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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934 For the quarterly period ended June 30, 1997 or
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________to________
Commission File Number: 0-16918
AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0713310
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1004 Farnam Street, Omaha, Nebraska 68102
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(Address of principal executive offices) (Zip Code)
(402) 444-1630
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
FORM 10-Q
June 30, 1997
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996............................................ 1
Consolidated Statements of Operations
For the quarters ended June 30, 1997 and June 30, 1996
and for the six months ended June 30, 1997 and June 30, 1996................... 2
Consolidated Statement of Partners' Capital
For the six months ended June 30, 1997......................................... 3
Consolidated Statements of Cash Flows
For the six months ended June 30, 1997 and June 30, 1996....................... 4
Notes to Consolidated Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 17
Item 6. Exhibits and Reports on Form 8-K............................................... 17
SIGNATURES................................................................................... 20
</TABLE>
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
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CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
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<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
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Assets
<S> <C> <C>
Cash and amounts due from depository institutions $ 25,099 $ 30,827
Federal funds sold 15,000 20,000
Securities purchased under agreements to resell 8,204 5,300
Mortgage-backed securities, net
Held to maturity 549,490 630,106
Available-for-sale 42,001 44,489
Loans receivable, net 1,477,903 1,403,483
Loans held for sale 495 370
Accrued interest receivable 12,830 12,217
Premises and equipment, net 8,592 8,888
Federal Home Loan Bank stock, at cost 19,906 21,827
Real estate held for sale or investment, net 1,328 1,328
Real estate owned, net 1,237 1,438
Deferred tax assets, net 22,373 22,643
Other assets 6,188 6,135
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Total Assets $2,190,646 $2,209,051
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Liabilities and Partners' Capital
Customer deposits $1,888,965 $1,840,485
Securities sold under agreements to repurchase 15,522 44,353
Other borrowings 75,181 106,998
Distributions payable 2,437 2,437
Other liabilities and accrued expenses 14,777 19,583
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Total Liabilities 1,996,882 2,013,856
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Redeemable Preferred Stock; Series A, no par value;
100,000 shares outstanding, $10 million liquidation value
at June 30, 1997; and 200,000 shares outstanding, $20
million liquidation value at December 31, 1996 8,854 17,748
Partners' Capital:
General Partner 10,793 9,155
Beneficial Unit Certificate (BUC) Holders
6,010,589 BUCs authorized, issued and outstanding 174,117 168,292
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Total Partners' Capital 184,910 177,447
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Total Liabilities and Partners' Capital $2,190,646 $2,209,051
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per BUC amounts)
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<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
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<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $27,795 $26,536 $54,594 $53,750
Interest on mortgage-backed securities 10,704 12,686 22,024 26,517
Interest and dividends on investment 569 1,167 1,404 2,371
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Total interest income 39,068 40,389 78,022 82,638
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Interest expense
Interest on deposits 21,963 20,333 43,453 40,059
Interest on borrowings 1,248 4,808 2,860 11,328
Preferred Stock accretion 508 542 1,107 1,066
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Total interest expense 23,719 25,683 47,420 52,453
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Net interest income before provision for loan losses 15,349 14,706 30,602 30,185
Provision for loan losses 250 372 502 780
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Net interest income after provision for loan losses 15,099 14,334 30,100 29,405
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Non-interest income
Deposit related fees 445 453 907 922
Loan related fees 313 387 609 712
Gain on disposition of loans 104 107 167 154
Other income 2,669 985 3,535 1,517
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Total non-interest income 3,531 1,932 5,218 3,305
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Non-interest expense
Compensation and benefits 5,825 5,252 11,639 10,667
Occupancy and equipment 2,037 2,089 3,941 4,314
FDIC premiums and special assessments 387 1,085 767 2,180
Professional services 767 212 1,014 538
Advertising and promotion 479 296 714 526
Provision for loss (recovery) on interest
rate exchange agreements 131 (100) (5) (569)
Other expense 2,208 2,104 4,058 4,214
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Total non-interest expense 11,834 10,938 22,128 21,870
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Income before income taxes 6,796 5,328 13,190 10,840
Provision for income taxes 320 - 640 -
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Net income $ 6,476 $ 5,328 $12,550 $10,840
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Net income allocated to:
General Partner 929 $ 562 1,757 $ 1,160
BUC Holders 5,547 4,766 10,793 9,680
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$ 6,476 $ 5,328 $12,550 $10,840
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Net income per BUC $ .92 $ .79 $ 1.80 $ 1.61
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the Six Months Ended June 30, 1997
(dollars in thousands)
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<TABLE>
<CAPTION>
General
Partner BUC Holders Total
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<S> <C> <C> <C>
Balance at December 31, 1996 $ 9,155 $168,292 $177,447
Net income 1,757 10,793 12,550
Cash distributions paid or accrued (65) (4,808) (4,873)
Net unrealized losses on available-for-sale
mortgage-backed securities (54) (160) (214)
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Balance at June 30, 1997 $10,793 $174,117 $184,910
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
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<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1996
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Cash flows from operating activities
<S> <C> <C>
Net income $ 12,550 $ 10,840
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of:
Investments and mortgage-backed securities net premium 1,186 1,486
Loan premium 123 543
Intangibles 579 632
Proceeds from sale of loans 9,069 10,241
Originations of loans held for sale (9,027) (10,668)
(Gain) loss on sale of real estate owned and held for sale or investment (1,548) 32
Gain on sale of loans (167) (153)
Provision for loan losses 502 780
Provision for loss (recovery) on interest rate exchange agreements (5) (569)
Decrease (increase) in accrued interest receivable (612) 486
Decrease in accrued interest payable (1,229) (1,117)
Depreciation and amortization of premises and equipment 843 866
Net provision for income taxes 640 -
Increase in other assets (357) (2,251)
Decrease in other liabilities (3,871) (2,105)
Other, net 218 379
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Total adjustments (3,656) (1,418)
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Net cash provided by operating activities 8,894 9,422
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Cash flows from investing activities
Originations of loans held for investment (193,750) (113,330)
Purchases of mortgage-backed securities held for investment - (14,548)
Purchases of real estate loans (4,760) (21,931)
Purchases of premises and equipment (586) (512)
Principal payments on mortgage-backed securities 81,704 111,481
Principal payments on loans 122,357 148,342
Proceeds from sales of real estate owned and held for sale or investment 2,654 1,558
Proceeds from sale of Federal Home Loan Bank Stock 2,599 911
Redemption of preferred stock (10,000) -
Other, net 106 189
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Net cash provided by investing activities 324 112,160
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Cash flows from financing activities
Net increase in checking, money market accounts
and passbook savings 1,543 45,325
Proceeds from issuance of certificates of deposits 164,904 144,005
Payments for maturing or early withdrawal
of certificates of deposits (117,968) (98,268)
Net decrease in short-term repurchase agreements (28,831) (115,302)
Net decrease in Federal Home Loan Bank advances (31,817) (121,032)
Capital distributions (4,873) (4,874)
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Net cash used by financing activities (17,042) (150,146)
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Net decrease in cash and cash equivalents (7,824) (28,564)
Cash and cash equivalents at beginning of period 56,127 72,316
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Cash and cash equivalents at end of period $ 48,303 $ 43,752
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Supplemental disclosure of cash flow information:
Non cash investing and financing activities:
Additions to real estate acquired through foreclosure $ 1,114 $ 2,909
Cash paid for interest (including interest credited) $ 48,780 $ 52,658
Cash paid for alternative income and minimum
franchise taxes $ 370 $ 380
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION
America First Financial Fund 1987-A Limited Partnership (the "Partnership")
was formed on April 14, 1987 under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring one or more federally insured
financial institutions through supervisory assisted acquisitions. The
Partnership formed a subsidiary corporation, America First Eureka Holdings,
Inc. ("AFEH") for the purpose of owning and managing one or more acquired
financial institutions. The Partnership will terminate on December 31, 2036,
unless terminated earlier under the provisions of the Partnership Agreement.
The general partner of the Partnership is America First Capital Associates
Limited Partnership Five ("AFCA-5") whose managing general partner is AFCA-5
Management Corporation.
2. BASIS OF PRESENTATION
The consolidated financial statements of the Partnership include the accounts
of the Partnership, AFEH (its wholly-owned subsidiary) and AFEH's wholly-
owned subsidiary, EurekaBank ("Eureka") and its subsidiaries. All significant
intercompany transactions have been eliminated.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (primarily consisting of normal
recurring accruals) necessary for a fair presentation of the Partnership's
financial condition as of June 30, 1997, and the results of its operations
for the three and six month periods ended June 30, 1997 and 1996.
3. ALLOWANCE FOR LOAN LOSSES
The Partnership recorded loan loss provisions of approximately $250,000 and
$502,000 for the quarter and six months ended June 30, 1997, respectively,
compared to approximately $372,000 and $780,000 for the same periods in 1996.
At June 30, 1997 and December 31, 1996, the allowance for loan losses was
approximately $7.2 million and $7.1 million, respectively. Management
believes that the allowance for loan losses was adequate given the
composition, credit characteristics and loss experience of the loan
portfolio.
4. INTEREST RATE EXCHANGE AGREEMENTS
Prior to 1993, the Partnership entered into interest rate exchange agreements
to reduce the impact of future fluctuations in interest rates on fixed rate
mortgages funded by variable rate liabilities. The floating rates to be
received by the Partnership under the terms of these agreements are reset
monthly, quarterly or semi-annually and are generally indexed to the FHLB
Eleventh District Cost of Funds index or the one or three month London
Interbank Offered Rate ("LIBOR").
In 1993, the sustained decline in interest rates in the general economy and
the resulting prepayment of mortgage loans associated with the interest rate
exchange agreements caused Eureka to establish a liability based on the
estimated fair value of interest rate exchange agreements that were no longer
deemed effective as hedges. During the quarter ended June 30, 1997, Eureka
recorded a provision to non-interest expense on interest rate exchange
agreements of approximately $131,000 to reflect the effect of interest rate
decreases on the market value of Eureka's related obligations. A net recovery
of approximately $5,000 was recorded for the six months ended June 30, 1997.
During the quarter and six months ended June 30, 1996, Eureka recorded to
non-interest expense recoveries on interest rate exchange agreements of
approximately $100,000 and $569,000, respectively, to reflect the effect of
interest rate increases on the market value of Eureka's related obligations.
The recorded liability for the interest rate exchange agreements totaled
approximately $609,000 and $1.2 million at June 30, 1997 and December 31
1996, respectively. Net interest payable on interest rate exchange agreements
was $447,000 and $629,000 at June 30, 1997
5
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
and December 31, 1996, respectively, and was included in other liabilities
and accrued expenses.
For the quarter and six months ended June 30, 1997, net interest expense on
interest rate exchange agreements (after amortization of the interest rate
exchange agreement liability of $222,000 and $619,000, respectively) totaled
approximately $205,000 and $419,000, respectively. For the quarter and six
months ended June 30, 1996, net interest expense on interest rate exchange
agreements (after amortization of the interest rate exchange agreement
liability of $428,000 and $1.1 million, respectively) totaled approximately
$258,000 and $385,000, respectively. Net interest expense on interest rate
exchange agreements is included as an adjustment to interest income on loans.
The notional amount of interest rate exchange agreements outstanding was $80
million and $100 million at June 30, 1997 and 1996, respectively. The
notional amount of interest rate exchange agreements outstanding at December
31, 1996 was $100 million.
5. INCOME TAXES
The Partnership files calendar year federal and state Partnership information
returns, reporting its operations on an accrual basis. The consolidated
financial statement provisions for income tax for the quarter and six months
ended June 30, 1997 and 1996 relate to the Partnership's subsidiary, AFEH and
its subsidiaries. AFEH and its subsidiaries file calendar year consolidated
federal income and combined California franchise tax returns.
Deferred tax assets are initially recognized for net operating loss and tax
credit carryforwards and differences between the financial statements
carrying amount and the tax bases of assets and liabilities which will result
in future deduction amounts. A valuation allowance is established to reduce
the deferred tax assets to the level at which it is more likely than not that
the tax benefits will be recognized.
A valuation allowance is recorded if it is more likely than not that some
portion or all of the deferred tax assets will not be realized based on a
review of available evidence. The allowance is subject to ongoing adjustments
based on changes in circumstances that affect management's assessment of the
realizability of the deferred tax assets. Adjustments to increase or decrease
the valuation allowance are charged or credited, respectively, to income tax
expense (benefit).
6. PROPOSED MERGER WITH BAY VIEW CAPITAL CORPORATION
On May 8, 1997, the Partnership announced that it had entered into a
definitive agreement with Bay View Capital Corporation with respect to a
merger of its subsidiary America First Eureka Holdings with Bay View (the
"Merger Agreement"). Under the terms of the Merger Agreement, the Partnership
will receive $90 million in cash and $210 million in Bay View common stock
(subject to a minimum of 8,076,922 shares and a maximum of 10,000,000 shares)
for its interest in America First Eureka Holdings, which owns Eureka. If the
market price of Bay View common stock (based on the average closing prices
over a specified period) is less than $21.00 per share, the Partnership has
the right to terminate the Merger Agreement unless the total value of the
shares of Bay View common stock to be received is $210 million in addition to
the cash portion of $90 million. The transaction is expected to close on
December 31, 1997 or January 2, 1998, and is subject to customary conditions,
including regulatory approval and approval by the BUC holders. Please refer
to the Partnership's Form 8-K dated May 16, 1997 for further information. The
above Bay View shares to be received by the Partnership under the terms of
the Merger Agreement are adjusted for a Bay View 100% stock dividend declared
on April 14, 1997 to Bay View stockholders of record on May 9, 1997.
In May 1997, $10 million of the preferred stock issued to the FDIC was
redeemed. The $10 million in mandatorily redeemable non-voting Series A
Preferred Stock which remains outstanding would have been redeemed in May
1998, but will be redeemed when the merger is completed.
6
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AMERICA FIRST FINANCIAL FUND 1987-A LIMITED PARTNERSHIP AND SUBSIDIARY
Under the terms of the Assistance Agreement, and as a result of the Merger
Agreement discussed above, the Partnership expects to pay a final
participation payment to the FDIC of approximately $12.8 million from cash
received at the time of the merger. The final participation payment is in
addition to the redemption of the remaining $10 million in outstanding Series
A Preferred Stock.
7
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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FORWARD-LOOKING STATEMENTS
In addition to the historical information contained in this Management's
Discussion and Analysis section, certain discussions contain forward-looking
statements that involve risks and uncertainties. A number of important factors
could cause the actual results of operations and other information to differ
materially from those results of operations and other information discussed in
those forward-looking statements. Those factors include fluctuations in
interest rates, inflation, the impact of federal government legislation and
regulations (including changes in legislation and regulation), and economic
conditions and competition in the geographic and business area in which the
Partnership conducts its operations. The forward-looking statements are made as
of the date of this Form 10-Q and the Partnership undertakes no obligation to
publicly update such forwarding-looking statements to reflect subsequent events
or circumstances. The interim information discussed below should be read in
conjunction with the Partnership's 1996 Form 10-K, in particular the forward-
looking statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PROPOSED MERGER WITH BAY VIEW CAPITAL CORPORATION
On May 8, 1997, the Partnership announced that it had entered into a definitive
agreement with Bay View Capital Corporation ("Bay View") with respect to a
merger of its subsidiary America First Eureka Holdings with Bay View (the
"Merger Agreement"). Under the terms of the Merger Agreement, the Partnership
will receive $90 million in cash and $210 million in Bay View common stock
(subject to a minimum of 8,076,922 shares and a maximum of 10,000,000 shares)
for its interest in America First Eureka Holdings, which owns Eureka. If the
market price of Bay View common stock (based on the average closing prices over
a specified period) is less than $21.00 per share, the Partnership has the right
to terminate the Merger Agreement unless the total value of the shares of Bay
View common stock to be received is $210 million in addition to the cash portion
of $90 million. The transaction is expected to close on December 31, 1997 or
January 2, 1998, and is subject to customary conditions, including regulatory
approval and approval by the BUC holders. The above Bay View shares to be
received by the Partnership under the terms of the Merger Agreement are adjusted
to reflect a Bay View 100% stock dividend declared on April 14, 1997 to Bay View
stockholders of record on May 9, 1997. Please refer to the Partnership's Form
8-K dated May 16, 1997 for further information regarding the merger. Excluding
the FDIC final payment discussed in "Assistance Agreement" below, expenses which
will be recorded at the effective date of the merger are estimated to be $34
million. Actual expenses for merger related transactions may be higher or lower
than this estimate.
FINANCIAL CONDITION
At June 30, 1997, Partnership assets were approximately $2.2 billion, which was
approximately $18 million less than Partnership assets at December 31, 1996, and
consisted primarily of the assets of Eureka. Significant changes in the
composition of the balance sheet included the following:
. Net loans receivable, loans held for sale and net mortgage-backed securities
("MBS") decreased approximately $8 million during the six months ended June
30, 1997. The net decrease in the loan and MBS portfolios were primarily due
to prepayments. During the six months ended June 30, 1997, Eureka originated
(net of sales) $42 million and $148 million in retail and wholesale loans,
respectively. Wholesale loan originations enable Eureka to add assets that
meet its credit quality guidelines within its market area, and management
believes that wholesale loan originations will continue to be a significant
percentage of total originations through 1997. Mortgage loans purchased during
the six months ended June 30, 1997 totaled $4 million. There were no MBS
additions during the first six months of 1997. Repayments of $120 million and
$82 million were recorded in the mortgage loan and MBS portfolios,
respectively, during the six months ended June 30, 1997.
8
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
. Retail deposits increased approximately $48 million since December 31, 1996,
and totaled $1.9 billion at June 30, 1997. This increase is primarily due to
deposit promotion and retention incentives. The increases were primarily in
time deposits.
. Securities sold under agreements to repurchase and other borrowings decreased
approximately $60 million during the first six months of 1997 to $91 million
at June 30, 1997. As of June 30, 1997, other liabilities decreased
approximately $5 million from December 31, 1996, primarily due to reductions
for accrued interest on borrowings and interest rate exchange agreements, and
other payables.
At June 30, 1997 and December 31, 1996, the loan-to-deposit ratios were 78% and
76%, respectively. Loans, MBS, federal funds sold, securities purchased under
agreements to resell and investments comprised approximately 97% and 95% of
Partnership assets at June 30, 1997 and December 31, 1996, respectively.
Cash distributions paid or accrued during the quarter ended June 30, 1997
totaled $.40 per BUC. The amount of cash distributions paid or accrued for the
second quarter of 1997 is consistent with the same period in 1996. Future
distributions are expected to be made principally from dividends paid to the
Partnership by AFEH. AFEH funds these dividends by receipt of dividends from
Eureka, the payment of which is subject to regulatory limitation. Accordingly,
it is not possible to estimate the level of cash distributions to BUC Holders in
the future.
ASSET QUALITY
The allowance for loan losses was $7.2 million and $7.1 million, or .49% and
.50% of gross loans outstanding at June 30, 1997 and December 31, 1996,
respectively. Net non-performing assets (loans which were 90 or more days
delinquent and real estate acquired through foreclosure) were approximately $5.0
million and $5.7 million, or .23% and .26% of total assets at June 30, 1997 and
December 31, 1996, respectively. This compares favorably to 1.39% for non-
performing assets as of March 31, 1997, for thrifts located in California as
reported by the Office of Thrift Supervision ("OTS"). The allowance for loan
losses as a percentage of non-performing loans was approximately 190% at June
30, 1997 compared to approximately 159% at December 31, 1996. Management
believes that reserves are adequate given the composition, credit
characteristics and loss experience of the loan portfolio.
The level of loans 30 days or more delinquent was approximately $6.2 million or
.42% of loans at June 30, 1997, compared to approximately $7.4 million or .53%
of loans at December 31, 1996. This compares favorably to 2.51% for loans 30
days or more delinquent as of March 31, 1997, for thrifts located in California
as reported by the OTS.
RESULTS OF OPERATIONS
Net income for the quarter and six months ended June 30, 1997 was approximately
$6.5 million and $12.6 million, respectively, as compared to $5.3 million and
$10.8 million for the same periods in 1996. Net income per BUC for the quarter
and six months ended June 30, 1997 was $.92 and $1.80, respectively, as compared
to $.79 and $1.61 for the same periods in 1996. The increase in net income and
net income per BUC for the quarter and six months ended June 30, 1997 as
compared to the same periods in 1996 is due to reductions in deposit insurance
premiums, net gains on the sales of real estate owned and real estate held for
sale or investment and increases in net interest income. See "Deposit Insurance
and Other Matters" for further discussion of the SAIF assessment.
NET INTEREST INCOME
Net interest income before the provision for loan losses for the quarter and six
months ended June 30, 1997 was approximately $15.3 million and $30.6 million,
respectively, as compared to $14.7 million and $30.2 million for the same
periods in 1996. Net interest income is the Partnership's principal income
component and is determined by the
9
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
relative levels of, and interest rates paid on, interest earning assets and
interest bearing liabilities. Average interest earning assets were approximately
$2.1 billion for each of the quarter and six months ended June 30, 1997,
respectively, compared to approximately $2.2 billion and $2.3 billion for the
quarter and six months ended June 30, 1996, respectively.
The net interest margin, the net yield on average assets, for the quarter and
six months ended June 30, 1997 was 2.78% and 2.74%, respectively, as compared to
2.51% and 2.55% for the same periods in 1996. The net interest margin improved
in the quarter and six months ended June 30, 1997 as compared to the same
periods in 1996, as earnings on adjustable rate mortgage loans remained stable
and the cost of funds was lower. The notional amount of interest rate exchange
agreements decreased from $100 million at December 31, 1996 to $80 million at
June 30, 1997. Lower accretion of the recorded liability for interest rate
exchange agreements, offset by the expiration of some of these agreements,
slightly decreased the net interest expense on interest rate exchange agreements
to $205,000 for the quarter ended June 30, 1997, as compared to $258,000 for
the second quarter of 1996. The net interest expense for the six months ended
June 30, 1997 was $419,000, as compared to $385,000 for the six months ended
June 30,1996. This increase is due to lower amortization of the interest rate
exchange agreement liability in 1997.
PROVISION FOR LOAN LOSSES
The Partnership recorded loan loss provisions of approximately $250,000 and
$502,000 for the quarter and six months ended June 30, 1997, respectively, as
compared to $372,000 and $780,000 for the same periods in 1996. The decrease in
the provision for loan losses from 1996 to 1997 is due to the strong asset
quality which is described above. Net loan charge-offs were $132,000 and
$209,000 for the quarter and six months ended June 30, 1997, respectively, as
compared to $260,000 and $364,000 for the same periods in 1996. Net loan
charge-offs consist primarily of mortgage loan charge-offs.
Eureka's determination of the allowance for loan losses 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 recorded
adequate provisions to the allowance for loan losses 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 decrease in the provision for the second
quarter and first half of 1997 is primarily due to strong asset quality, which
is reflected in the improvement of the asset quality ratios as described above.
Management will continue to evaluate the appropriate level of the allowance for
loan losses based on outstanding loan balances, net charge-offs and trends in
asset quality. However, future loss experience related to changes in the
economy and interest rate environment cannot be predicted.
NON-INTEREST INCOME
The principal components of non-interest income are deposit and loan related fee
income, gains on the disposition of loans and other income. Non-interest income
totaled approximately $3.5 million and $5.2 million for the quarter and six
months ended June 30, 1997, respectively, compared to $1.9 million and $3.3
million for the same periods in 1996. The increase from 1996 to 1997 is
primarily due to net gains of $1.5 million on sales of real estate owned and
real estate investments for the quarter and six months ended June 30, 1997. See
below for discussion regarding sale of real estate owned and real estate
investments for 1997 and 1996.
Deposit and loan related fees for the quarter and six months ended June 30, 1997
were approximately $758,000 and $1.5 million, respectively, compared to $840,000
and $1.6 million for the same periods in 1996. These declines are primarily due
to lower loan prepayments which decreases prepayment fees and a competitive
deposit environment
10
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
throughout 1997.
Eureka originates "conforming loans" (fixed rate loans which meet the FHLMC
lending requirements) for sale in the secondary mortgage market. The net gain
from Eureka's loan sale activities was approximately $104,000 and $167,000 for
the quarter and six months ended June 30, 1997, respectively, on loan sales of
approximately $5.4 million and $8.5 million, respectively. During the
comparable periods a year earlier, Eureka sold conforming loans with principal
balances which totaled $7.5 million and $10.1 million, respectively, at a net
gain of approximately $107,000 and $154,000, respectively. The net gain from
loan sale activities for the quarter and six months ended June 30, 1997 includes
$61,000 and $82,000, respectively, of capitalized originated mortgage servicing
rights retained by Eureka, as compared to $63,000 and $88,000 for the same
periods in 1996.
Other non-interest income for the quarter and six months ended June 30, 1997 was
approximately $2.7 million, and $3.5 million, respectively, compared to $985,000
and $1.5 million, respectively, for the same periods in 1996. The increase
from 1996 to 1997 is primarily due to net gains of $1.5 million on sales of real
estate owned and real estate investments for the quarter and six months ended
June 30, 1997. The net gain (loss) on sales of real estate owned and real
estate investments for the quarter and six months ended June 30, 1996 amounted
to $39,000 and ($32,000), respectively. In addition, during the second quarter
of 1997, an adjustment was recorded for $500,000 for the reduction of previously
established reserves no longer deemed necessary. Similar adjustments were not
required for the six months ended June 30, 1996. Other non-interest income
included rental income, fee income from Eureka Financial Services Inc. (a Eureka
subsidiary licensed to sell mutual funds and insurance annuities), and other
non-operating income items.
NON-INTEREST EXPENSE
The principal components of non-interest expense are compensation and benefits
expense, occupancy and equipment expense, FDIC insurance premiums, professional
and advertising expense, provision for loss (recovery) on interest rate exchange
agreements and other administrative expenses. Non-interest expense for the
quarter and six months ended June 30, 1997 was approximately $11.8 million and
$22.1 million, respectively. The quarter and six months ended June 30, 1997
included $497,000 of merger expenses for professional services. Excluding these
expenses, non-interest expense for the quarter and six months ended June 30,
1997 was approximately $11.3 million and $21.6 million, respectively, as
compared to $10.9 million and $21.9 million for the same periods in 1996.
Excluding merger expenses, the increase in non-interest expense for the quarter
ended June 30, 1997 as compared to the same period in 1996 is due to increases
in compensation and benefits expense, offset by reductions in deposit insurance
premiums.
Compensation and benefits expenses were approximately $5.8 million and $11.6
million for the quarter and six months ended June 30, 1997, respectively,
compared to approximately $5.3 million and $10.7 million for the same periods in
1996. The increase in 1997 expenses is primarily due to increases in base
compensation and adjustments to accruals for bonuses and incentive awards.
Further, upon consummation of the Merger, the Partnership expects to pay
additional compensation under the terms of its two incentive compensation plans
of approximately $25 million. The additional compensation expense under the
plans is contingent upon completion of the merger.
Occupancy and equipment expenses totaled $2.0 million and $3.9 million for the
quarter and six months ended June 30, 1997, respectively, as compared to $2.1
million and $4.3 million for the same periods in 1996. FDIC insurance premiums,
professional and advertising expenses (excluding merger related expenses) were
approximately $1.1 million and $2.0 million for the quarter and six months ended
June 30, 1997, compared to $1.6 million and $3.2 million for the same periods in
1996. FDIC insurance premiums for the quarter and six months ended June 30,
1997 were $297,000 and $587,000, respectively, as compared to $971,000 and $1.9
million for the same periods in 1996. See "Deposit Insurance and Other Matters"
for a further discussion of deposit insurance.
11
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
Non-interest expense for the quarter and six months ended June 30, 1997 included
adjustments to the interest rate exchange agreements liability established in
1993. During the quarter and six months ended June 30, 1997, provisions
(recoveries) of approximately $131,000 and ($5,000), respectively, were recorded
to increase (decrease) the interest rate exchange agreements liability to
reflect the effect of interest rate changes on the market value of Eureka's
obligations under the interest rate exchange agreements. During the quarter and
six months ended June 30, 1996, (recoveries) of approximately ($100,000) and
($569,000), respectively, were recorded to decrease the interest rate exchange
agreements liability to reflect the effect of interest rate increases on the
market value of Eureka's obligations under the interest rate exchange
agreements.
Other non-interest expense for the quarter and six months ended June 30, 1997
totaled $2.2 million and $4.1 million, respectively, compared to $2.1 million
and $4.2 million for the same periods in 1996.
PROVISION FOR INCOME TAXES AND DEFERRED TAX ASSETS
Due to the net operating loss carryforwards available to AFEH arising from the
acquisition of Eureka, AFEH does not expect to pay any regular income taxes in
1997. AFEH's alternative minimum taxes totaled $180,000 and $370,000,
respectively, for the quarter and six months ended June 30, 1997, as compared to
$170,000 and $380,000 for the same periods in 1996. Alternative minimum taxes
paid by AFEH are recorded as deferred tax assets as they result in tax credits
with an indefinite life and will be used to offset future regular and income tax
liabilities.
As required by Statement of Financial Accounting Standard No. 109 ("SFAS No.
109"), management periodically reevaluates the realizability of the deferred tax
assets and adjusts the valuation allowance so that the resulting level of the
net deferred tax assets will, more likely than not, be realized. As of December
31, 1996, an adjustment of $26.2 million was recorded to reduce the valuation
allowance for net deferred tax assets primarily for the recognition of estimated
benefits from net operating loss carryforwards. In addition, an adjustment of
$4.6 million was recorded to reduce the valuation allowance through June 30,
1997.
The reevaluation and resulting adjustment of the deferred tax asset valuation
allowance occurred due to a number of factors which arose during the latter
portion of 1996. With the enactment in August 1996 of legislation which
repealed the tax deduction for bad debt reserves, and the later enactment of the
SAIF recapitalization legislation which resulted in the special one-time
assessment paid by Eureka (and all other SAIF-insured institutions), Eureka
determined that it may be able to utilize net operating loss carryforward
benefits that had previously been reserved against in the valuation allowance.
Further, Eureka's strong financial results in 1996 and its consistent financial
performance during the preceding two fiscal years, coupled with the forecast of
a stable interest rate environment in the short term, separately indicated the
possibility that Eureka might be able to utilize additional net operating loss
carryforward benefits against net pre-tax income generated in future financial
reporting periods. Accordingly, Eureka reassessed the recoverability of the net
deferred tax assets in the fourth quarter of 1996 and concluded that a downward
adjustment in the valuation allowance for net operating loss carryforwards, as
of the end of 1996, was appropriate. Federal net operating loss carryforwards
were approximately $209 million at December 31, 1996, with various expiration
dates through 2007. State net operating loss carryforwards were approximately
$29 million at December 31, 1996, and expire in 1997. To the extent such
carryforwards are used by AFEH, the FDIC may be entitled to share in the benefit
of the utilization.
Net deferred tax assets totaled $22.4 million and $22.6 million at June 30, 1997
and December 31, 1996, respectively. A valuation allowance is recorded if it is
more likely than not that some portion or all of the deferred tax assets will
not be realized based on a review of available evidence. The allowance is
subject to ongoing adjustments based on changes in circumstances that affect
management's assessment of the realizability of the deferred tax assets.
Adjustments to increase or decrease the valuation allowance are charged or
credited, respectively, to income tax expense (benefit).
12
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
ASSISTANCE AGREEMENT
Under the terms of the Assistance Agreement between Eureka and the FDIC entered
into in 1988 in connection with the assisted acquisition of the assets and
liabilities of Eureka Federal Savings and Loan Association, $50 million in
preferred stock was issued to the FDIC. In 1990, $30 million of the preferred
stock was redeemed by the FDIC, and in May 1997, an additional $10 million of
the preferred stock was redeemed. The $10 million in non-voting Series A
Preferred Stock which remains outstanding is mandatorily redeemable in May 1998,
and has a liquidation value of $100 per share. The holder of this preferred
stock is not entitled to dividends. The remaining preferred stock is being
accreted through the redemption date of 1998, and the accretion is recorded as
interest expense on other borrowings. The accretion for the quarter and six
months ended June 30, 1997 totaled approximately $507,000 and $1.1 million,
respectively, as compared to $543,000 and $1.1 million for the same periods in
1996, and is included in interest expense.
Upon completion of the merger between AFEH and Bay View, the outstanding
mandatorily redeemable non-voting Series A Preferred Stock will be redeemed
prior to its scheduled maturity of May 1998. Under the terms of the Assistance
Agreement, and as a result of the Merger Agreement discussed above, the
Partnership also expects to pay a final participation payment to the FDIC of
approximately $12.8 million from cash received at the time of the merger. The
final participation payment is in addition to the redemption of the remaining
$10 million in outstanding Series A Preferred Stock.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE RISK
Eureka's Asset and Liability Management Committee ("ALCO") is a board of
directors committee responsible for managing Eureka's assets and liabilities in
a manner which balances profitability and risks, including interest rate risk
("IRR"). ALCO operates within policies and risk limits prescribed and reviewed
regularly by the board of directors. IRR is the impact of market interest rates
on Eureka's net income, both in the short-term and long-term. Interest rate
changes impact earnings in several ways including an effect upon the yields on
variable rate loans, and the cost of deposits and other sources of funds. In
addition, borrowers are more motivated to repay and refinance loans when rates
decline, and the market values of securities and other investments fluctuate
based on interest rate changes.
Eureka manages interest rate fluctuations by simulating (modeling) the impact of
a variety of potential interest rate movements, customer behaviors, and market
conditions to identify conditions under which profitability would be adversely
affected. The simulation of various interest rate movements is used in
determining loan pricing and terms, and also to estimate prepayments of loans in
a declining rate environment. Various scenarios are simulated to determine an
appropriate asset and liability mix which protects capital funds even under
stress from unexpected changes in interest rates.
A common measure of financial institution IRR is the interest rate "gap." This
is the difference between the amount of assets and liabilities which are
expected to mature or reprice within a specific time period (such as one or
three years). A gap is considered positive when the amount of interest-rate
sensitive assets exceeds the amount of interest-rate sensitive liabilities, and
is considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest-rate sensitive assets maturing or repricing
within a given period. At June 30, 1997, Eureka's cumulative one-year and
three-year interest rate gaps were a positive two percent and a negative three
percent of total assets, respectively. In the case of the one-year gap, this
suggests that the net interest margin would be increased if interest rates were
to rise. At June 30, 1996, Eureka's cumulative one-year and three-year interest
rate gaps were a positive two percent and a negative four percent of total
assets, respectively. In the case of the one-year gap, this suggests that the
net interest margin would be increased if interest rates were to rise.
Management is of the opinion that simulating various interest rate scenarios is
a more effective measure of IRR because it incorporates specific assumptions not
considered in the "gap" analyses. The assumptions which are
13
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
excluded from the "gap" analyses include: (a) how rate movements affect
important borrower prepayment behavior, (b) that all loans and deposits will not
reprice to the same degree or by the same magnitude, (c) that rate changes for
assets and liabilities in the over one-year category have a greater long-term
earnings impact than those assets and liabilities "under one year," and (d) some
liabilities (such as checking accounts) do not have "repricing" maturities but
are significantly affected by interest rate movements.
The exposure to IRR as of June 30, 1997 is within the limits established by the
board of directors, and the level of IRR is acceptable in view of expected
market conditions and the potential for adverse developments in interest rate
levels.
LIQUIDITY
Eureka derives its primary liquidity from loan repayments, customer deposits,
FHLB advances and securities sold under agreements to repurchase. Eureka
manages liquidity by coordinating the relative maturities of assets and
liabilities. A much larger source of liquidity is the base of readily
marketable assets, as well as ready access to secured borrowings. 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. At June 30, 1997, Eureka had outstanding loan
funding commitments of approximately $129 million. Management believes that
existing liquidity and other capital resources are adequate to fund existing and
anticipated commitments at June 30, 1997.
Regulations require a savings institution to maintain a liquidity ratio of at
least five percent of cash and specified securities to net withdrawable accounts
and borrowings due in one year. For the month of June 1997, Eureka's liquidity
ratio was 5.26% compared to 5.74% for the month of December 1996.
14
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
CAPITAL REQUIREMENTS
Federal regulations also require that savings institutions meet three separate
capital tests: a tangible capital standard, a core capital standard and a
risk-based capital standard. At June 30, 1997, Eureka maintained regulatory
capital as follows:
<TABLE>
<CAPTION>
(000's)
---------------------------------------------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
---------------------- ------------------------ -----------------------
% of
% % Risk-Based
Amount of Assets Amount of Assets Amount Assets
------ --------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $178,133 $178,133 $178,133
Non-allowable assets:
Excess deferred tax assets (13,919) (13,919) (13,919)
Intangible and mortgage
servicing assets (2,778) (2,778) (2,778)
Non-includable Subsidiaries (3,754) (3,754) (3,754)
Net unrealized loss on securities
available for sale 452 452 452
Allowance for loan losses - - 7,161
-------- ------- ------- ----- -------- -------
Computed regulatory capital 158,134 7.32% 158,134 7.32% 165,295 16.66%
Minimum capital requirement 32,422 1.50% 64,844 3.00% 79,393 8.00%
-------- ------- ------- ----- -------- -------
Excess regulatory capital $125,712 5.82% $ 93,290 4.32% $ 85,902 8.66%
======== ======= ======= ===== ======== =======
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128 ("SFAS No. 128"), "Earnings
Per Share." This statement specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS"). It replaces the
computation of primary EPS with the computation of basic EPS (net income
applicable to common stock divided by average common shares outstanding). This
statement also requires the dual presentation of basic and diluted EPS on the
face of the income statement and a reconciliation of the numerator and
denominator of both EPS computations.
SFAS No. 128 is effective with the Partnership's year-end 1997 financial
statements; earlier application is not permitted, however the statement requires
restatement of all prior period EPS data presented including interim periods.
The basic and diluted EPS as calculated under SFAS No. 128 for the Partnership's
quarter and six-month period ended June 30, 1997 would not differ materially
from the existing primary and fully diluted EPS as presently calculated under
APB 15.
In February 1997, the FASB issued Statement of Financial Accounting Standard No.
129 ("SFAS No. 129"), "Disclosure of Information about Capital Structure." This
statement establishes standards for disclosing information about an entity's
capital structure. SFAS No. 129 is effective with the Partnership's year-end
1997 financial statements and interim periods thereafter.
In June 1997, the FASB issued Statement of Financial Accounting Standard No. 130
("SFAS No. 130"), "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its components.
It requires that the Partnership classify items of other comprehensive income,
as defined by accounting standards, by their nature in a financial statement,
but does not specify a particular format for the
15
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
statement. The Partnership is in the process of determining the format it will
employ. The statement also requires that the accumulated balance of other
comprehensive income be displayed as a separate component of partners' capital
in the balance sheet.
SFAS No. 130 is effective with the Partnership's year-end 1998 financial
statements; however, a total for comprehensive income is required in the
financial statements beginning with the first quarter of 1998. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.
In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective with the Partnership's year-end 1997 financial statements and interim
periods thereafter.
In January, 1997, the Securities and Exchange Commission ("SEC") adopted rule
amendments to enhance existing disclosure requirements for derivative financial
instruments as well as for market risks to which registrants are exposed. The
enhanced accounting policy disclosure requirements are effective for the
quarterly period ended June 30, 1997. Since the Partnership believes that the
derivative financial instrument disclosures contained within the notes to the
consolidated financial statements of its 1996 Form 10-K substantially conform
with the accounting policy requirements of these rule amendments, no further
interim period disclosure has been provided. The rule amendments that require
enhanced disclosure about market risk are effective with the 1997 Form 10-K.
DEPOSIT INSURANCE AND OTHER MATTERS
Eureka's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to the maximum amount provided by law through the SAIF. For the
quarter and six months ended June 30, 1997, Eureka paid deposit insurance
premiums to the SAIF of $297,000 and $587,000, respectively, based on an annual
assessment rate of approximately .065% of covered deposits for the first quarter
of 1997, and .063% of covered deposits for the second quarter of 1997.
For the quarter and six months ended June 30, 1996, Eureka paid deposit
insurance premiums to the SAIF of $971,000 and $1.9 million, respectively, based
on an annual assessment rate of approximately .23% of covered deposits through
June 30, 1996.
On September 30, 1996, the President signed an appropriations bill which
included provisions to recapitalize the SAIF. Under the provisions of the bill,
the SAIF was recapitalized through a combined approach of imposing a one-time
special assessment on SAIF-insured institutions, and an incremental pro-rata
charge on SAIF-insured institutions and commercial banks insured under the Bank
Insurance Fund ("BIF"), to be used to pay the interest on Financing Corporation
("FICO") bonds issued as part of the 1989 savings association rescue package
adopted under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"). The SAIF recapitalization provisions imposed a one-time
special assessment of 65.7 basis points (approximately $11 million for Eureka)
on deposits held by SAIF-insured institutions as of March 31, 1995, payable not
later than 60 days after the enactment of the legislation, and reduced the
annual assessment rate for SAIF-insured institutions from 23 basis points to 6.4
basis points (a reduction of approximately $3 million annually based upon
Eureka's insured deposits at September 30, 1996) beginning in 1997. Although
deposit premiums for thrifts will continue to be higher than the banking
industry's through the year 2000, the premium reduction significantly reduced
the inequity of Eureka paying a deposit premium significantly higher than that
of a similarly sized commercial bank. Beginning January 1, 2000, SAIF-insured
and BIF-insured deposits alike will be assessed on a pro-rata basis (expected to
be at a rate of approximately 2.4 basis
16
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AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
points) to repay the FICO bonds until the year 2017, and thereafter phased out,
with the phase-out being completed in 2019.
The BIF/SAIF recapitalization legislation also provides for a merger of the BIF
and SAIF on January 1, 1999, if no SAIF-insured institutions exist on that date.
This provision, therefore, will not become effective unless Congress enacts
additional legislation abolishing the savings association charter effective
prior to January 1, 1999. In this regard, in 1997, Congress is expected to
consider additional reform measures involving the merger of the BIF and SAIF,
and abolition of the thrift charter.
Other provisions of the 1996 legislation: (i) authorized the bank regulatory
agencies to take action to prevent depository institutions from taking advantage
of the BIF/SAIF premium disparity by "deposit-shifting" from the SAIF to the
BIF; (ii) strengthened existing prohibitions on the FDIC's increasing the risk-
based premiums for deposit insurance which would result in the statutory
Designated Reserve Ratio for the two federal deposit insurance funds (calculated
as a percentage of insured deposits for each fund) exceeding 1.25%; (iii)
authorized the FDIC to refund assessments paid in excess of amounts due; and
(iv) prohibit the FDIC, prior to January 1, 1999, from setting SAIF premiums at
levels less than BIF premiums.
In August 1996, the President signed legislation which included provisions that
repeal the thrift bad debt reserve method of calculation under the Internal
Revenue Code, effective for tax years beginning after December 31, 1995. Most
large savings associations (including Eureka) will be required to change to the
specific charge-off method of accounting for bad debts and will be required to
recapture statutory "excess reserves" as provided in the legislation. In the
case of an institution that meets certain residential lending requirements of
the legislation, recapture of statutory "excess reserves" can be deferred for up
to two years. Eureka met the residential lending requirements of the
legislation for 1996. Eureka's management expects to meet the residential
lending requirements of the legislation and to defer the recapture of the
statutory "excess reserves" for 1997. Management expects that the above
provisions will not have a significant impact on Eureka due to the substantial
amount of net operating loss carryforwards which are available.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no material pending legal proceedings to which the Partnership or AFEH
is a party or to which any property of the Partnership or AFEH is subject.
Eureka, however, is a party to various lawsuits arising in the normal course of
its business. Management does not believe that any of the legal proceedings to
which Eureka is a party will have a material impact on the financial condition
of the Partnership.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
4(a) Amended and Restated Limited Partnership Agreement dated June
30, 1987 (incorporated herein by reference to Form 10-K dated
December 31, 1987 filed pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 by America First Financial
Fund 1987-A Limited Partnership (Commission File No. 0-
16918)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Amendment No. 3 to the
Registration Statement on Form S-1 filed March 31, 1987 with
the Securities and Exchange Commission by America First
Financial Fund 1987-A Limited Partnership (Commission
17
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
File No. 33-10286)).
10(a). Custody Agreement dated August 3, 1987 (incorporated herein by
reference to Form 10-K dated December 31, 1987 filed pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
by America First Financial Fund 1987-A Limited Partnership
(Commission File No. 0-16918)).
10(b). Agreement between America First Capital Associates Limited
Partnership Five and Stephen McLin (incorporated herein by
reference to Amendment No. 3 to the Registration Statement on
Form S-1 filed March 31, 1987 with the Securities and Exchange
Commission by America First Financial Fund 1987-A Limited
Partnership (Commission File No. 33-10286)).
10(c). Assistance Agreement dated May 27, 1988 (incorporated herein
by reference to Form 8 filed June 15, 1988 pursuant to Section
13 or 15(d) of the Securities Exchange Act by America First
Financial Fund 1987-A Limited Partnership (Commission File No.
0-16918)).
10(d). Assignment Agreement dated May 27, 1988 (incorporated herein
by reference to Form 10-K dated December 31, 1988, filed
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 by America First Financial Fund 1987-A Limited
Partnership (Commission File No. 0-16918)).
10(e). Capital Maintenance Agreement dated May 27, 1988 (incorporated
herein by reference to Form 10-K dated December 31, 1988,
filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Financial Fund 1987-A
Limited Partnership (Commission File No. 0-16918)).
10(f). Asset Purchase Agreement dated May 27, 1988 (incorporated
herein by reference to Form 10-K dated December 31, 1988,
filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Financial Fund 1987-A
Limited Partnership (Commission File No. 0-16918)).
10(g). Employment Agreement between America First Holdings, Inc. (now
America First Eureka Holdings, Inc.) and Stephen T. McLin
dated January 24, 1989 (incorporated herein by reference to
Form 10-K dated December 31, 1988, filed pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 by America
First Financial Fund 1987-A Limited Partnership (Commission
File No. 0-16918)).
10(h). Long-Term Incentive Compensation Plan of EurekaBank (as
amended and restated effective January 1, 1991) (incorporated
herein by reference to Form 10-Q dated August 13, 1991, filed
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 by America First Financial Fund 1987-A Limited
Partnership (Commission File No. 0-16918)).
10(i). Form of Agreement between EurekaBank and certain executive
officers and directors which effectively amends certain
provisions of the Long-Term Incentive Compensation Plan
(incorporated herein by reference to Form 10-K dated December
31, 1996, filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 by America First Financial
Fund 1987-A Limited Partnership (Commission File No. 0-
16918)).
10(j). Form of Supplemental Agreement between EurekaBank and certain
executive officers and directors which effectively amends
certain provisions of the Long-Term Incentive Compensation
Plan (incorporated herein by reference to Form 10-K dated
December 31, 1996, filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First Financial
Fund
18
<PAGE>
AMERICA FIRST FINANCIAL FUND 1987 - A LIMITED PARTNERSHIP AND SUBSIDIARY
1987-A Limited Partnership (Commission File No. 0-16918)).
10(k). EurekaBank Equity Appreciation Plan Effective April 1, 1996, for the
benefit of certain officers, directors and employees of EurekaBank
and America First Eureka Holdings, Inc. (incorporated herein by
reference to Form 10-Q dated March 31, 1997, filed pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 by
America First Financial Fund 1987-A Limited Partnership (Commission
File No. 0-16918)).
27. Financial Data Schedule.
(b) On May 16, 1997, the Partnership filed a Current Report on Form 8-K to
report a press release issued on May 8, 1997 announcing that it had entered
into a definitive agreement with Bay View Capital Corporation with respect
to a merger of its subsidiary America First Eureka Holdings with Bay View.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICA FIRST FINANCIAL FUND
1987-A LIMITED PARTNERSHIP
By America First Capital
Associates Limited
Partnership Five, General
Partner of the Registrant
By AFCA-5 Management Corporation,
General Partner of America First
Capital Associates Limited Partnership Five
Date: August 7, 1997 By /s/ George H. Krauss
-------------------------------------------
George H. Krauss
Chairman of the Board of Directors
and Secretary (Principal Executive Officer)
Date: August 7, 1997 By /s/ J. Paul Bagley
-------------------------------------------
J. Paul Bagley
Director, President and Treasurer
(Principal Financial Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
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8,854
0
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</TABLE>
