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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark one)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _______
Commission File Number 33-82040
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MAIN PLACE FUNDING CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2547042
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1201 Main Street, 29th Floor, Dallas, Texas 75202
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 743-9999
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ x ]
No shares of voting securities of the registrant are held by non-affiliates.
On March 25, 1996, there were 100 shares of the registrant's common
stock outstanding, all of which shares are held by NationsBank of Texas,
N.A., an indirect, wholly owned subsidiary of NationsBank Corporation.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION J(1)(a) and (b) OF FORM 10-K AND IS THEREFORE FILING THIS
FORM WITH THE REDUCED DISCLOSURE FORMAT.
Documents incorporated by reference: NONE
PART I
Item 1. BUSINESS
Main Place Funding Corporation (MPFC) was incorporated on June 24, 1994
in the state of Delaware. MPFC is a wholly owned, limited-purpose,
finance subsidiary of NationsBank of Texas, N.A. (Parent), which is an
indirect, wholly owned subsidiary of NationsBank Corporation
(Corporation), a multi-bank holding company organized in 1968 under the laws
of North Carolina. MPFC's sole purpose is to issue and sell mortgage-backed
bonds and subordinated indebtedness and to acquire, own, hold and pledge the
related mortgage notes and other assets serving as collateral in
connection therewith. Its operations commenced on September 20, 1994
(Inception). For information regarding issuances of mortgage-backed
bonds and subordinated indebtedness, see Note 4 to the Financial Statements
at page F-10.
Item 2. PROPERTIES
MPFC does not own or lease any physical property.
Item 3. LEGAL PROCEEDINGS
MPFC has no legal actions or proceedings pending.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction J to Form 10-K.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
All of MPFC's outstanding Common Stock, its sole class of common equity
on the date hereof, is owned by the Parent. Accordingly, there is no
public trading market for MPFC's Common Stock. During 1995, MPFC paid
cash dividends of $27.7 million to the Parent. MPFC paid no cash
dividends during 1994.
Item 6. SELECTED FINANCIAL DATA
Omitted in accordance with General Instruction J to Form 10-K.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1995 was $31.2 million. Net
income for the period from Inception through December 31, 1994 was $3.5
million.
MPFC's net income reflects the impact of several factors such as the
levels and the average interest rates of the mortgage loan portfolio and
issuances of mortgage-backed bonds and subordinated notes, including
securities market conditions and the volatility of interest rates.
The average yield on the mortgage loan portfolio for the year ended
December 31, 1995 was 7.34 percent. The average yield on the mortgage
loan portfolio for the period from Inception through December 31, 1994
was 7.32 percent. Changes in such average yield are primarily related to
the mix between fixed- and adjustable-rate loans, the repricing terms of
adjustable-rate loans, the impact of the general level of interest rates,
the levels of prepayments of mortgage loans and normal scheduled
amortization of the portfolio as a whole. For the year ended December 31,
1995, the average interest rates on the outstanding mortgage-backed bonds and
subordinated notes were 6.27 percent and 7.90 percent, respectively.
2
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are listed in the Index
to Financial Statements on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
and financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted in accordance with General Instruction J to Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Omitted in accordance with General Instruction J to Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted in accordance with General Instruction J to Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted in accordance with General Instruction J to Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The financial statements required by this Item are listed in the
Index to Financial Statements on page F-1.
b. The following report on Form 8-K has been filed by the registrant
during the quarter ended December 31, 1995:
Current Report on Form 8-K dated October 31, 1995 and filed
November 13, 1995, Item 7.
c. The exhibits filed as part of this report and exhibits
incorporated herein by reference to other documents are listed
in the Index to Exhibits to this Annual Report on Form 10-K.
d. All schedules are omitted because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Main Place Funding Corporation
---------------------------------
Date: March 25, 1996 /s/ Joe L. Price
---------------------------------
Joe L. Price
Senior Vice President--Accounting
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ John E. Mack President, Treasurer March 25, 1996
- -----------------------------
John E. Mack and Director
(Principal Executive and Financial Officer)
/s/ Joe L. Price Senior Vice President - March 25, 1996
- -----------------------------
Joe L. Price Accounting
(Principal Accounting Officer)
/s/ F. William Vandiver, Jr. Chairman and Director March 25, 1996
- -----------------------------
F. William Vandiver, Jr.
/s/ James H. Luther Vice President and March 25, 1996
- -----------------------------
James H. Luther Director
/s/ William L. Maxwell Director March 25, 1996
- -----------------------------
William L. Maxwell
4
MAIN PLACE FUNDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants....................................... F-2
Financial Statements:
Balance Sheet on December 31, 1995 and 1994........................ F-3
Statement of Income for the Year Ended December 31, 1995 and for the
Period from Inception through December 31, 1994.................... F-4
Statement of Cash Flows for the Year Ended December 31, 1995 and for
the Period from Inception through December 31, 1994................ F-5
Statement of Changes in Shareholder's Equity for the Year Ended
December 31, 1995 and for the Period from Inception through
December 31, 1994.................................................. F-6
Notes to Financial Statements........................................... F-7
F-1
Report of Independent Accountants
To the Board of Directors and Shareholder of
Main Place Funding Corporation
In our opinion, the accompanying balance sheet and related statements of
income, of changes in shareholder's equity and of cash flows present
fairly, in all material respects, the financial position of Main Place
Funding Corporation at December 31, 1995 and 1994, and results of its
operations and its cash flows for the year ended December 31, 1995 and for
the period from inception through December 31, 1994 in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
Charlotte, North Carolina
March 20, 1996
F-2
Main Place Funding Corporation
Balance Sheet
(Dollars in Thousands)
December 31,
----------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents......................... $ 4,870 $ 66,933
Amount due from Trustee........................... 106,531 -
Mortgage loans, net of unearned income............ 4,523,744 1,536,389
Allowance for credit losses....................... (17,805) (10,993)
Interest receivable............................... 21,907 7,321
Other assets...................................... 9,199 1,552
----------------------------------
$ 4,648,446 $ 1,601,202
==================================
Liabilities
Accrued expenses.................................. $ 22,137 $ 27,611
Mortgage-backed bonds............................. 2,999,342 -
Subordinated notes................................ 1,320,183 1,299,476
----------------------------------
Total liabilities............................... 4,341,662 1,327,087
----------------------------------
Shareholder's Equity
Common stock, $.01 par value:
authorized - 1,000 shares; issued - 100 shares.. - -
Additional paid-in capital........................ 299,648 270,566
Retained earnings................................. 7,136 3,549
----------------------------------
Total shareholder's equity...................... 306,784 274,115
----------------------------------
$ 4,648,446 $ 1,601,202
==================================
See accompanying notes to financial statements.
F-3
Main Place Funding Corporation
Statement of Income
(Dollars in Thousands)
Year From Inception
Ended Through
December 31, December 31,
1995 1994
- -----------------------------------------------------------------------------------------------
Interest and fees on mortgage loans.................. $ 204,024 $ 32,209
----------------------------------
Expenses
Interest.......................................... 146,805 25,701
Other operating expenses.......................... 9,149 1,049
----------------------------------
Total expenses................................. 155,954 26,750
----------------------------------
Income before income taxes........................... 48,070 5,459
Income tax expense................................... 16,825 1,910
----------------------------------
Net income........................................... $ 31,245 $ 3,549
==================================
See accompanying notes to financial statements.
F-4
Main Place Funding Corporation
Statement of Cash Flows
(Dollars in Thousands)
Year From Inception
Ended Through
December 31, December 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------
Operating Activities
Net income............................................................... $ 31,245 $ 3,549
Reconciliation of net income to net cash provided by operating activities
Net increase in interest receivable.................................... (14,283) (7,321)
Net increase (decrease) in accrued expenses............................ (5,474) 27,606
Other operating activities............................................. 2,765 -
------------------------------
Net cash provided by operating activities........................... 14,253 23,834
------------------------------
Investing Activities
Net increase in amount due from Trustee.................................. (67,731) -
Net reduction of mortgage loans outstanding.............................. 399,908 40,176
------------------------------
Net cash provided by investing activities........................... 332,177 40,176
------------------------------
Financing Activities
Proceeds from issuances of long-term debt, net of issuance costs......... 3,925,633 1,297,924
Retirement of long-term debt............................................. (913,451) -
Proceeds from issuance of common stock................................... - 5,000
Cash dividends to Parent................................................. (27,658) -
Distribution of capital to Parent........................................ (3,393,017) (1,300,001)
------------------------------
Net cash provided (used) by financing activities.................... (408,493) 2,923
------------------------------
Net increase (decrease) in cash and cash equivalents........................ (62,063) 66,933
Cash and cash equivalents at beginning of period............................ 66,933 -
------------------------------
Cash and cash equivalents at December 31.................................... $ 4,870 $ 66,933
==============================
Supplemental cash flow disclosure
Cash paid for interest $ 169,106 $ -
Cash paid for income taxes - -
See accompanying notes to financial statements.
F-5
Main Place Funding Corporation
Statement of Changes in Shareholder's Equity
(Dollars in Thousands)
Common Stock Additional Total
---------------------- Paid-In Retained Shareholder's
Shares Amount Capital Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Net income..................................... - $ - $ - $ 3,549 $ 3,549
Common stock issued............................ 100 5,000 5,000
Net assets contributed by the Parent........... 1,565,567 1,565,567
Distribution of capital to the Parent.......... (1,300,001) (1,300,001)
---------------------------------------------------------------------------------
Balance on December 31, 1994...................... 100 - 270,566 3,549 274,115
Net income..................................... 31,245 31,245
Cash dividends................................. (27,658) (27,658)
Net assets contributed by the Parent........... 3,422,099 3,422,099
Distribution of capital to the Parent.......... (3,393,017) (3,393,017)
---------------------------------------------------------------------------------
Balance on December 31, 1995...................... 100 $ - $ 299,648 $ 7,136 $ 306,784
=================================================================================
See accompanying notes to financial statements.
F-6
Main Place Funding Corporation
Notes to Financial Statements
Note 1 - Accounting Policies
Basis of Presentation
Main Place Funding Corporation (MPFC) was incorporated on June 24, 1994. It
is a wholly owned, limited-purpose, finance subsidiary of NationsBank of
Texas, N.A. (Parent), which is an indirect, wholly owned subsidiary of
NationsBank Corporation (Corporation). MPFC's sole purpose is to issue and
sell mortgage-backed bonds and subordinated indebtedness and to acquire, own,
hold and pledge the related mortgage notes and other assets serving as
collateral in connection therewith. Its operations commenced on September 20,
1994 (Inception).
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures. Significant
estimates made by management are discussed in these footnotes as applicable.
Cash and Cash Equivalents
Cash and cash equivalents includes cash items in the process of collection and
amounts due from affiliated banks.
Loans
Loans are reported at their outstanding principal balances, net of any charge-
offs and unamortized premiums or discounts. Discounts and premiums are
amortized to income using methods that approximate the interest method.
Nonperforming Loans
Loans that are past due 120 days or more as to principal or interest, or where
reasonable doubt exists as to timely collection, are generally classified as
nonperforming loans unless well secured and in the process of collection.
Generally, loans which are past due 180 days or more as to principal or
interest are classified as nonperforming regardless of collateral or
collection status.
Interest collections on nonperforming loans for which the ultimate
collectibility of principal and interest is uncertain are applied as
reductions in book value. Otherwise, such collections are credited to income
when received.
Allowance for Credit Losses
The allowance for credit losses is available to absorb losses inherent in the
credit extension process. Credit exposures deemed to be uncollectible are
charged against the allowance for credit losses. Recoveries of previously
charged-off amounts are credited to the allowance for credit losses.
MPFC's process for determining an appropriate allowance for credit losses
includes management judgment and use of estimates. The adequacy of the
allowance for credit losses is reviewed regularly by management. Additions to
the allowance for credit losses are made by charges to the provision for
credit losses. On a quarterly basis, a comprehensive review of the adequacy
of the allowance for credit losses is performed. This assessment is made in
the context of historical losses, as well as existing economic conditions.
F-7
Other Real Estate Owned
Loans are classified as other real estate owned when MPFC forecloses on a
property or when physical possession of the collateral is taken regardless
of whether foreclosure proceedings have taken place. Other real estate
owned is carried at the lower of (1) the recorded amount of the loan for
which the foreclosed property previously served as collateral or (2) the fair
value of the property minus estimated costs to sell. Prior to foreclosure,
the recorded amount of the loan is reduced, if necessary, to the fair value,
minus estimated costs to sell, of the real estate to be acquired by charging
the allowance for credit losses.
Subsequent to foreclosure, gains or losses on the sale of and losses on the
periodic revaluation of other real estate owned are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.
Income Taxes
There are two components of income tax provision: current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for the
applicable period.
Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax
laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax
liabilities or assets between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards and tax
credits will be realized.
MPFC's operating results are included in the consolidated federal income tax
return of the Corporation. The method of allocating federal income tax
expense is determined under a tax allocation agreement. This agreement
specifies that income tax expense will be computed for all subsidiaries on a
separate company method, taking into account tax planning strategies and the
tax position of the consolidated group.
F-8
Note 2 - Mortgage Loans
Mortgage loans on December 31 were composed of (dollars in thousands):
1995 1994
- -------------------------------------------------------------------------
Fixed-rate loans.......................... $ 1,292,457 $ 791,240
Adjustable-rate loans..................... 3,231,287 745,149
-----------------------------
Total loans............................ $ 4,523,744 $ 1,536,389
=============================
Transactions in the allowance for credit losses were (dollars in thousands):
1995 1994
- -------------------------------------------------------------------------
Balance on January 1 and at Inception..... $ 10,993 $ -
Residential mortgage loans charged off.... (104) -
Allowance applicable to contributed loans. 6,916 10,993
-----------------------------
Balance on December 31.................... $ 17,805 $ 10,993
=============================
On December 31, 1995, nonperforming loans totaled $188 thousand. There were
no nonperforming loans on December 31, 1994.
Other real estate owned amounted to $763 thousand on December 31, 1995. There
was no other real estate owned on December 31, 1994.
Note 3 - Affiliate Transactions
In conjunction with establishing MPFC, the Parent contributed $1.6 billion of
mortgage loans to MPFC, net of an allowance for credit losses of $11.0
million. During 1995, additional mortgage loans totaling $3.4 billion, net of
an allowance for credit losses of $6.9 million, were contributed by the Parent
to MPFC.
On February 1, 1996, the Parent contributed an additional $501 million of
mortgage loans to MPFC.
MPFC has entered into an agreement with NationsBanc Mortgage Corporation, a
subsidiary of the Parent, for the servicing and administration of its mortgage
portfolio. Servicing expense for the year ended December 31, 1995
approximated $7.7 million.
MPFC maintains its cash and cash equivalent accounts primarily with the
Parent.
F-9
Note 4 - Long-Term Debt
In September 1994, the Securities and Exchange Commission declared effective
MPFC's shelf registration statement (Registration Statement) to issue up to $4
billion of Mortgage-Backed Bonds (Bonds). The Bonds, which are issuable in
series pursuant to separate indentures, will be generally subject to the
following terms. The Bonds, collateralized primarily by 1 to 4 family
mortgage loans, will be obligations solely of MPFC. The Bonds will not be
prepayable at the option of MPFC, but will be subject to redemption in whole
or in part under certain circumstances. Under the terms of an indenture
relating to a series of Bonds, MPFC must maintain a minimum amount of eligible
collateral, which is determined on a discounted basis and may consist of
mortgage loans, certain U.S. agency mortgage pass-through certificates, U.S.
government securities and cash held by a trustee (the Trustee). The types,
characteristics and permitted amounts of eligible collateral are subject to
change from time to time without the consent of the bondholders if such
changes would not adversely affect the ratings assigned to the Bonds. In the
event such collateral requirements are not met with respect to any series,
MPFC must provide additional or substitute mortgage loans or other acceptable
collateral with respect to such series to meet the required amount of eligible
collateral and/or repurchase Bonds in an amount sufficient to meet collateral
requirements. If sufficient eligible collateral is not supplied and/or
sufficient Bonds are not repurchased, MPFC must redeem a portion of the
outstanding Bonds of such series such that the existing amount of eligible
collateral meets the collateral requirements of the indenture relating to the
Bonds of such series that remain outstanding after the redemption.
On July 18, 1995, MPFC issued $1.5 billion of Mortgage-Backed Bonds, Series
1995-1, due 1998 (Series 1995-1 Bonds), bearing interest at the one-month London
interbank offered rate (LIBOR) plus 21 basis points with a maximum interest
rate of 12 percent. The proceeds from the issuance of the Series 1995-1 Bonds
were used to return to the Parent approximately $982 million of capital and to
repay a portion of the October 1994 subordinated note discussed below. On
October 31, 1995, MPFC issued $1.5 billion of Mortgage-Backed Bonds, Series
1995-2, due 2000 (Series 1995-2 Bonds), bearing interest at the three-month
LIBOR plus 17 basis points. The proceeds from the issuance of the Series 1995-
2 Bonds were used to return to the Parent approximately $1.5 billion of
capital. On December 31, 1995, all of the Series 1995-1 and 1995-2 Bonds were
outstanding with interest rates of 5.96 percent and 6.1075 percent,
respectively, based on the rate in effect on December 31, 1995, and were
collateralized by mortgage loans with a book value of approximately $2.2
billion and $2.3 billion, respectively. On January 5, 1996, the discounted
value of the eligible collateral for the Series 1995-1 and 1995-2 Bonds, as
computed by the Trustee, was approximately $1.6 billion and $1.8 billion,
respectively, and exceeded the amount required by the terms of the related
indentures by approximately $98 million and $261 million, respectively.
On October 2, 1994, MPFC borrowed $1.3 billion under a subordinated note from
the Parent. On November 30, 1995, MPFC borrowed $925 million under an
additional subordinated note from the Parent, which note subsequently was
increased to $934 million. The proceeds from the notes were used to return
capital to the Parent. The subordinated notes bear interest at 8.0% and
6.5%, respectively, which is payable quarterly in arrears. The notes mature
on September 25, 1999 and September 25, 2000, respectively, and are
subordinated to all of MPFC's senior debt, including the Bonds. MPFC may
repay amounts, from time to time, owed under the subordinated notes from
funds which are not subject to the lien of any indenture relating to any
senior debt. On December 31, 1995, $594 million and $726 million,
respectively, was owed on the subordinated notes.
Interest expense on the subordinated notes for the year ended December 31, 1995
and for the period from Inception through December 31, 1994 was $87.8 million
and $25.7 million, respectively. Interest expense on the Series 1995-1 and
Series 1995-2 Bonds for the year ended December 31, 1995 was $59.0 million.
As of March 25, 1996, MPFC had $1 billion of remaining shelf capacity under
the Registration Statement.
F-10
Note 5 - Income Taxes
Current income tax expense is determined as if MPFC filed a separate tax
return and the amount so determined is payable to or receivable from the
Corporation. Current federal taxes payable to the Corporation of $18.7 million
and $1.9 million are included in the balance sheet on December 31, 1995 and
1994, respectively.
Deferred income tax expense or benefit is determined by the change in the
deferred tax asset or liability between periods. The deferred tax asset or
liability balance at the end of any period is determined by the tax effect of
MPFC's cumulative temporary differences to the extent recognized by the
Corporation. Deferred tax assets of $6.2 million and $3.8 million on December
31, 1995 and 1994, respectively, represent amounts established in conjunction
with the loan contributions from the Parent, as discussed more fully in Note 3,
and are included in the balance sheet. The most significant component of
MPFC's deferred tax asset is the loan loss reserve.
Current income tax expense was $16.8 million for the year ended December 31,
1995. For the period from Inception through December 31, 1994, current
income tax expense was $1.9 million.
Note 6 - Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires the disclosure of the estimated
fair values of financial instruments. The fair value of an instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Quoted
market prices, if available, are utilized as estimates of the fair values of
financial instruments. Fair values of items for which no quoted market price
is available have been derived based on management's assumptions with respect
to future economic conditions, the amount and timing of future cash flows and
estimated discount rates. The estimation methods for individual
classifications of financial instruments are more fully described below.
Different assumptions could significantly affect these estimates.
Accordingly, the net realizable values could be materially different from the
estimates presented below.
In addition, the estimates are only indicative of individual instruments'
values and should not be considered an indication of the fair value of MPFC.
Short-Term Financial Instruments
The carrying value of short-term financial instruments, including cash and
cash equivalents and amounts due from the Trustee, approximates the fair value.
These financial instruments generally expose MPFC to limited credit risk and
have no stated maturities or maturities of less than 30 days.
Mortgage Loans
Fair values were estimated for the mortgage loans based on credit quality and
maturity. The fair value of fixed-rate loans was estimated by discounting
estimated future cash flows using the December 31 origination rate for similar
loans. Contractual cash flows were adjusted for prepayments using published
industry data. For variable-rate loans, the carrying amount was considered to
approximate fair value. Where credit deterioration has occurred, cash flows
for fixed- and variable-rate loans have been reduced to incorporate estimated
losses. Where quoted market prices were available, such market prices were
utilized as estimates of fair value.
Long-Term Debt
The fair value of the subordinated notes was estimated by using the December
31 market rates on similar debt. The book value was considered to approximate
fair value for the Series 1995-1 and Series 1995-2 Bonds.
F-11
The book and fair values of financial instruments on December 31 were (dollars
in thousands):
1995 1994
-----------------------------------------------
Book Fair Book Fair
Value Value Value Value
- --------------------------------------------------------------------------------
Financial assets
Cash and cash equivalents...$ 4,870 $ 4,870 $ 66,933 $ 66,933
Amount due from Trustee..... 106,531 106,531 - -
Mortgage loans, net of
unearned income.......... 4,523,744 4,494,991 1,536,389 1,411,363
Allowance for credit losses. (17,805) - (10,993) -
Financial liabilities
Mortgage-backed bonds....... 2,999,342 2,999,342 - -
Subordinated notes.......... 1,320,183 1,374,280 1,299,476 1,281,218
F-12