provision for losses 539,925 59,412 646,089 1,245,426
Charge-offs (1,028,612) (151,061) (1,394,999) (2,574,672)
Recoveries 29,749 63,582 271,970 365,301
Transfers (132,489) - (25,316) (157,805)
Reductions/(2)/ - (513,622) - (513,622)
------------ ----- ------------ ----- ------------ ----- ------------ -----
December 31, 1994 5,352,105 .38% 1,111,273 50.29% 1,357,028 6.46% 7,820,406 .54%
===== ===== ===== =====
Provision for losses 370,361 3,564 418,242 792,167
Charge-offs (312,460) (100,300) (1,330,811) (1,743,571)
Recoveries 6,019 91,601 499,779 597,399
Transfers 690,383 - (811,411) (121,028)
Reductions/(2)/ - (467,301) - (467,301)
------------ ----- ------------ ----- ------------ ----- ------------ -----
December 31, 1995 $ 6,106,408 .43% $ 638,837 50.94% $ 132,827 2.93% $ 6,878,072 .48%
===== ===== ===== =====
Ratio of net charge-offs
to average gross loans
during 1995 .02% .51% 5.77% .08%
===== ===== ===== =====
</TABLE>
8. Accrued Interest Receivable
---------------------------
The following table summarizes accrued interest receivable at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Investments $ 331,366 $ 309,232
Mortgage-backed securities 5,463,708 4,677,180
Loans 7,705,362 6,638,549
------------ ------------
$ 13,500,436 $ 11,624,961
============ ============
</TABLE>
Premises and Equipment
----------------------
9. Premises and equipment are summarized as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Buildings and improvements 6,556,003 6,511,996
Leasehold improvements 4,365,646 4,313,443
Furniture and equipment 9,505,328 8,851,128
------------ ------------
21,870,977 21,120,567
Less accumulated depreciation and
amortization (12,335,799) (10,482,275)
------------ ------------
$ 9,535,178 $ 10,638,292
============ ============
</TABLE>
- ----------
(1) Transfers primarily represent reserves on loans transferred back to
Eureka at the termination of the Assistance Agreement.
(2) Reductions are due to principal payoffs and remittances of pre-
acquisition originated loans.
12
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
10. Federal Home Loan Bank Stock
----------------------------
Eureka is required to own capital stock in the FHLB of San Francisco in an
amount at least equal to the greater of 1% of the aggregate principal amount
of its unpaid single family mortgage loans and similar obligations at the
end of each calendar year, or 5% of its advances (borrowings) from the FHLB
of San Francisco. Eureka was in compliance with this requirement at December
31, 1995 and 1994, respectively.
11. Real Estate Held for Sale or Investment
---------------------------------------
Real estate held for sale or investment, net of combined accumulated
depreciation of $0 for 1995 and $149,686 in 1994, includes the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Real estate held for sale or investment $2,685,712 $ 5,658,516
Allowance for loss on real estate held
for sale or investment (300,000) (1,004,999)
---------- -----------
$2,385,712 $ 4,653,517
========== ===========
</TABLE>
The operating income (loss) for real estate held for sale or investment was
($812,471) , $246,942 and ($351,429) in 1995, 1994 and 1993, respectively.
Activity in the allowance for losses on real estate held for sale or
investment is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- --------
<S> <C> <C> <C>
Balance at January 1, $ 1,004,999 $ 880,000 $450,000
Provision for losses 700,000 124,999 430,000
Charge-offs (1,404,999) - -
----------- ---------- --------
Balance at December 31, $ 300,000 $1,004,999 $880,000
=========== ========== ========
</TABLE>
12. Real Estate Owned
-----------------
At December 31, 1995 and 1994, net real estate owned through foreclosure
amounted to $2,542,684 and $4,964,934, respectively. Activity in the
allowance for losses on real estate owned is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- ----------
<S> <C> <C> <C>
Balance at January 1, $ 744,565 $ 1,030,966 $ 450,000
Provision for losses 90,207 742,057 331,077
Net charge-offs (636,075) (1,028,458) (45,951)
Other additions - - 295,840
--------- ----------- ----------
Balance at December 31, $ 198,697 $ 744,565 $1,030,966
========= =========== ==========
</TABLE>
13. Customer Deposits
-----------------
Customer deposits were comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------- --------------------------------------
Weighted Weighted
% of Average % of Average
Amount Total Interest Rate Amount Total Interest Rate
-------------- ----- ------------- -------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest checking
accounts 1.00% to 1.34% $ 119,480,141 7.01% 1.12% $ 124,441,091 7.34% 1.12%
Non-interest checking
accounts 4,249,119 0.25% - 4,701,351 .28% -
Money market accounts
2.05% to 4.37% 321,158,954 18.84% 3.40% 308,844,451 18.21% 2.62%
Passbook accounts 2.00% 40,206,109 2.36% 2.00% 44,049,640 2.60% 2.00%
-------------- ----- -------------- -----
485,094,323 28.46% 482,036,533 28.43%
-------------- ----- -------------- -----
Time certificates:
4.00% or less 132,088,165 369,716,232
4.01 to 6.00% 814,443,121 639,268,294
6.01 to 8.00% 257,053,605 180,755,271
8.01 to 10.00% 15,437,881 23,588,765
10.01 to 12.00% 187,107 392,156
12.01 to 14.00% 162,321 394,897
14.01 to 16.00% - 139,641
-------------- ----- -------------- -----
Total time certificates 1,219,372,200 71.54% 5.40% 1,214,255,256 71.57% 4.87%
-------------- ----- -------------- -----
$1,704,466,523 100.00% 4.63% $1,696,291,789 100.00% 4.09%
============== ====== ============== ======
</TABLE>
There were no brokered deposits at December 31, 1995 and 1994. The aggregate
amounts of time certificates of $100,000 or more were $250,039,051 and
$232,651,173 at December 31, 1995 and 1994, respectively. Accrued interest
on deposits at December 31, 1995 and 1994 amounted to $1,335,307 and
$1,086,971, respectively.
13
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following table summarizes customer deposits by remaining maturity at
December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
No contractual maturity $ 485,094,324 $ 482,036,533
Maturity within one year 853,558,586 869,115,274
1 to 2 years 278,140,513 171,755,437
2 to 3 years 59,591,407 113,158,996
3 to 4 years 16,228,861 42,295,784
4 to 5 years 10,491,310 13,227,458
Thereafter 1,361,522 4,702,307
-------------- --------------
$1,704,466,523 $1,696,291,789
============== ==============
</TABLE>
Interest expense is summarized as follows for the period ending December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- ------------
<S> <C> <C> <C>
Checking $ 1,302,168 $ 1,435,000 $ 1,888,000
Money market/passbook 10,121,845 9,228,000 10,042,000
Time certificate 64,347,682 53,136,338 59,048,095
-------------- -------------- ------------
$ 75,771,695 $ 63,799,338 $70,978,095
============== ============== ============
</TABLE>
14. Securities Sold Under Agreements to Repurchase
----------------------------------------------
Securities sold under agreements to repurchase identical securities are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Balance at December 31: $206,856,000 $462,485,000
Market value at December 31: $206,856,000 $462,485,000
Average balance during year $404,387,871 $413,012,672
Maximum balance at any month-end $484,052,000 $462,485,000
Weighted average days to maturity at December 31: 36 days 57 days
Weighted average interest rate at December 31: 5.74% 5.93%
Weighted average interest rate for the year: 6.04% 4.35%
</TABLE>
The collateral for these agreements, which is held with a third party
custodian, consisted of mortgage-backed securities with carrying values of
$217.1 million and $517.0 million (including accrued interest of $1.6
million and $2.6 million) and market values of $217.3 million and $497.9
million at December 31, 1995 and 1994, respectively.
Securities sold under agreements to repurchase had the following
maturities at December 31, 1995: $70.7 million in 0 to 30 days; $132.1
million in 31 to 60 days; and $4.1 million over 90 days.
15. Other Borrowings
----------------
The unused borrowing capacity with the FHLB of San Francisco at December 31,
1995 and 1994 was $274 million and $216 million, respectively. The following
table summarizes FHLB advances at December 31:
<TABLE>
<CAPTION>
Interest Interest
1995 Rate 1994 Rate
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Short-term fixed rate advances
(maturing within one year) $277,706,500 5.73% $ 50,278,000 5.70%
Long-term fixed rate advances
(maturing through 2002) $ 32,380,921 5.99% $ - -
Average balance during year $ 85,117,264 $ 9,509,272
Maximum balance at any month-end $340,500,418 $ 50,278,000
Mortgage-backed securities pledged
as collateral for other borrowings $380,000,000 $347,000,000
Weighted average interest rate at
December 31: 5.76% 5.70%
Weighted average interest rate for
the year: 5.97% 5.73%
</TABLE>
14
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
16. Interest Rate Exchange Agreements
---------------------------------
The Partnership has entered into interest rate exchange agreements to reduce
the impact of future fluctuations in interest rates on fixed rate loans
funded by variable rate liabilities. The floating rates to be received by
the Partnership under the terms of the above agreements are reset monthly,
quarterly or semi-annually and are indexed to the FHLB Eleventh District
cost of funds index or the three or six month London Interbank Offered Rate
("LIBOR"). Interest rate exchange agreements outstanding per contractual
terms are as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------- -------------------------------------------
Weighted Average Interest Rate Weighted Average Interest Rate
Notional -------------------------------- Notional --------------------------------
Amount Pay Receive Amount Pay Receive
Year of Maturity (000's) (Fixed) (Floating) (000's) (Fixed) (Floating)
--------- --------------- --------------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ - - - $208,000 8.28% 4.80%
1996 45,000 8.12% 5.72% 45,000 8.12% 5.39%
1997 40,000 8.87% 5.58% 40,000 8.87% 5.11%
1998 10,000 8.57% 5.83% 10,000 8.57% 5.89%
1999 30,000 7.89% 5.90% 30,000 7.89% 5.65%
-------- ---- ---- -------- ---- ----
125,000 8.34% 5.73% 333,000 8.30% 5.03%
Pay Receive Pay Receive
(Floating) (Floating) (Floating) (Floating)
-------------- -------------- -------------- --------------
1995 - - - 20,000 5.79% 4.62%
1997 20,000 5.91% 5.66% 20,000 5.79% 4.67%
-------- ---- ---- -------- ---- ----
20,000 5.91% 5.66% 40,000 5.79% 4.64%
-------- ---- ---- -------- ---- ----
$145,000 8.00% 5.72% $373,000 8.03% 4.98%
======== ==== ==== ======== ==== ====
</TABLE>
During the third quarter of 1993, Eureka recorded a charge to earnings of
$20.4 million related to interest rate exchange agreements arranged
predominantly in 1988, 1990 and 1991. The sustained decline in interest
rates in the general economy and the resultant prepayment of mortgage loans
associated with 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 year
ended December 31, 1995, a provision of $1.9 million was recorded to
increase the interest rate exchange agreements liability to reflect the
effect of interest rate decreases on the market value of obligations deemed
ineffective as hedges. During 1994, Eureka recorded credits to non-interest
expense totaling $4.3 million. These credits reflect the effect of interest
rate increases on the market value of obligations deemed ineffective as
hedges. The exchange agreements liability totaled $3.4 million and $4.7
million at December 31, 1995 and 1994, respectively. Net interest payable on
exchange agreements was $.7 million and $2.0 million at December 31, 1995
and 1994, respectively, and was included in other liabilities and accrued
expenses.
Net interest paid or accrued on interest rate exchange agreements of
approximately $2.4 million, $6.3 million and $16.5 million was included as
an adjustment to interest income on loans for the periods ending December
31, 1995, 1994 and 1993, respectively.
The Partnership's credit exposure associated with non-performance of
counterparties is controlled by the Partnership's credit policies. All
agreements are with primary dealers. The Partnership does not require
collateral to support the credit exposure related to these financial
instruments.
17. 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 years ended December
31, 1995, 1994 and 1993 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.
If certain conditions are met in determining taxable income, Eureka is
allowed a special bad debt deduction based on a percentage of taxable income
(presently 8%) or on specified experience formulas. Eureka determined its
bad debt deduction using the experience method in 1995, 1994 and 1993.
The income tax provisions for the years ended December 31, 1995, 1994 and
1993 consist of:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------- -------------------------------- ----------------------------------
Federal State Total Federal State Total Federal State Total
---------- ---------- ---------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $ 353,506 $ 142,712 $ 496,218 $ 76,805 $ 72,224 $ 149,029 $ 329,548 $ 115,521 $ 445,069
Deferred (353,506) (142,712) (496,218) (76,805) (72,224) (149,029) (329,548) (115,521) (445,069)
--------- --------- --------- -------- -------- --------- --------- --------- ---------
$ - $ - $ - $ - $ - $ - $ - $ - $ -
========= ========= ========= ======== ======== ========= ========= ========= =========
</TABLE>
15
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
AFEH's expected income tax rate for 1995, 1994 and 1993 differs from the
actual effective income tax rate as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------
<S> <C> <C> <C>
Tax at statutory rate 35.00% 35.00% 34.00%
State tax net of federal benefits 7.50% 7.50% 7.30%
Increases (reductions)
Non-deductible amortization 2.30% 2.50% -
Change in valuation allowance (44.40%) (46.60%) (41.30%)
Other, net (0.40%) 1.60% -
------------ ------------ ------
Effective income tax rate 0.00% 0.00% 0.00%
============ ============ ======
Components of net deferred tax assets are as follows:
1995 1994
------------ ------------
Deferred tax assets:
Purchase accounting adjustments $ 2,654,234 $ 3,537,503
Excess book accumulated depreciation and amortization 696,612 438,594
Unrecognized built-in losses 30,076 59,193
Alternative minimum tax credit 1,277,462 781,244
Investment tax credit 667,198 667,198
Net operating loss carryovers 77,613,809 84,973,863
Other accrued expenses not deducted for tax purposes 1,614,019 1,221,506
Provision for loss on interest rate exchange agreements 1,407,109 2,032,741
------------ ------------
Total gross deferred tax assets 85,960,519 93,711,842
Less valuation allowance (75,048,435) (82,703,430)
------------ ------------
Deferred tax assets 10,912,084 11,008,412
------------ ------------
Deferred tax liabilities:
Tax bad debt reserves in excess of book 4,489,372 4,561,590
Deferred income 5,145,250 5,665,578
------------ ------------
Deferred tax liabilities 9,634,622 10,227,168
------------ ------------
Net deferred tax assets $ 1,277,462 $ 781,244
============ ============
</TABLE>
Net operating loss carryforwards and investment tax credits generated by
Eureka and its subsidiaries through the date Eureka was acquired by AFEH are
available to offset future taxable income or income taxes of Eureka and its
subsidiaries, but may not be used to offset future taxable income or income
taxes of any other new member of the consolidated group. At December 31,
1995, pre-acquisition net operating loss carryforwards for federal income
tax purposes amounted to $113 million and will expire in various years
through 2002. At December 31, 1995, post-acquisition net operating loss
carryforwards for federal income and state franchise tax purposes amounted
to approximately $107 million and approximately $40 million, respectively,
and will expire in various years through 2007 and 1997, respectively.
At December 31, 1995, the Partnership has alternative minimum tax credit
carryovers of $1.3 million and investment tax credit carryovers aggregating
approximately $667,000 which expire in years 1998 through 2000. Such
investment tax credit carryovers are subject to a 35% reduction under the
Tax Reform Act of 1986.
18. Benefit Plans
-------------
Eureka has a qualified, noncontributory defined benefit retirement plan (the
"Plan") covering substantially all of its employees. The benefits are based
on the average of the highest five consecutive annual salaries of the ten
years preceding age 65. An employee becomes fully vested upon completion of
five years of qualifying service. It is the policy of Eureka to fund the
minimum amount required.
Eureka has "frozen" the Plan effective January 1, 1994. As a result, no
additional benefits will accrue in the Plan as of this date. All Plan
participants became fully vested in their accrued benefits as of January 1,
1994. Eureka may elect to terminate the frozen Plan at some point in the
future according to its rights under the Plan. The Plan assets consist of
cash and mutual funds.
16
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following table sets forth the Plan's funded status and amounts recognized
in Eureka's consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation (all vested) $6,259,923 $5,780,307
Fair value of Plan assets at December 31, 6,260,759 6,339,082
---------- ----------
Plan assets in excess of projected benefit obligation 836 558,775
Unrecognized net loss from past experience different
from that assumed, and effects of changes in assumptions 953,509 167,579
Unrecognized prior service cost (208,691) -
Unrecognized net transition asset (9,834) (11,346)
---------- ----------
Total pension prepayment $ 735,820 $ 715,008
========== ==========
Weighted average discount rate 7% 8.5%
Expected long-term rate of return on assets 8% 8%
</TABLE>
The components of net pension expense for the years ended December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ - $ - $ 481,716
Interest cost on projected benefit obligation 497,326 511,031 704,713
Actual return on Plan assets (917,788) 63,556 (221,056)
Net amortization and deferral 424,650 (524,271) (285,123)
SFAS No. 88 curtailment expense - - 263,554
--------- ---------- ----------
Total pension expense $ 4,188 $ 50,316 $ 943,804
========= ========== ==========
</TABLE>
Beginning January 1, 1994, Eureka introduced a new retirement plan which
is called the EurekaBank Service Investment Plan ("ESIP") covering
substantially all of its employees. Through this new plan, Eureka makes an
annual retirement contribution to an ESIP account based on the participant's
length of service which equals one percent of eligible pay per year up to a
maximum contribution of four percent for four or more years of service
provided that the participant must be employed on the last day of the year.
Participants become 100% vested in their account after five years of
service. The amount recorded as contribution expense for the ESIP totaled
$505,000 and $487,000 for 1995 and 1994, respectively, and was included in
other liabilities at December 31, 1995 and 1994.
Eureka also has a qualified 401(k) plan effective as of July 1, 1989,
covering substantially all employees. Eureka's matching contributions to the
401(k) plan for the years ended December 31, 1995, 1994 and 1993 amounted to
$415,445, $438,454 and $451,687, respectively.
In 1993, the Partnership adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," which did not have a
material effect on the Partnership's financial statements since adoption.
This statement establishes standards for employers to accrue postretirement
benefit costs other than pensions, during the years employees render
qualifying service. SFAS No. 106 requires recognition of a "transition
obligation," measured as the unfunded and unrecognized accumulated
postretirement benefit obligation for all plan participants at the date the
statement is adopted. The Partnership has elected to recognize the
transition obligation over the participants' future service periods.
19. Capital
-------
Capital Requirements
--------------------
The Office of Thrift Supervision ("OTS") requires that savings institutions
satisfy three separate capital requirements: a leverage ratio of core
capital to total adjusted assets of 3%, a tangible capital to total adjusted
assets ratio of 1.5% and a risk-based capital to risk-weighted assets ratio
of 8%. At December 31, 1995, Eureka exceeded all regulatory minimum capital
requirements.
17
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Dividend Restrictions
---------------------
The Capital Maintenance Agreement, which expires when the FDIC Preferred
Stock is redeemed, also contains certain restrictions on disposition of the
ownership of Eureka and AFEH and dividend payments by Eureka. The
Partnership's primary source of funds is dividends paid by (or accrued from)
Eureka. These dividends provide the funds for distributions to the BUC
Holders. Dividend payments by Eureka are subject to the following
limitations under the Capital Maintenance Agreement:
- No dividends may be paid if regulatory capital is less than required
levels.
- Aggregate dividends paid subsequent to the Acquisition may not exceed
50% of the capital contributed upon and after the Acquisition, plus 50%
of aggregate net income earned subsequent to the Acquisition.
- Dividends in any calendar year may not exceed the greater of $12
million or 50% of net income for that year.
The payment of dividends to AFEH from Eureka is subject to OTS regulations
requiring thirty days prior notice of the intent to declare dividends.
Additionally, the OTS has the authority to preclude the declaration of any
dividends.
20. Commitments and Contingencies
-----------------------------
The following lending and investment commitments were outstanding at
December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Commitments to originate fixed rate mortgage loans $ 2,856,650 $ 1,111,000
Commitments to originate adjustable rate mortgage loans $27,547,700 $19,975,800
Commitments to purchase mortgage loans $21,300,000 $ -
Commitments to sell mortgage loans $ 1,328,000 $ 673,000
</TABLE>
There were no other outstanding commitments to purchase or sell securities
at December 31, 1995 and 1994.
Eureka is involved in various legal actions arising in the normal course
of business. It is the opinion of management, after consultation with
counsel, that resolution of these matters would not have a material adverse
effect on the Partnership's consolidated financial condition or operations.
Certain branch and office locations are leased by AFEH or Eureka under
operating type leases expiring at various dates through the year 2008,
except for one lease which expires in the year 2040. Related rental expense
during 1995, 1994 and 1993 amounted to $4.7 million, $4.9 million and $4.3
million, respectively. Future minimum lease payments under terms of existing
operating leases at December 31, 1995 are $4.9 million in 1996, $4.5 million
in 1997, $4.1 million in 1998, $3.5 million in 1999, $1.6 million in 2000
and $7.8 million thereafter.
At December 31, 1995, loans of approximately $13.0 million had been sold
with recourse to repurchase if loans become 120 days delinquent or upon
completion of the foreclosure process. These loans, which are secured by 1-4
unit residential mortgages, are seasoned and were sold by Eureka prior to
its acquisition by AFEH. Repurchases of loans sold with recourse amounted to
less than $25,000 for the years ended December 31, 1995, 1994 and 1993.
There were no foreclosures of these loans.
21. Parent Company Only Financial Information
-----------------------------------------
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,829,364 $ 1,097,052
Investment in subsidiary at cost
plus equity in undistributed
earnings 154,147,732 143,329,262
Other assets 2,721,193 2,718,451
------------ ------------
Total assets $158,698,289 $147,144,765
============ ============
Liabilities and partners' capital:
Accounts payable $ 129,880 $ 112,699
Partners' distributions payable 2,436,725 2,436,725
------------ ------------
Total liabilities 2,566,605 2,549,424
Partners' capital 156,131,684 144,595,341
------------ ------------
Total liabilities and
partners' capital $158,698,289 $147,144,765
============ ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Dividends from subsidiary $ 10,800,000 $ 10,800,000 $ 10,800,000
Income from short-term investments 85,451 64,009 35,281
------------ ------------ ------------
10,885,451 10,864,009 10,835,281
Expenses:
Operating and administrative 420,678 408,381 672,247
------------ ------------ ------------
Earnings before undistributed income
of subsidiary 10,464,773 10,445,628 10,163,034
Undistributed income (loss) of
subsidiary 6,770,345 4,736,694 (9,955,172)
------------ ------------ ------------
Net income $ 17,235,118 $ 15,192,322 $ 207,862
============ ============ ============
</TABLE>
18
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
Years Ended December 31:
------------------------------------------
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,235,118 $ 15,192,322 $ 207,862
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in earnings of subsidiary (17,570,345) (15,536,694) (844,828)
Other non cash adjustments 14,439 (81,576) 73,884
------------ ------------ -----------
Net cash used in operating activities (320,788) (425,948) (563,082)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from subsidiary 10,800,000 8,100,000 10,800,000
------------ ------------ -----------
Net cash provided by investing activities 10,800,000 8,100,000 10,800,000
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (9,746,900) (9,746,899) (9,746,898)
------------ ------------ -----------
Net cash used in financing activities (9,746,900) (9,746,899) (9,746,898)
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents 732,312 (2,072,847) 490,020
Cash and cash equivalents at beginning of period 1,097,052 3,169,899 2,679,879
------------ ------------ -----------
Cash and cash equivalents at end of period $ 1,829,364 $ 1,097,052 $ 3,169,899
============ ============ ===========
</TABLE>
22. Transactions with Related Parties
---------------------------------
The Partnership and AFEH paid or reimbursed 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 and reimbursed by the Partnership
or AFEH, was $435,416, $624,705 and $992,243 for the years ended 1995, 1994
and 1993, 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. 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. During 1995, 1994 and
1993, $863,793, $761,963 and $863,993, respectively, of the annual fee had
been paid or accrued.
23. Summary of Unaudited Quarterly Results of Operations
----------------------------------------------------
<TABLE>
<CAPTION>
Summary of Unaudited Quarterly Results of Operations
Year ended December 31, 1995
----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income $ 38,682,099 $ 39,854,893 $ 42,674,729 $ 42,427,971
Interest expense (25,379,728) (26,494,147) (28,208,005) (27,520,186)
------------ ------------ ------------ ------------
Net interest income 13,302,371 13,360,746 14,466,724 14,907,785
Provision for loan losses (164,278) (187,933) (234,595) (205,361)
Non-interest income 2,028,225 2,876,743 2,306,543 2,211,539
Non-interest expense (11,649,354) (12,588,485) (11,427,506) (11,768,046)
------------ ------------ ------------ ------------
Net income before income taxes 3,516,964 3,461,071 5,111,166 5,145,917
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net income $ 3,516,964 $ 3,461,071 $ 5,111,166 $ 5,145,917
============ ============ ============ ============
Net income per BUC $.5519 $.5445 $.7641 $.7687
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Summary of Unaudited Quarterly Results of Operations
Year ended December 31, 1994
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income $ 32,770,171 $ 32,958,669 $ 34,010,212 $ 36,329,686
Interest expense (19,195,971) (20,142,875) (21,474,371) (23,379,907)
------------ ------------ ------------ ------------
Net interest income 13,574,200 12,815,794 12,535,841 12,949,779
Provision for loan losses (601,492) (333,583) (262,431) (47,920)
Non-interest income 2,334,812 2,705,850 2,976,617 1,973,723
Non-interest expense (11,174,094) (11,415,149) (11,384,845) (11,454,780)
------------ ------------ ------------ ------------
Net income before income taxes 4,133,426 3,772,912 3,865,182 3,420,802
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net income $ 4,133,426 $ 3,772,912 $ 3,865,182 $ 3,420,802
============ ============ ============ ============
Net income per BUC $.6340 $.5860 $.5983 $.5390
====== ====== ====== ======
</TABLE>
19
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
24. Fair Value of Financial Instruments
-----------------------------------
SFAS 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of estimated fair values for financial instruments. Such
estimates are subjective in nature, involving significant judgment regarding
the risk characteristics of various financial instruments at a discrete
point in time. Therefore, such estimates could vary significantly if
assumptions regarding uncertain matters were changed. Major assumptions,
methods, and fair value estimates for Eureka's financial instruments for
1995 and 1994 are set forth below.
Cash and Short-Term Investments - The carrying amount was a reasonable
estimate of fair value.
U. S. Treasury Notes and Mortgage-Backed Securities - The fair value
estimates for U.S. Treasury Notes and mortgage-backed securities were based
on quoted market prices or dealer quotes, and included the carrying value of
accrued interest receivable which was a reasonable estimate of fair value.
Loans Receivable - Fair value of real estate mortgage loans was estimated
using a discounted cash flow method, adjusted for differences in credit risk
and liquidity. Real estate mortgage loans fair value estimates included the
carrying value of accrued interest receivable which was a reasonable
estimate of fair value.
Other Financial Instrument Assets - Other financial instrument assets
consisted of an investment in FHLB stock, the carrying value of which was
deemed a reasonable estimate of fair value.
Deposit Liabilities - Deposits with no stated maturity date were included in
the amount payable on demand. The fair value of time deposits (certificates
of deposit) was estimated using a discounted cash flow methodology based on
current market rates for wholesale borrowing alternatives, and included the
carrying value of accrued interest payable which was a reasonable estimate
of fair value.
Borrowings - Borrowings consisted of reverse repurchase agreements and FHLB
advances. The fair value was estimated using a discounted cash flow method
based on current market rates for similar debt and maturities, and included
the carrying value of accrued interest payable which was a reasonable
estimate of fair value.
Other Financial Instrument Liabilities - Other financial instrument
liabilities consisted of FDIC Preferred Stock and other financial
liabilities, the carrying values of which was deemed a reasonable estimate
of fair values.
Interest Rate Exchange Agreements - The fair value of interest rate exchange
agreements was estimated using the average of current bid and ask rates for
agreements of similar remaining terms, after considering the
creditworthiness of the exchange agreements' counterparties. The carrying
amount included the liability established based on the estimated fair value
of the exchange agreements that were no longer deemed effective as hedges.
Commitments to Extend Credit -In 1995, commitments to extend credit were
related to origination of residential mortgage loans. In 1994, commitments
to extend credit were related principally to the purchase of residential
mortgage loans. The fair value of such commitments was estimated using
current market rates for loans with similar characteristics versus the
committed rates.
Franchise Value and Intangible Assets - The estimated value of Eureka's
financial instruments did not include certain material intangible assets.
Management believes that the value of the deposit franchise and customer
base was significant. In addition, the estimated fair values did not include
the value of the portfolio of loans serviced for others and in 1994 did not
include Eureka's credit card customer base.
20
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Notes to Consolidated Financial Statements
Estimated fair values of financial instruments at December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------------
(000's) (000's)
----------------------------- ----------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
---------------- ----------- ---------------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 72,605 $ 72,605 $ 67,798 $ 67,798
Investments and mortgage-backed securities 861,262 867,010 835,569 811,493
Loans receivable 1,439,290 1,451,495 1,439,828 1,414,759
Other 21,509 21,509 20,461 20,461
Financial liabilities:
Demand deposits 485,662 485,662 482,054 482,054
Time deposits 1,220,707 1,223,090 1,215,667 1,201,456
Borrowings 521,052 521,586 517,084 517,217
Other 16,245 16,245 15,581 15,581
Off-balance sheet financial instruments:
Interest rate exchange agreements liability (3,385) (5,455) 4,690 5,300
Commitments to extend credit liability - 13 - 219
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from The FORM
10-K dated 12/31/95 and is qualified in its entirety by reference to such FORM
10-K filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 24,106,635
<INT-BEARING-DEPOSITS> 3,009,030
<FED-FUNDS-SOLD> 45,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,031,990
<INVESTMENTS-CARRYING> 803,765,778
<INVESTMENTS-MARKET> 807,705,658
<LOANS> 1,438,461,279
<ALLOWANCE> 6,878,072
<TOTAL-ASSETS> 2,416,953,364
<DEPOSITS> 1,704,466,523
<SHORT-TERM> 464,662,500
<LIABILITIES-OTHER> 23,869,748
<LONG-TERM> 52,280,921
<COMMON> 0
15,541,988
0
<OTHER-SE> 156,131,683
<TOTAL-LIABILITIES-AND-EQUITY> 2,416,953,364
<INTEREST-LOAN> 105,198,541
<INTEREST-INVEST> 58,441,151
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 163,639,692
<INTEREST-DEPOSIT> 75,771,695
<INTEREST-EXPENSE> 107,602,066
<INTEREST-INCOME-NET> 56,037,626
<LOAN-LOSSES> 792,167
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 47,433,391
<INCOME-PRETAX> 17,235,118
<INCOME-PRE-EXTRAORDINARY> 17,235,118
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,235,118
<EPS-PRIMARY> 2.629
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 6,388,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,810,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,820,406
<CHARGE-OFFS> 1,743,571
<RECOVERIES> 597,399
<ALLOWANCE-CLOSE> 6,878,072
<ALLOWANCE-DOMESTIC> 6,878,072
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
