FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--------
Exchange Act of 1934
For the quarterly period ended June 30, 1995 or
________ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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, 1995
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994....................................... 1
Consolidated Statements of Operations
For the quarters ended June 30, 1995 and June 30, 1994
and for the six months ended June 30, 1995 and June 30, 1994.............. 2
Consolidated Statement of Partners' Capital
For the six months ended June 30, 1995.................................... 3
Consolidated Statements of Cash Flows
For the six months ended June 30, 1995 and June 30, 1994.................. 4
Notes to Consolidated Financial Statements................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 12
Item 6. Exhibits and Reports on Form 8-K.......................................... 12
SIGNATURES......................................................................... 13
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
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June 30, 1995 December 31, 1994
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Assets
Cash and amounts due from depository institutions $ 23,153,431 $ 23,861,654
Federal funds sold 18,400,000 38,000,000
Securities purchased under agreements to resell 20,500,000 5,700,000
Investments held to maturity 39,993,092 39,990,607
Mortgage-backed securities, net
Held to maturity 755,258,374 737,896,536
Available-for-sale 54,878,362 53,004,210
Loans receivable, net 1,394,846,835 1,432,997,028
Loans held for sale 85,000 151,500
Accrued interest receivable 12,928,071 11,624,961
Premises and equipment, net 10,041,709 10,638,292
Federal Home Loan Bank stock, at cost 20,978,900 20,460,600
Real estate held for sale or investment, net 4,326,103 4,653,517
Real estate owned, net 2,423,958 4,964,934
Other assets 9,713,534 9,633,418
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Total Assets $2,367,527,369 $2,393,577,257
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Liabilities and Partners' Capital
Customer deposits $1,661,814,053 $1,696,291,789
Securities sold under agreements to repurchase 468,842,000 462,485,000
Other borrowings 50,278,000 50,278,000
Redeemable Preferred Stock; Series A, no par value;
200,000 shares issued; $20 million liquidation value 14,576,107 13,610,226
Distributions payable 2,436,725 2,436,725
Other liabilities and accrued expenses 19,343,625 23,880,176
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Total Liabilities 2,217,290,510 2,248,981,916
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Partners' Capital:
General Partner 3,802,717 2,772,295
Beneficial Unit Certificate (BUC) Holders
6,010,589 BUCs authorized, issued and outstanding 146,434,142 141,823,046
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Total Partners' Capital 150,236,859 144,595,341
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Total Liabilities and Partners' Capital $2,367,527,369 $2,393,577,257
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The accompanying notes are an integral part of the consolidated financial
statements.
1
America First Financial Fund 1987-A Limited Partnership and Subsidiary
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CONSOLIDATED STATEMENTS OF OPERATIONS
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For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
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Interest income
Interest and fees on loans $25,612,698 $22,796,409 $50,414,140 $46,149,829
Interest on mortgage-backed securities 13,225,414 9,278,839 25,893,493 17,778,989
Interest and dividends on investment securities 1,016,781 883,421 2,229,359 1,800,022
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Total interest income 39,854,893 32,958,669 78,536,992 65,728,840
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Interest expense
Interest on deposits 18,690,952 15,363,662 36,146,617 30,599,258
Interest on borrowings 7,320,254 4,397,214 14,761,377 7,975,590
Preferred Stock accretion 482,941 381,999 965,881 763,998
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Total interest expense 26,494,147 20,142,875 51,873,875 39,338,846
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Net interest income before provision for loan losses 13,360,746 12,815,794 26,663,117 26,389,994
Provision for loan losses 187,933 333,583 352,211 935,075
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Net interest income after provision for loan losses 13,172,813 12,482,211 26,310,906 25,454,919
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Non-interest income
Deposit related fees 513,444 471,712 1,056,794 936,077
Loan related fees 381,071 508,112 770,295 1,063,017
Gain (loss) on disposition of loans 45,939 (82,310) 44,154 107,735
Other income 1,936,289 1,808,336 3,033,725 2,933,833
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Total non-interest income 2,876,743 2,705,850 4,904,968 5,040,662
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Non-interest expense
Compensation and benefits 4,917,029 5,350,209 9,963,916 10,935,496
Occupancy and equipment 2,234,373 2,175,165 4,465,603 4,651,665
FDIC premiums and special assessments 1,060,536 1,089,068 2,121,073 2,178,098
Professional services 347,118 410,853 530,247 782,922
Advertising and promotion 398,557 268,766 628,020 627,710
Provision for loss (recovery) on interest
rate exchange agreements 1,029,000 (637,000) 1,029,000 (2,515,000)
Other expense 2,601,872 2,758,088 5,499,980 5,928,352
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Total non-interest expense 12,588,485 11,415,149 24,237,839 22,589,243
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Net income before income taxes 3,461,071 3,772,912 6,978,035 7,906,338
Provision for income taxes - - - -
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Net income $ 3,461,071 $ 3,772,912 $ 6,978,035 $ 7,906,338
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Net income allocated to:
General Partner $ 188,418 $ 250,682 $ 388,014 $ 573,571
BUC Holders 3,272,653 3,522,230 6,590,021 7,332,767
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$ 3,461,071 $ 3,772,912 $ 6,978,035 $ 7,906,338
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Net income per Beneficial Unit Certificate $ .5445 $ .5860 $ 1.0964 $ 1.2200
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The accompanying notes are an integral part of the consolidated financial
statements.
2
America First Financial Fund 1987-A Limited Partnership and Subsidiary
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the Six Months Ended June 30, 1995
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General Beneficial Unit
Partner Certificate Holders Total
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Balance at December 31, 1994 $2,772,295 $141,823,046 $144,595,341
Net income 388,014 6,590,021 6,978,035
Cash distributions paid or accrued (64,978) (4,808,471) (4,873,449)
Net unrealized gains on available-for-sale
mortgage-backed securities 707,386 2,829,546 3,536,932
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Balance at June 30, 1995 $3,802,717 $146,434,142 $150,236,859
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The accompanying notes are an integral part of the consolidated financial
statements.
3
America First Financial Fund 1987-A Limited Partnership and Subsidiary
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CONSOLIDATED STATEMENT OF CASH FLOWS
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For the Six For the Six
Months Ended Months Ended
June 30, 1995 June 30, 1994
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Cash flows from operating activities
Net income $ 6,978,035 $ 7,906,338
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of:
Investments and mortgage-backed securities net premium 145,305 1,090,420
Loan discount (1,083,217) (53,253)
Intangibles 669,984 669,984
Proceeds from sale of loans originated and held for sale 3,476,254 24,664,776
Originations of loans held for sale (3,365,600) (19,564,513)
Gain on disposition of mortgage loans (44,154) (107,735)
Provision for loan losses 352,211 935,075
Provision for loss on interest rate exchange agreements 1,029,000 -
Increase in accrued interest receivable (1,303,110) (265,656)
Decrease in accrued interest payable (526,859) (376,080)
Depreciation and amortization of premises and equipment 1,048,853 1,265,955
(Increase) decrease in other assets (750,097) 2,042,398
Decrease in other liabilities (5,038,693) (7,902,768)
Other, net 170,584 (827,221)
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Total adjustments (5,219,539) 1,571,382
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Net cash provided by operating activities 1,758,496 9,477,720
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Cash flows from investing activities
Loans originated and held for investment (55,134,398) (127,564,459)
Purchases of investment securities - (39,985,937)
Purchases of mortgage-backed securities (66,882,437) (102,411,482)
Purchases of real estate loans (3,136,168) (44,168,764)
Purchases of premises and equipment (452,720) (602,026)
Principal payments on mortgage-backed securities 51,035,589 83,870,249
Principal payments on loans 94,645,782 229,385,647
Proceeds from maturities of securities
purchased under agreements to resell 3,000,000 10,000,000
Proceeds from sale of Federal Home Loan Bank stock - 1,781,400
Proceeds from sales of real estate owned 4,659,649 6,629,688
Other, net 992,169 3,335
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Net cash provided by investing activities 28,727,466 16,937,651
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Cash flows from financing activities
Net decrease in checking, money market accounts
and passbook savings (39,219,483) (20,528,236)
Proceeds from issuance of certificates of deposits 141,088,634 124,625,666
Payments for maturing or early withdrawal
of certificates of deposits (136,346,887) (123,558,592)
Net increase (decrease) in short-term repurchase agreements 6,357,000 (20,641,000)
Decrease in Federal Home Loan Bank advances - (25,000,000)
Capital distributions (4,873,449) (4,873,451)
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Net cash used in financing activities (32,994,185) (69,975,613)
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Net decrease in cash and cash equivalents (2,508,223) (43,560,242)
Cash and cash equivalents at beginning of period 64,561,654 87,378,870
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Cash and cash equivalents at end of period $62,053,431 $43,818,628
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Supplemental disclosure of cash flow information:
Non cash investing and financing activities:
Additions to real estate acquired through foreclosure $ 2,489,574 $ 5,135,512
Additions to consumer loans acquired in
settlement of loans $ 57,561 $ 154,696
Cash paid for interest (including interest credited) $51,687,025 $39,100,337
Cash paid for alternative income and minimum
franchise taxes $ 185,000 $ 178,058
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The accompanying notes are an integral part of the consolidated financial
statements.
4
America First Financial Fund 1987-A Limited Partnership and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
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 (consisting of normal recurring
accruals) necessary for a fair presentation of the Partnership's financial
condition as of June 30, 1995, and the results of its operations for the
quarters and six months ended June 30, 1995 and 1994. Certain amounts in the
consolidated financial statements for 1994 have been reclassified to conform
with the current consolidated financial statement presentation.
3. Allowance for Loan Losses
The Partnership recorded a loan loss provision of approximately $188,000 and
$352,000 for the quarter and six months ended June 30, 1995, respectively,
compared to $334,000 and $935,000 for comparable periods in 1994. At June 30,
1995 and December 31, 1994, the Partnership maintained loan loss reserves of
approximately $7.3 million and $7.8 million, respectively. Management
believes that reserves are adequate given the composition and credit
characteristics of the loan portfolio.
4. Interest Rate Exchange Agreements
The Partnership entered into interest rate exchange agreements to reduce the
impact of future fluctuations in interest rates on fixed rate mortgages
funded by variable rate liabilities. The floating rates to be received by the
Partnership under the terms of the these agreements are reset monthly,
quarterly or semi-annually and are generally indexed to the FHLB Eleventh
District Cost of Funds index or the three or six month London Interbank
Offered Rate ("LIBOR").
During the third quarter of 1993, Eureka recorded a charge to earnings of
$20.4 million related to interest rate exchange contracts 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 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 and six months ended June 30, 1995, Eureka recorded to non-
interest expense a provision for losses on interest rate exchange agreements
of approximately $1.0 million to 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 the
5
America First Financial Fund 1987-A Limited Partnership and Subsidiary
quarter and six months ended June 30, 1994, Eureka recorded credits
(recoveries) to non-interest expense of approximately $637,000 and $2.5
million, respectively. The recorded liability for the exchange agreements
totaled approximately $2.8 million and $4.7 million at June 30, 1995 and
December 31, 1994, respectively.
Net interest expense on interest rate exchange agreements is included as an
adjustment to interest income on loans. For the quarter and six months ended
June 30, 1995, net interest expense on interest rate exchange agreements
totaled approximately $897,000 and $1.9 million, respectively, compared to
$1.8 million and $3.7 million for the same periods in 1994. For the quarter
and six months ended June 30, 1995, net interest paid or accrued on interest
rate exchange agreements totaled approximately $1.5 million and $3.8 million,
respectively, as compared to $4.7 million and $8.7 million for the same
periods in 1994.
5. Capital
In accordance with Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
securities classified as available-for-sale are carried at fair market value
with the unrealized gain or loss recorded in partners' capital. The
unrealized loss at June 30, 1995 approximated $400,000 after reflecting
unrealized gains of $1.4 million and $3.5 million for the quarter and six
months ended June 30, 1995.
6. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of
Distributable Cash and Net Sales Proceeds, and for the allocation of income
and loss from operations for both tax and financial reporting purposes among
AFCA-5 and BUC Holders. Distributions are made to each BUC Holder based on
the number of BUCs held by each BUC Holder as of the last day of the quarter.
Allocations of earnings between BUC Holders and the General Partner are based
upon non-compounded cumulative return on the adjusted capital as follows:
Allocation to
Non-compounded cumulative return of: BUC Holders : General Partner
------------------------------------ ------------------------------
Up to 8% 99 : 1
>8% to 10% 90 : 10
>10% to 12% 80 : 20
>12% 75 : 25
7. Transactions with Related Parties
The Partnership and AFEH reimburse AFCA-5 for certain costs and expenses
incurred in connection with the operation of the Partnership including legal
and accounting fees and other administrative costs. The amount of such
expenses incurred by AFCA-5 subject to reimbursement by the Partnership or
AFEH, was $83,134 and $241,181 for the quarter and six months ended June 30,
1995, respectively, compared to $140,397 and $426,953 for the same periods
in 1994.
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. For the quarter and six months ended June
30, 1995, $213,446 and $416,857, respectively, of the annual fee had been
paid or accrued, compared to $193,538 and $384,344 for comparable periods in
1994.
6
America First Financial Fund 1987-A Limited Partnership and Subsidiary
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
At June 30, 1995, Partnership assets were approximately $2.4 billion, which was
approximately $26 million lower than the level at December 31, 1994, and
consisted primarily of the assets and liabilities of Eureka. Significant
changes in the composition of the balance sheet included the following:
. Net loans receivable, loans held for sale and net mortgage-backed securities
("MBS") decreased approximately $19.0 million during the six months ended
June 30, 1995. Net decreases of approximately $38.2 million were recorded in
the loan portfolio, while net increases of approximately $19.2 million were
recorded in the MBS portfolio. During the six months ended June 30, 1995,
Eureka originated $57.3 million and purchased $3.1 million and $65.8 million
in mortgage loans and MBS, respectively. Repayments of $142.3 million and
sales of $3.4 million were recorded in the mortgage loan and MBS portfolios
during the six months ended June 30, 1995.
. Retail deposits decreased approximately $34.5 million since December 31, 1994
to $1.7 billion at June 30, 1995. The decrease in deposits was primarily due
to a decline in short-term money market products.
. Securities sold under agreements to repurchase and other borrowings increased
approximately $6.4 million during the first six months of 1995 from $512.7
million at December 31, 1994 to $519.1 million at June 30, 1995. As of June
30, 1995, other liabilities decreased by $4.5 million since December 31,
1994, primarily due to reductions of approximately $873,000 in the interest
rate exchange agreements liability, $980,000 in net interest payable on
interest rate exchange agreements, $776,000 for accrued interest on
borrowings, $704,000 for accrued personnel expenses, $745,000 in accounts
payable and $400,000 in other accruals.
At June 30, 1995 and December 31, 1994, the loan-to-deposit ratio was 84%.
Loans, MBS and investments comprised approximately 96% of Partnership assets at
June 30, 1995 and December 31, 1994.
Cash distributions paid or accrued during the first and second quarters of 1995
totaled $.40 per BUC or an 8% per annum return based on original contributions
of $20 per BUC. Future distributions are expected to be made principally from
dividends paid to the Partnership by AFEH. AFEH funds these dividends by
receipt of dividends from Eureka, the payment of which is subject to regulatory
limitation. Accordingly, it is not possible to estimate the level of cash
distributions to BUC Holders over the long term.
Asset Quality
The allowance for loan losses was $7.3 million and $7.8 million or .52% and .54%
of loans outstanding at June 30, 1995 and December 31, 1994, respectively. Non-
performing assets (loans which were 90 or more days delinquent and real estate
acquired through foreclosure) were approximately $10.5 million and $13.3 million
or .45% and .56% of total assets at June 30, 1995 and December 31, 1994,
respectively. This compares favorably to 2.71% for non-performing assets as of
March 31, 1995, for thrifts located in California as reported by the Office of
Thrift Supervision ("OTS"). The ratio of loan loss reserves to non-performing
loans was 90% at June 30, 1995 compared to 94% at December 31, 1994.
The level of loans 30 days or more delinquent remained low at approximately
$16.0 million or 1.14% of loans at June 30, 1995, compared to approximately
$17.0 million or 1.18% of loans at December 31, 1994. This
7
America First Financial Fund 1987-A Limited Partnership and Subsidiary
compares favorably to 4.66% for loans 30 days or more delinquent as of March 31,
1995, for thrifts located in California as reported by the OTS. Loans 30 days
or more delinquent at June 30, 1995 included $12.4 million in mortgage loans
collateralized by 1-4 unit residences.
As of January 1994, Eureka had purchased $7.8 million in mortgage loans secured
by real estate located in southern California which were affected by the January
17, 1994 Northridge earthquake (Northridge loans). The Northridge loans were
serviced by other institutions, and the servicers negotiated with the borrowers
on behalf of Eureka temporary forbearance agreements for hardship conditions.
Industry practice and regulatory guidelines require the Northridge loans to be
reported as delinquent loans if the borrowers' payments under the temporary
forbearance agreements are less than the contractual payments of the original
loan agreements. As of June 30, 1995 and December 31, 1994, $2.7 million and
$4.6 million, respectively, of the $7.8 million Northridge loans were included
in delinquent loans. Under the terms of the temporary forbearance agreements,
$2.5 million were performing and current at June 30, 1995. Excluding the
Northridge loans, the ratio of loans thirty days or more delinquent to total
loans was .94% and .86% at June 30, 1995 and December 31, 1994, respectively.
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. Future
increases in interest rates may have an impact on credit quality as mortgage
loan payments increase for the upward movement in index rates. The future loss
experience related to a rising interest rate environment cannot be predicted.
Results of Operations
Net income for the quarter and six months ended June 30, 1995 was approximately
$3.5 million and $7.0 million, respectively, compared to $3.8 million and $7.9
million for comparable periods in 1994. Net income per BUC for the quarter and
six months ended June 30, 1995 was $.5445 and $1.0964, respectively, compared to
$.5860 and $1.2200 during the quarter and six months ended June 30, 1994.
Net Interest Income
Net interest income before the provision for loan losses for the quarter and six
months ended June 30, 1995, was approximately $13.4 million and $26.7 million,
respectively, compared to $12.8 million and $26.4 million for the same periods
in 1994.
Net interest income is the Partnership's principal income component and is
determined by the relative levels of, and interest rates paid on, interest
earning assets and interest bearing liabilities. Average interest earning
assets were approximately $2.3 billion for the quarter and six months ended June
30, 1995, compared to approximately $2.2 billion for the quarter and six months
ended June 30, 1994. The net interest margin, the net yield on average assets,
for the three months ended June 30, 1995 was 2.30% compared to 2.21% for the
same period a year earlier. The increase in net interest margin in the second
quarter of 1995 compared to the second quarter of 1994 was primarily due to
lower prepayment rates and the repricing of adjustable rate mortgage loans
originated with initial teaser rates. For the six months ended June 30, 1995
and 1994, the net interest margin was 2.26% and 2.29%, respectively.
8
America First Financial Fund 1987-A Limited Partnership and Subsidiary
Provision for Loan Losses
The Partnership recorded loan loss provisions of approximately $188,000 and
$352,000 for the quarter and six months ended June 30, 1995, respectively. Loan
loss provisions recorded during the quarter and six months ended June 30, 1994
totaled $334,000 and $935,000, respectively. Net loan charge-offs were $326,000
and $736,000 for the quarter and six months ended June 30, 1995, respectively.
Net loan charge-offs for the quarter and six months ended June 30, 1994
approximated $460,000 and $1.1 million, respectively. Of the total net charge-
offs recorded during the quarter and six months ended June 30, 1995, $226,000
and $483,000, respectively, were for Eureka's consumer loan portfolio, as
compared to $387,000 and $734,000 for the quarter and six months ended June 30,
1994. Mortgage loan charge-offs totaled $99,000 and $253,000 for the quarter
and six months ended June 30, 1995, compared to $73,000 and $335,000 for the
same periods in 1994, respectively.
Management continually reviews the adequacy of loan loss reserves and believes
that it has provided adequate loan loss reserves to cover potential losses.
This includes consideration of 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.
Non-Interest Income
The principal components of non-interest income are deposit and loan related fee
income, gain on the disposition of loans and other income. Non-interest income
totaled approximately $2.9 million and $4.9 million for the quarter and six
months ended June 30, 1995, respectively, compared to $2.7 million and $5.0
million for the same periods in 1994.
Deposit and loan related fees for the three and six months ended June 30, 1995
were approximately $895,000 and $1.8 million, compared to $980,000 and $2.0
million for the same periods in 1994.
Fixed rate loans which meet the FHLMC lending requirements, "conforming loans,"
are originated by Eureka for sale in the secondary mortgage market. The net
gain from Eureka's loan sale activities was approximately $46,000 and $44,000
for the quarter and six months ended June 30, 1995, respectively, on sales of
loans of approximately $2.4 million and $3.4 million, respectively. During
comparable periods a year earlier, Eureka sold conforming loans with principal
balances which totaled $10 million and $25 million at a net gain/(loss) of
approximately $(82,000) and $108,000, respectively. The decline in loan sale
transactions and related income was due, in part, to overall fewer loan fundings
and a shift in borrowers preferences to adjustable mortgages, which are
generally not sold in the secondary market.
Other non-interest income for the quarter and six months ended June 30, 1995 was
approximately $1.9 million and $3.0 million, respectively, compared to $1.8
million and $2.9 million for comparable periods in 1994. Other income included
rental income, fee income from Eureka Financial Services Inc., a Eureka
subsidiary licensed to sell mutual funds and insurance annuities, income from
real estate held for investment, gain on sale of real estate foreclosed, and
other non-operating income items.
Non-Interest Expense
The principal components of non-interest expense are compensation and benefits
expenses, occupancy and equipment expenses, FDIC insurance premiums,
professional and advertising expenses, provision for loss(recovery) on interest
rate exchange agreements and other administrative expenses. Non-interest
expense for the quarter and six months ended June 30, 1995 was approximately
$12.6 million and $24.2 million compared to $11.4 million and $22.6 million for
the same periods in 1994.
9
America First Financial Fund 1987-A Limited Partnership and Subsidiary
Compensation and benefits expenses were approximately $4.9 million and $10.0
million for the quarter and six months ended June 30, 1995, compared to
approximately $5.4 million and $10.9 million for the quarter and six months
ended June 30, 1994. In addition to management's general effort to reduce
controllable costs, the decline in loan funding volume in 1995 reduced loan
agent commissions for the three and six months ended June 30, 1995, as compared
to the same periods in 1994.
Non-interest expense for the quarter and six months ended June 30, 1995 included
adjustments to the interest rate exchange agreements liability established by
recording the $20.4 million provision for the quarter and nine months ended
September 30, 1993. During the quarter ended June 30, 1995, a provision of
approximately $1.0 million was recorded to increase the interest rate exchange
agreements liability to reflect the effect of interest rate decreases on the
market value of Eureka's obligations under the interest rate exchange agreements
deemed ineffective as hedges. The recorded exchange agreements liability was
reduced by $637,000 and $2.5 million for the quarter and six months ended June
30, 1994, to reflect the effect of interest rate increases on the market value
of Eureka's obligations under the interest rate exchange agreements. The change
in the exchange agreements liability during the quarter and six months ended
June 30, 1995 included scheduled accretion of $600,000 and $1.9 million, as
compared to $2.3 million and $5.0 million for the same periods in 1994. Such
accretion was an adjustment to the yield on mortgage loans.
Occupancy and equipment expenses totaled $2.2 million and $4.5 million for the
quarter and six months ended June 30, 1995, respectively, compared to $2.2
million and $4.7 million for the same periods a year earlier.
FDIC insurance premiums, professional and advertising expenses, and other
administrative expenses were approximately $4.4 million and $ 8.8 million for
the quarter and six months ended June 30, 1995, respectively, and $4.5 million
and $9.5 million for comparable periods a year earlier. Decreases in 1995 were
primarily attributable to the general effort to manage controllable costs such
as professional services and other administrative expenses.
Provision for Income Taxes
Due to the net operating loss carryforwards available to AFEH arising from the
Acquisition of Eureka, AFEH does not expect to pay federal income taxes in 1995.
AFEH's alternative minimum taxes totaled $90,000 and $185,000 for the three and
six months ended June 30, 1995. Alternative minimum taxes paid by AFEH are
recorded as prepaid expenses in other assets with an indefinite life and will be
used to offset future tax liabilities.
Interest Rate Risk
At June 30, 1995, Eureka had a negative one-year interest rate repricing gap of
approximately five percent and a negative three-year interest rate repricing gap
of approximately three percent. At June 30, 1994, Eureka had a negative one-
year interest rate repricing gap of approximately two percent and a negative
three-year interest rate repricing gap of approximately four percent. The
interest rate repricing gap reported at June 30, 1995 assumes lower prepayment
levels on mortgage loans as compared to the interest rate repricing gap reported
at June 30, 1994. Eureka experienced overall lower prepayment levels during the
second quarter and six months ended June 30, 1995, as compared to the same
period in 1994. Additionally, maturing interest rate swap agreements have had a
reduced hedging impact on Eureka's reported interest rate repricing gap at June
30, 1995, as compared to June 30, 1994.
10
America First Financial Fund 1987-A Limited Partnership and Subsidiary
Liquidity
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 1995, Eureka's liquidity
ratio was 5.02% compared to 5.03% for the month of December 1994. Resources
committed at June 30, 1995 consisted of approximately $22.2 million in loan and
MBS funding commitments. Management believes that existing liquidity and other
capital resources are adequate to fund existing and anticipated commitments
existing at June 30, 1995.
Capital Requirements
OTS regulations require that savings institutions meet three separate capital
tests: a risk-based standard, a core capital standard and a tangible capital
standard. At June 30, 1995, Eureka maintained regulatory capital as follows:
(000's)
-----------------------------------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
---------------------- ------------------ ---------------------
% of
% % Risk-Based
Amount of Assets Amount of Assets Amount Assets
--------- --------- -------- --------- ------ ------------
GAAP Capital $144,355 $144,355 $144,355
Non-allowable assets:
Intangible assets (4,762) (4,762) (4,762)
Non-includable Subsidiaries (4,946) (4,946) (4,946)
Unrealized loss on securities:
Available for sale 400 400 400
Additional capital item:
General valuation allowances - - 4,238
-------- -------- --------
Computed regulatory capital 135,047 5.75% 135,047 5.75% 139,285 14.16%
Minimum capital requirement 35,246 1.50% 70,491 3.00% 78,696 8.00%
-------- ------ -------- ------ -------- --------
Excess regulatory capital $ 99,801 4.25% $ 64,556 2.75% $ 60,589 6.16%
======== ====== ======== ====== ======== ========
11
America First Financial Fund 1987-A Limited Partnership and Subsidiary
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no material pending legal proceedings to which the Partnership
or AFEH is a party or to which any property of the Partnership or AFEH is
subject. Eureka, however, is a party to various lawsuits arising in the
normal course of its business. Management does not believe that any of
the legal proceedings to which Eureka is a party will have a material
impact on the financial condition of the Partnership.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
4(a) Amended and Restated Limited Partnership Agreement dated
June 30, 1987 (incorporated herein by reference to Form 10-
K dated December 31, 1987 filed pursuant to section 13 or
15(d) of the Securities Exchange Act of 1934 by America
First Financial Fund 1987-A Limited Partnership (Commission
File No. 0-16918)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated by reference to Amendment No. 3 to
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 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)).
28.1 Letter to BUC Holders, revised as of April 1, 1992
(incorporated herein by reference to Form 10-Q dated May
15, 1992, 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. 33-
10286)).
28.2 America First Financial Fund 1987-A Distribution
Reinvestment Plan Summary, revised as of April 1, 1992
(incorporated herein by reference to Form 10-Q dated May
15, 1992, 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. 33-
10286)).
28.3 First Amended Distribution Reinvestment Plan Agreement,
dated as of April 1, 1992 (incorporated herein by reference
to Form 10-Q dated May 15, 1992, 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. 33-10286)).
12
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 10, 1995 By /s/ George H. Krauss
-------------------------------------------
GEORGE H. KRAUSS
Chairman of the Board of Directors
and Secretary (Principal Executive Officer)
Date: August 10, 1995 By /s/ J. Paul Bagley
--------------------------------------------
J. PAUL BAGLEY
Director, President and Treasurer
(Principal Financial Officer)
13