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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 333-74817
MAIN PLACE FUNDING, LLC
(Exact name of registrant as specified in its charter)
Delaware 57-0236115
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 North Tryon Street, Charlotte, NC 28255
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(Address of principal executive offices) (Zip Code)
(704) 388-7436
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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
--- ---
On August 14, 2002, there were no shares of common stock outstanding. As of
August 14, 2002, members' interests consisted of ownership percentages of 99
percent and 1 percent for Bank of America, N.A. and Main Place Trust,
respectively.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
Main Place Funding, LLC
June 30, 2002 Form 10-Q
Index Page
Part I. Financial Information
Item 1. Financial Statements
Statement of Income for the Three and Six Months Ended
June 30, 2002 and 2001 3
Balance Sheet as of June 30, 2002 and December 31, 2001 4
Statement of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 5
Statement of Changes in Members' Equity for the
Six Months Ended June 30, 2002 and 2001 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 10
Part II. Other Information
Item 1. Legal Proceedings (nothing to report)
Item 5. Other Events (nothing to report)
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Index to Exhibits 13
-Exhibit 12 Ratio of Earnings to Fixed Charges 14
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Main Place Funding, LLC
Statement of Income
(Dollars in Thousands)
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------- ---------------------
Income
Interest and fees on loans ................................................. $ 51,887 $157,940 $130,723 $329,572
Interest on securities ..................................................... 5,638 37,753 15,167 77,880
Interest on time deposits placed ........................................... 52,225 71,696 101,997 129,237
Gain on sale of securities ................................................. - - 10,358
Release of allowance for credit losses ..................................... 5,669 - 5,572 -
--------------------- ---------------------
Total income ............................................................. 115,419 267,389 263,817 536,689
--------------------- ---------------------
Expenses
Interest on securities sold under agreements to repurchase ................. 1,427 20,972 3,173 49,654
Interest on long-term debt ................................................. 7,821 19,336 16,108 43,898
Other operating expenses ................................................... 3,029 7,486 7,455 14,338
--------------------- ---------------------
Total expenses ........................................................... 12,277 47,794 26,736 107,890
--------------------- ---------------------
Income before income taxes ................................................. 103,142 219,595 237,081 428,799
Income tax expense ......................................................... 37,131 82,340 85,349 160,797
--------------------- ---------------------
Net income ............................................................... 66,011 137,255 151,732 268,002
===================== =====================
See accompanying notes to financial statements.
3
Main Place Funding, LLC
Balance Sheet
(Dollars in Thousands)
June 30 December 31
2002 2001
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Assets
Cash and cash equivalents $ 2,688,843 $ 350,405
Time deposits placed with affiliates 11,703,555 11,240,849
Securities:
Available-for-sale (includes $251,305 and $885,535 pledged as collateral) 346,553 1,033,064
Held-to-maturity at cost (market value $3,227 and $5,131) 3,216 5,118
-------------------------------------
Total securities 349,769 1,038,182
-------------------------------------
Loans, net of unearned income 1,241,770 5,152,713
Allowance for credit losses (1,863) (7,729)
-------------------------------------
Loans, net of unearned income and allowance for credit losses 1,239,907 5,144,984
Interest receivable 10,636 36,407
Accounts receivable from affiliates 9,348 2,881
Other assets 7,187 125,704
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Total assets $ 16,009,245 $ 17,939,412
=====================================
Liabilities
Accrued expenses due to affiliate $ 400,864 $ 339,239
Securities sold under agreements to repurchase from affiliates 251,305 885,535
Long-term debt - 1,500,000
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Total liabilities 652,169 2,724,774
-------------------------------------
Members' Equity
Contributed equity 13,395,436 13,395,436
Undistributed income 1,953,407 1,801,675
Accumulated other comprehensive income 8,233 17,527
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Total members' equity 15,357,076 15,214,638
-------------------------------------
Total liabilities and members' equity $ 16,009,245 $ 17,939,412
=====================================
See accompanying notes to financial statements.
4
Main Place Funding, LLC
Statement of Cash Flows
(Dollars in Thousands)
Six Months Ended
June 30
------------------------------------------
2002 2001
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Operating Activities
Net income $ 151,732 $ 268,002
Reconciliation of net income to net cash provided by operating activities
Gain on sale of securities (10,358) -
Release of credit losses (5,572) -
Deferred income tax (benefit) expense (672) 691
Net decrease in interest receivable 25,771 16,872
Net (increase) decrease in accounts receivable from affiliates (6,467) 265,838
Net increase in accrued expenses - 1,459
Net increase in accrued expenses due to affiliates 61,625 61,467
Other operating activities, net 134,638 (17,582)
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Net cash provided by operating activities 350,697 596,747
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Investing Activities
Proceeds from maturities of securities held-to-maturity 1,902 2,549
Proceeds from sales and maturities of securities available-for-sale 672,434 371,534
Purchase of securities available for sale (674) 5,144
Net increase in time deposits placed with affiliates (462,706) (3,680,000)
Collections of loans outstanding 1,139,833 1,176,306
Proceeds from sales of loans to affiliates 2,771,182 10,931
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Net cash provided by (used in) investing activities 4,121,971 (2,113,536)
---------- ----------
Financing Activities
Net decrease in securities sold under agreements (634,230) (263,989)
to repurchase
Retirement of long-term debt (1,500,000)
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Net cash used in financing activities (2,134,230) (263,989)
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Net increase (decrease) in cash and cash equivalents 2,338,438 (1,780,778)
Cash and cash equivalents at beginning of period 350,405 2,367,206
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Cash and cash equivalents at end of period $2,688,843 $ 586,428
========== ==========
See accompanying notes to financial statements.
5
Main Place Funding, LLC
Statement of Changes in Members' Equity
(Dollars in Thousands)
Accumulated
Other Total Compre-
Contributed Undistributed Comprehensive Members' hensive
Equity Income Income (Loss)/(1)/ Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
Balance on December 31, 2000 ..................... $ 13,395,436 $ 1,298,636 $ 7,243 $14,701,315
Net income .................................... 268,002 268,002 $ 268,002
Other comprehensive income .................... 23,446 23,446 23,446
---------
Comprehensive income .......................... $ 291,448
---------------------------------------------------------------- =========
Balance on June 30, 2001 ......................... $ 13,395,436 $ 1,566,638 $ 30,689 $14,992,763
================================================================
Balance on December 31, 2001 ..................... $ 13,395,436 $ 1,801,675 $ 17,527 $15,214,638
Net income .................................... 151,732 151,732 $ 151,732
Other comprehensive income .................... (9,294) (9,294) (9,294)
---------
Comprehensive income .......................... $ 142,438
---------------------------------------------------------------- =========
Balance on June 30, 2002 ......................... $ 13,395,436 $ 1,953,407 $ 8,233 $15,357,076
================================================================
(1) Changes in Accumulated Other Comprehensive Income (Loss) includes after-tax
net unrealized gains (losses) on securities available-for-sale.
See accompanying notes to financial statements.
6
Main Place Funding, LLC
Notes to Financial Statements
Note 1 - Description of Business
Main Place Funding, LLC ("Main Place"), a Delaware limited liability company, is
a subsidiary of Bank of America, N.A. (the "Parent"), which is a wholly owned
indirect subsidiary of Bank of America Corporation (the "Corporation").
Main Place was established originally as a Maryland real estate investment trust
to consolidate the acquisition, holding and management of certain closed-end
residential mortgage loans owned by certain affiliates of the Corporation.
Bank of America, N.A. holds a 99 percent membership interest in Main Place. The
other 1 percent membership interest is held by Main Place Trust, a Delaware
business trust, also a wholly owned subsidiary of Bank of America, N.A. Main
Place's ownership interests are presented in the accompanying financial
statements to reflect the equity structure of a single-member limited liability
company ("LLC"). Main Place is also considered a single-member LLC under current
tax law. Main Place issues and sells mortgage-backed bonds and acquires, owns,
holds and pledges the related mortgage notes and other assets serving as
collateral in connection therewith.
Note 2 - Accounting Policies
The information contained in the financial statements is unaudited. In the
opinion of management, all normal recurring adjustments necessary for a fair
statement of the interim period results have been made. Certain prior period
amounts have been reclassified to conform to current period classifications.
Accounting policies followed in the presentation of interim financial results
are presented in Note 2 on pages 12 to 14 of the Annual Report on Form 10-K for
the year ended December 31, 2001.
Note 3 - Loans
The following table presents the composition of loans (dollars in thousands):
June 30 December 31
2002 2001
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Residential mortgage......................... $1,239,731 $5,149,783
Commercial real estate....................... 2,039 2,930
--------------------------------
Total loans.......................... $1,241,770 $5,152,713
--------------------------------
Mortgage loans collateralizing mortgage-backed bonds were comprised of the
following (dollars in thousands):
June 30 December 31
2002 2001
-----------------------------------------------------------------------------
Adjustable-rate.............................. $ 9,621 $1,892,016
Fixed-rate................................... 2,725 482,821
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Total mortgage loans...................... $ 12,346 $2,374,837
-------------------------------
Transactions in the allowance for credit losses were as follows (dollars in
thousands):
7
Six Months
Ended June 30
-------------------------------
2002 2001
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Balance on January 1........................... $ 7,729 $ 35,345
Loans charged off.............................. (294) (136)
Release of allowance for credit losses......... (5,572) -
-------------------------------
Balance on June 30............................ $ 1,863 $ 35,209
-------------------------------
Main Place had $19.7 million of nonperforming loans on June 30, 2002 compared to
$23.5 million on December 31, 2001. Foreclosed properties on June 30, 2002
totaled $3.6 million compared to $5.3 million on December 31, 2001. During the
second quarter of 2002 and fourth quarter of 2001 Main Place made an adjustment
to the allowance for credit losses of $5.6 million and $21.8 million,
respectively, due to the decline in the average balance of the loan portfolio
throughout 2002 and 2001.
Note 4 - Affiliate Transactions
Main Place maintains its cash and cash equivalent accounts with the Parent in
the form of time deposits. Interest income on time deposits for the three and
six months ended June 30, 2002 was $52.2 million and $102.0 million,
respectively, compared to $71.7 million and $129.2 million for the same prior
year periods. As of June 30, 2002 and December 31, 2001, Main Place had $11.7
billion and $11.2 billion, respectively, of time deposits placed with the
Parent.
At June 30, 2002 and December 31, 2001, Main Place had $9.3 million and $2.9
million of accounts receivable outstanding from affiliates of the Corporation.
These receivables are related to mortgage payments and securities principal and
interest payments in process, which generally clear within 30 days.
At June 30, 2002 and December 31, 2001, Main Place had $251.3 million and $885.5
million, respectively, of U.S. government securities sold under agreements to
repurchase from the Parent and Banc of America Securities LLC, a wholly-owned
subsidiary of the Corporation, which mature on demand. Interest expense on
securities sold under agreements to repurchase for the three and six months
ended June 30, 2002 was $1.4 million and $3.2 million compared to $21.0 million
and $49.7 million for the same prior year periods.
Gross gains of approximately $10.4 million were realized on sales of
available-for-sale securities during the six months ended June 30, 2002. No
gains or losses were recognized for the same period in 2001.
Main Place has entered into agreements with the Parent for the servicing and
administration of its mortgage portfolio. Servicing fees paid to the Parent
approximated $3.1 million and $7.1 million for the three and six months ended
June 30, 2002, respectively, compared to $7.4 million and $14.0 million for the
same periods in 2001. Servicing fees are included in "Other operating expenses"
on the accompanying statement of income and are based on actual collections on
loans.
From time to time, Main Place purchases certain mortgage loans originated by the
Parent. Main Place purchased no loans from the Parent during the three and six
months ended June 30, 2002 and 2001. During the six months ended June 30, 2002,
Main Place sold $2.8 billion of mortgage loans to the Parent compared to $10.9
billion for the six months ended June 30, 2001. Purchases or sales of loans
between Main Place and the Parent are at book value, excluding any related
allowance for loan loss. No gains or losses were recorded on these transactions.
Accrued expenses due to affiliates as of June 30, 2002 and December 31, 2001
were $400.9 million and $339.2 million respectively, composed primarily of
income tax payable to the Parent of $400.6 million and $325.9 million,
respectively.
8
Note 5 - Long-Term Debt
In April 1999, the Securities and Exchange Commission declared effective Main
Place's shelf registration statement ("Registration Statement") providing an
additional $5 billion of capacity for issuance of mortgage-backed bonds
("Bonds"). Bonds have been issued under this as well as previously effective
registration statements. The Bonds, which were issued in series pursuant to
separate indentures, are generally subject to the following terms. The Bonds,
collateralized primarily by mortgage loans on 1-to-4 family dwellings, are
obligations solely of Main Place. The Bonds are not prepayable at the option of
Main Place, but are subject to redemption in whole or in part under certain
circumstances. Under the terms of an indenture relating to each series of Bonds,
Main Place 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, Main Place must provide additional mortgage
loans or other acceptable collateral with respect to such series to meet the
required amounts 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, Main Place must redeem
a portion of the outstanding Bonds of such series such that the existing amount
of the eligible collateral meets the collateral requirements of the indenture
relating to the Bonds of such series that remain outstanding after the
redemption. In the event that Main Place should fail to comply and two thirds of
bondholders do not waive the default event, the Trustee is provided the pledged
collateral. As of June 30, 2002, Main Place had the authority to issue
approximately $3.5 billion of securities under its existing shelf registration
statement.
Interest expense on the Series 1999-1 mortgage-backed bond for the three months
and six months ended June 30, 2002 was $7.8 million and $16.1 million,
compared to $19.3 million and $43.9 million for the same periods in 2001. On May
28, 2002, Main Place repaid its obligation of $1.5 billion on the Series 1999-1
mortgage-backed bond. There are no additional bonds outstanding.
9
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Total net income for the second quarter and first six months of 2002 was $66.0
million and $151.7 million, respectively, representing decreases of $71.2
million and $1163 million from the corresponding periods in 2001. The decrease
primarily resulted from decreases in interest income, partially offset by
decreases in interest expense on long term debt, reduced funding costs
associated with the repurchase agreements and gains on sales of securities.
Total income for the second quarter and first six months of 2002 was $115.4
million and $263.8 million, respectively, representing a decrease of $152.0
million and $272.9 million, respectively, from the corresponding periods in
2001. The decrease included a decline in interest and fees on loans of $106.1
million and $198.9 million respectively, due to the run off of the loan
portfolio and a sale of $2.8 billion of loans back to the Parent. Interest
income from the securities portfolio for the second quarter and first six months
of 2002 declined $32.1 million million and $62.7 million, respectively,
resulting primarily from a reduction of $1.8 billion in the average balance of
the securities portfolio for the six months ended June 30, 2002. The net change
in total income also included a decrease in interest income on time deposits
placed of $19.5 million and $27.2 million for the second quarter and first six
months of 2002, respectively, compared to the same periods in 2001. The changes
in interest income on time deposits placed resulted from a decrease of 316 basis
points in average yields, to 1.71 percent for the six months ended June 30,
2002. Total income for the first six months of 2002 also includes $10.4 million
in gains on sales of available-for-sale securties. In addition, the net change
in total income for the second quarter and first six months of 2002 includes
release of allowance of credit losses of $5.7 million and $5.6 million,
respectively.
Total expenses (excluding income taxes) for the second quarter and first half of
2002 were $12.3 million and $26.7 million, respectively, representing a decrease
of $35.5 million and $81.2 million compared to the same periods in 2001. The
decrease includes a decline in interest expense on securities sold under
agreements to repurchase of $19.6 million and $46.5 million, respectively,
resulting from a reduction of $1.6 billion in average borrowings, and a 330
basis point decrease in interest rates to 1.78 percent for the first six months
ended June 30, 2002. Long-term debt interest expense for the second quarter and
first half of 2002 decreased by $11.5 million and $27.8 million to $7.8 million
and $16.1 million, respectively, compared to the same periods in 2001, due to
the retirement of $1.5 billion of debt in May 2002, partially offset by a 313
basis point decrease in average rates to 2.72 percent for the six months ended
June 30, 2002. Mortgage servicing fees, which are included in "other operating
expenses", for the second quarter and first half of 2002 decreased by $4.2
million and $6.9 million, respectively, resulting from a reduction of $5.0
billion in the average loan portfolio and a 96 basis point decrease in interest
rates to 6.19 percent for the first six months ended June 30, 2002.
Main Place made no provision for credit losses in the first half of 2002 and
2001 due to the decline in the average balance of the loan portfolio throughout
both periods, as well as a $3.8 million decrease in nonperforming loans to $19.7
million at June 30, 2002 from $23.5 million at December 31, 2001. Future
economic conditions and changes in the loan portfolio may increase nonperforming
loans and, accordingly, the level of the allowance for credit losses. The nature
of the process by which Main Place determines the appropriate allowance for
credit losses requires the exercise of considerable judgment. After a review of
all relevant matters affecting loan collectibility, management believes that the
allowance for credit losses is appropriate given its analysis of estimated
incurred credit losses at June 30, 2002.
10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K:
None.
11
SIGNATURE
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.
Main Place Funding, LLC
Date: August 14, 2002 -----------------------------------
Susan R. Faulkner
Treasurer and Senior Vice President/
Principal Financial and Accounting Officer
(Principal Financial and
Duly Authorized Officer)
12
Main Place Funding, LLC
Form 10-Q
Index to Exhibits
Exhibit Description
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12 Ratio of Earnings to Fixed Charges
13