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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 388-8232
--------------
(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
---
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). No X
---
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter. NONE.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(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, 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"). On April
28, 1999, BankAmerica Corporation changed its name to Bank of America
Corporation. On July 5, 1999, NationsBank, N.A. changed its name to Bank of
America, N.A. On July 23, 1999, Bank of America, N.A. merged into Bank of
America NT&SA, and the surviving entity of that merger changed its name to Bank
of America, N.A.
Main Place is the successor by merger of Main Place Real Estate Investment Trust
("MPREIT") with and into Main Place. MPREIT was established on October 29, 1996
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. MPREIT was the successor by merger of
Main Place Funding Corporation ("MPFC") with and into MPREIT on November 1,
1996. On October 15, 1998, Main Place Holdings Corporation, the former parent of
MPREIT, merged with and into Main Place, and on December 23, 1998, MPREIT merged
with and into Main Place, its parent company.
As a result of the December 23, 1998 merger, the Parent held a 99 percent
membership interest in Main Place. Main Place Trust, a Delaware business trust,
held the other 1 percent membership interest. In connection with the merger of
MPREIT with and into Main Place, all outstanding MPREIT Class A Trust Shares
were cancelled. All outstanding MPREIT Class B Trust Shares were converted into
rights to receive cash. In connection with the merger with MPREIT, Main Place
assumed MPREIT's obligations under the Series 1995-2 and Series 1997-1
mortgage-backed bonds. On August 15, 2002, Main Place Trust was liquidated into
the Parent. Currently the Parent holds a 100 percent membership interest in Main
Place.
On October 21, 2002, Main Place adopted an Amended and Restated Limited
Liability Company Agreement, filed under cover of Form 8-K which removed certain
restrictions on the business activities of Main Place permitting it to engage in
any activity and to exercise any powers permitted to limited liability companies
under the laws of the State of Delaware.
Under these expanded powers, Main Place has entered into the business of
entering into financial warranty agreements in favor of third parties for a fee.
As of December 31, 2002, Main Place has entered into three financial warranty
agreements with third-party trusts. These trusts are open-ended diversified,
registered investment companies. Under the terms of these warranty agreements,
Main Place provides financial warranties in order to ensure that the trusts are
able to redeem all of the outstanding shares of specified series on the warranty
maturity dates for an amount at least equal to an aggregate protected amount.
For each of the agreements entered into by Main Place with a third party, Main
Place has also entered into a financial warranty agreement with the Parent.
Under the terms of these agreements, the Parent provides financial warranties in
favor of Main Place corresponding to Main Place's obligations under the
financial warranties with the third parties.
Item 2. PROPERTIES
Main Place does not own or lease any physical property.
Item 3. LEGAL PROCEEDINGS
Main Place has no material legal actions or proceedings pending against it.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted in accordance with General Instruction I to Form 10-K.
2
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no common stock outstanding for Main Place. Currently, the Parent holds
a 100 percent membership interest in Main Place. Main Place distributed $1.1
billion in assets and $2.5 million in cash to the Parent during 2002 and 2001,
respectively.
Item 6. SELECTED FINANCIAL DATA
Omitted in accordance with General Instruction I to Form 10-K.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Total net income was $258.2 million and $505.5 million for the years ended
December 31, 2002 and 2001, respectively. The decrease primarily resulted from
decreases in interest income, offset by decreases in interest expense on
long-term debt, reduced funding costs associated with repurchase agreements and
lower operating and tax expenses. After December 23, 1998, Main Place is
classified as a single-member limited liability company ("LLC") and, as such, is
disregarded as an entity separate from its owners for income tax purposes. The
predominant practice for single-member LLCs is to provide for income taxes in
their separate financial statements. Income tax expense was $145.3 million for
the year ended December 31, 2002. Income tax expense for the year ended December
31, 2001 was $303.3 million.
Total income for the year ended December 31, 2002 was $432.8 million,
representing a decrease of $520.1 million compared to 2001. The decrease
includes a decline in interest and fees on loans from $542.3 million for the
year ended December 31, 2001 to $174 for the year ended December 31, 2002, due
to a decrease of 32 basis points in average yield to 6.70 percent, a consistent
reduction in the loan portfolio throughout 2002, and the distribution of the
remaining loan portfolio to the Parent on December 20, 2002. Interest income
from the securities portfolio also declined $108.3 million, resulting from a
reduction of $1.6 billion in the average balance of the securities portfolio.
Interest on time deposits placed declined $44.9 million, resulting from a
reduction of 192 basis points in average yield to 1.64 percent. Gains on sales
of available-for-sale securities were $10.4 million in 2002 versus $13.4 million
in 2001. Income for 2002 also includes $9.3 million in trading account profits
and fees related to the financial warranty agreements entered into during the
fourth quarter of 2002.
Total expenses (excluding income taxes) for the year ended December 31, 2002
were $29.3 million, representing a decrease of $114.8 million compared to 2001.
The decrease includes a decline in interest expense on securities sold under
agreements to repurchase of $65.9 million, resulting from a reduction of $1.4
billion in average borrowing and a 251 basis point decrease in interest rates to
1.74 percent. Interest expense on long-term debt also declined $53.6 million for
the year ended December 31, 2002. This decrease results from the Series 1999-1
debt maturity of $1.5 billion on May 28, 2002. The net change in total expenses
also includes a decrease in mortgage servicing costs of $15.9 million compared
to 2001 and is included in "Other operating expenses" on the accompanying
statement of income.
During 2002, Main Place released $795 thousand of the allowance for credit
losses due to the decline in the average balance of the loan portfolio, compared
to a $21.8 million release in 2001. The nature of the process by which Main
Place determines the appropriate allowance for credit losses requires the
exercise of considerable judgment.
Total net income before cumulative effect of accounting changes was $505.5
million and $569.5 million for the years ended December 31, 2001 and 2000,
respectively. 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 repurchase agreements, gains on sales of
securities, and a release of a portion of the allowance for credit losses.
Income tax expense was $303.3 million for the year ended December 31, 2001.
Income tax expense for the year ended December 31, 2000 was $341.7 million.
3
Main Place's primary business activity through 2002 was the issuance and sale of
mortgage-backed bonds and the acquisition, ownership, holding and pledging of
related mortgage notes and other assets serving as collateral in connection
therewith. On October 21, 2002, Main Place amended its Limited Liability Company
Agreement, which allowed it to enter into financial warranty agreements in favor
of third parties and the Parent during the fourth quarter of 2002. In December
2002, Main Place distributed available-for-sale securities and mortgage loans to
the Parent. Main Place's primary business activity in 2003 and beyond is
presently expected to be entering into financial warranty agreements in favor of
third parties for a fee. Due to the change in business activities and the
distribution of the assets to the Parent in 2002, the results in 2002 are not
indicative of future results of Main Place which are expected to reflect only
trading account activity from the issuance of the financial warranties.
On February 28, 2003 Main Place made a cash distribution of $7.5 billion to the
Parent as a return of capital.
Critical Accounting Estimates and Principles
Main Place's significant accounting principles are described in Note 2 of the
financial statements and are essential to understanding Management's Discussion
and Analysis of Financial Condition and Results of Operations. Some of Main
Place's accounting principles require significant judgment to estimate values of
either assets or liabilities. In addition, certain accounting principles require
significant judgment in applying the critical accounting principles to
individual transactions to determine the most appropriate treatment. We have
established procedures and processes to facilitate making the judgments
necessary to prepare financial statements.
The following is a summary of the more judgmental and critical accounting
estimates and principles. In each area, we have identified the variables most
important in the estimation process. Management has used the best information
available to make the estimations necessary to value the related assets and
liabilities. Actual performance that differs from our estimates and future
changes in the key variables could change future valuations and impact net
income.
Trading Assets and Liabilities
Main Place engages in trading-related activities. The management process related
to the trading positions is discussed in detail in the Quantitative and
Qualitative Disclosures About Market Risk section in Item 7A. Trading positions
recorded on the balance sheet are at fair value. Valuations for derivative
assets and liabilities not traded on an exchange, or over the counter, are
obtained using mathematical models that require inputs of external rates and
prices to generate continuous yield or pricing curves used to value the
positions. Pricing risk is greater for positions with either option-based or
longer-dated attributes where inputs are not readily available and model-based
extrapolations of rate and price scenarios are used to generate valuations. In
these situations, this risk is mitigated through the use of valuation
adjustments.
Accrued Taxes
Main Place estimates tax expense based on the amount it expects to owe various
tax authorities. Taxes are discussed in more detail in Note 8 of the financial
statements. Accrued taxes represent the net estimated amount due or to be
received from taxing authorities. In estimating accrued taxes, Main Place
assesses the relative merits and risks of the appropriate tax treatment of
transactions taking into account statutory, judicial and regulatory guidance in
the context of its tax position.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Trading Risk Management
Trading account profits and fees represent the amount earned from derivative
positions. Trading positions are marked to market and are recorded based on
management's assessment of market value using market indicators and mathematical
models. Trading account profits and fees can be volatile and are largely driven
by general market conditions and customer demand. Profit is dependent on the
volume and type of transactions, the level of risk assumed, and the volatility
of price and rate movements at any given time within the ever-changing market
environment.
4
Main Place has hedged the market risk on the financial warranties by entering
into mirror warranties with the Parent. Main Place has determined that the fair
value of these derivatives is best modeled as the present value of the fees less
expected pay out on the warranties.
There are numerous assumptions and estimates associated with modeling, and
actual results could differ. In addition to the review of our assumptions, we
mitigate these uncertainties through close monitoring and by examining and
updating assumptions on an ongoing basis. If the results of our analysis
indicate higher than expected levels of risk, proactive measures are taken to
adjust risk levels.
Item 8. FINANCIAL STATEMENTS
The financial statements required are listed in the Index to Financial
Statements.
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 disclosures.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted in accordance with General Instruction I to Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Omitted in accordance with General Instruction I to Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Omitted in accordance with General Instruction I to Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted in accordance with General Instruction I to Form 10-K.
Item 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, Main Place carried
out an evaluation, under the supervision and with the participation of Main
Place's management, including Main Place's president and principal financial and
accounting officer, of the effectiveness of the design and operation of Main
Place's disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934. Based upon that evaluation, Main Place's
president and principal financial and accounting officer concluded that Main
Place's disclosure controls and procedures are effective in timely alerting them
to material information relating to Main Place required to be included in Main
Place's periodic SEC filings.
Since the date of the evaluation, there have been no significant changes in Main
Place's internal controls or in other factors that could significantly affect
these controls.
5
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The financial statements listed in the Index to Financial Statements
are filed as part of this report.
b. On October 21, 2002, Main Place adopted an Amended and Restated
Limited Liability Company Agreement, filed under cover of Form 8-K.
c. The exhibits filed as part of this report are listed in the Index to
Exhibits.
6
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, LLC
Date: March 31, 2003 /s/ Susan R. Faulkner
---------------------
Susan R. Faulkner
Treasurer and Senior Vice President/
Principal Financial and Accounting
Officer (Principal Financial and
Duly Authorized Officer)
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/ Susan C. Carr President (Principal March 31, 2003
- ----------------- Executive Officer)
Susan C. Carr
/s/ Susan R. Faulkner Treasurer and Senior Vice March 31, 2003
- --------------------- President / Principal Financial
Susan R. Faulkner and Accounting Officer
(Principal Financial and
Duly Authorized Officer)
Bank of America, N.A.
By:/s/ Susan C. Carr Managing Member March 31, 2003
-----------------
Susan C. Carr
7
CERTIFICATIONS
Main Place Funding, LLC
Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
I, Susan C. Carr, certify that:
1. I have reviewed this annual report on Form 10-K of Main Place Funding,
LLC;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weakness.
Date: March 31, 2003 /s/ Susan C. Carr
-----------------
Susan C. Carr
President, Main Place Funding, LLC
8
CERTIFICATIONS
Main Place Funding, LLC
Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
I, Susan R. Faulkner, certify that:
1. I have reviewed this annual report on Form 10-K of Main Place Funding,
LLC;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weakness.
Date: March 31, 2003 /s/ Susan R. Faulkner
----------------------
Susan R. Faulkner
Principal Financial and Accounting Officer,
Main Place
Funding, LLC
9
MAIN PLACE FUNDING, LLC
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants 11
Financial Statements:
Statement of Income for the Years Ended December 31, 2002, 2001 and 2000 12
Balance Sheet at December 31, 2002 and 2001 13
Statement of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000 14
Statement of Changes in Members' Equity for the Years Ended December 31,
2002,2001 and 2000 15
Notes to Financial Statements 16
10
Report of Independent Accountants
To the Member of Main Place Funding, LLC
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in members' equity and of cash flows present fairly, in all
material respects, the financial position of Main Place Funding, LLC (the
"Company") at December 31, 2002 and 2001, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2002
in conformity with accounting principles generally accepted in the United States
of America. 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 auditing standards generally accepted in the United States of
America, 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
the 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 our opinion.
As disclosed in Note 2 to the financial statements, the Company changed its
method of accounting for income taxes in 2000.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 21, 2003
11
Main Place Funding, LLC
Statement of Income
(Dollars in Thousands)
Year Ended December 31,
----------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Income
Interest and fees on loans $174,688 $542,268 $ 797,965
Interest on securities 23,962 132,304 179,942
Interest on time deposits placed 214,554 259,399 302,487
Gains on sales of available-for-sale securities 10,358 13,417 -
Gains on sales of loans - 5,571 2,994
Trading account profits and fees 9,276 - -
--------- --------- -----------
Total income 432,838 952,959 1,283,388
--------- --------- -----------
Expenses
Interest on securities sold under agreements to repurchase 5,017 70,928 143,125
Interest on long-term debt 16,108 69,738 198,853
(Release of) provision for allowance for credit losses (795) (21,838) 2,994
Other operating expenses 8,989 25,276 27,191
--------- --------- -----------
Total expenses 29,319 144,104 372,163
--------- --------- -----------
Income before income taxes and cumulative effect of accounting change 403,519 808,855 911,225
Income tax expense 145,271 303,316 341,732
--------- --------- -----------
Net income before cumulative effect of accounting change 258,248 505,539 569,493
Cumulative effect of change in accounting for income taxes-benefit - - 6,926
--------- --------- -----------
Net income $258,248 $505,539 $ 576,419
========= ========= ===========
See accompanying notes to financial statements.
12
Main Place Funding, LLC
Balance Sheet
(Dollars in Thousands)
December 31,
2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 15,361,616 $ 11,591,254
Securities:
Available-for-sale (includes $0 and $885,535 pledged as collateral) - 1,033,064
Held-to-maturity, at cost (market value $0 and $5,131) - 5,118
-----------------------------------
Total securities - 1,038,182
-----------------------------------
Derivative trading account receivable 37,383 -
Loans, net of unearned income - 5,152,713
Allowance for credit losses - (7,729)
-----------------------------------
Loans, net of unearned income and allowance for credit losses - 5,144,984
Interest receivable 4,435 36,407
Accounts receivable from affiliates - 116,109
Other assets 48 12,476
-----------------------------------
Total assets $ 15,403,482 $ 17,939,412
===================================
Liabilities
Due to affiliates $ 1,055,943 $ 339,239
Derivative trading account payable to affiliate 28,168 -
Securities sold under agreements to repurchase from affiliates - 885,535
Long-term debt - 1,500,000
-----------------------------------
Total liabilities 1,084,111 2,724,774
-----------------------------------
Members' Equity
Contributed equity 12,259,448 13,395,436
Undistributed income 2,059,923 1,801,675
Accumulated other comprehensive income - 17,527
-----------------------------------
Total members' equity 14,319,371 15,214,638
-----------------------------------
Total liabilities and members' equity $ 15,403,482 $ 17,939,412
===================================
See accompanying notes to financial statements.
13
Main Place Funding, LLC
Statement of Cash Flows
(Dollars in Thousands)
Year Ended December 31,
------------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income before cumulative effect of accounting change $ 258,248 $ 505,539 $ 569,493
Reconciliation of income before cumulative effect to net cash
provided by operating activities:
Gains on sales of securities available-for-sale (10,358) (13,417) -
Gains on sales of loans - (5,571) (2,994)
(Release of) provision for allowance credit losses (795) (21,838) 2,994
Deferred income tax expense 228 9,908 2,454
Net increase in derivative trading account receivable (37,383) - -
Net decrease in interest receivable 31,972 41,084 2,592
Net decrease (increase) in accounts receivable from affiliates 116,109 149,729 (246,589)
Net decrease in accrued expenses - - (3,818)
Net increase (decrease) in due to affiliates 745,715 (119,245) (119,765)
Net increase in derivative trading account payable to affiliate 28,168 - -
Other operating activities, net 18,697 (2,867) 179
------------------------------------------------
Net cash provided by operating activities 1,150,601 543,322 204,546
------------------------------------------------
Investing Activities
Proceeds from maturities of securities held-to-maturity 5,118 4,991 35,256
Proceeds from sales and maturities of securities available-for-sale 750,890 1,456,365 555,373
Purchases of securities available-for-sale (855) - (112,378)
Collections of loans outstanding 1,486,098 3,044,615 1,753,302
Proceeds from sales of loans to affiliates 2,764,045 1,547,415 831,789
------------------------------------------------
Net cash provided by investing activities 5,005,296 6,053,386 3,063,342
------------------------------------------------
Financing Activities
Net decrease in securities sold under agreements
to repurchase from affiliates (885,535) (1,190,160) (481,827)
Retirement of long-term debt (1,500,000) - (2,500,000)
Distribution of capital to affiliates - (2,500) -
------------------------------------------------
Net cash used in financing activities (2,385,535) (1,192,660) (2,981,827)
------------------------------------------------
Net increase in cash and cash equivalents 3,770,362 5,404,048 286,061
Cash and cash equivalents at beginning of period 11,591,254 6,187,206 5,901,145
------------------------------------------------
Cash and cash equivalents at end of period $ 15,361,616 $ 11,591,254 $ 6,187,206
================================================
Supplemental cash flow disclosure
Cash paid for interest $ 21,972 $ 142,355 $ 346,182
Cash paid for income taxes 284,644 316,872 571,890
Loans transferred to foreclosed properties amounted to $8.9 million, $11.4
million and $11.1 million in 2002, 2001 and 2000, respectively. On December 20,
2002, Main Place made a distribution of available-for-sale securities and loans
to the Parent in the amount of $1.1 billion. There were no distributions of
available-for-sale securities or loans to the Parent in 2001 and 2000.
See accompanying notes to financial statements.
14
Main Place Funding, LLC
Statement of Changes in Members' Equity
(Dollars in Thousands)
Accumulated
Other Compre-
Contributed Undistributed Comprehensive Total Members' hensive
Equity Income Income (Loss)/(1)/ Equity Income (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1999 $ 13,395,436 $ 722,217 $ (46,326) $ 14,071,327
===============================================================
Net income before cumulative effect of
accounting change - 569,493 - 569,493 569,493
Cumulative effect of change in accounting
for income taxes - 6,926 - 6,926 6,926
Other comprehensive income - - 53,569 53,569 53,569
------------
Comprehensive income - - - - $ 629,988
--------------------------------------------------------------- ============
Balance on December 31, 2000 $ 13,395,436 $ 1,298,636 $ 7,243 $ 14,701,315
===============================================================
Net income - 505,539 - 505,539 505,539
Other comprehensive income - - 10,284 10,284 10,284
------------
Comprehensive income - - - - $ 515,823
============
Distributions - (2,500) - (2,500)
---------------------------------------------------------------
Balance on December 31, 2001 $ 13,395,436 $ 1,801,675 $ 17,527 $ 15,214,638
===============================================================
Net income - 258,248 - 258,248 258,248
Other comprehensive income - - (17,527) (17,527) (17,527)
------------
Comprehensive income - - - - $ 240,721
============
Distributions (1,135,988) - - (1,135,988)
---------------------------------------------------------------
Balance on December 31, 2002 $ 12,259,448 $ 2,059,923 $ - $ 14,319,371
===============================================================
(1) Changes in Accumulated Other Comprehensive Income (Losses) include
after-tax net unrealized gains (loss) on securities available for sale. The
2002 change was primarily the result of the December 20, 2002 distribution
of available-for-sale securities to the Parent at fair market value.
See accompanying notes to financial statements.
15
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. On
August 15, 2002, Main Place Trust, a Delaware business trust, was liquidated
into the Parent. The Parent holds a 100 percent membership interest in Main
Place. Main Place is also considered a single-member LLC under current tax law.
On October 21, 2002, Main Place adopted an Amended and Restated Limited
Liability Company Agreement, filed under cover of Form 8-K, which removed
certain restrictions on the business activities of Main Place permitting it to
engage in any activity and to exercise any powers permitted to limited liability
companies under the laws of the State of Delaware.
Under these expanded powers, Main Place has entered into the business of
entering into financial warranty agreements in favor of third parties for a fee.
As of December 31, 2002, Main Place has entered into three financial warranty
agreements with third-party trusts. These trusts are open-ended diversified,
registered investment companies. Under the terms of these warranty agreements,
Main Place provides financial warranties in order to ensure that the trusts are
able to redeem all of the outstanding shares of specified series on the warranty
maturity dates for an amount at least equal to an aggregate protected amount.
For each of the agreements entered into by Main Place with a third party, Main
Place has also entered into a financial warranty agreement with the Parent.
Under the terms of these agreements, the Parent provides financial warranties in
favor of Main Place corresponding to Main Place's obligations under the
financial warranties with the third parties.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. Certain prior
period amounts have been reclassified to conform to current year
classifications. The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect reported amounts and
disclosures. Actual results could differ from these estimates. Significant
estimates made by management are discussed in these footnotes as applicable.
Reclassification
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, cash items in the process of
collection, amounts due from affiliated banks and investments in instruments
with an original maturity of less than 90 days. Included in cash and cash
equivalents are $14.3 billion and $11.2 billion at December 31, 2002 and 2001,
respectively, of time deposits placed with the Parent.
Securities
Securities are classified based on management's intention on the date of
purchase. Debt securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities are classified as available-for-sale and carried at fair value
with net unrealized gains and losses included in accumulated other comprehensive
income on an after-tax basis.
16
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
Derivatives
The financial warranty agreements entered into by Main Place meet the definition
of derivatives under Financial Accounting Standards Board Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities as amended by FASB
Statement No. 138 and interpreted by Derivatives Implementation Group issues
(together, "FAS 133"). All derivatives are recognized on the balance sheet at
fair value. Since the derivatives entered into by Main Place are non-exchange
traded contracts, fair value is based on a pricing model developed for these
instruments. Main Place designates a derivative as trading or for hedging
purposes when it enters into a derivative contract. Derivatives designated as
trading activities are included in Main Place's trading portfolio with changes
in fair value reflected in trading account profits and fees. Currently no
derivatives are designated for hedging purposes.
Loans
Loans are reported at their outstanding principal balances net of any unearned
income, charge-offs, unamortized deferred fees and costs on originated loans and
premiums or discounts on purchased loans. Unearned income, discounts and
premiums are amortized to income using methods that approximate the interest
method.
Nonperforming Loans
Real estate secured consumer loans are classified as nonperforming at 90 days
past due. The amount deemed to be uncollectible on real estate secured consumer
loans is charged off at 180 days past due. Interest accrued but not collected is
generally written off along with the principal.
Commercial real estate loans that are past due 90 days or more as to principal
and interest, or where reasonable doubt exists as to timely collection,
including loans that are individually identified as being impaired, are
generally classified as nonperforming loans unless well secured and in the
process of collection. Interest accrued but not collected is reversed when a
commercial real estate loan is classified as nonperforming. Interest collections
on nonperforming commercial real estate loans for which the ultimate
collectibility of principal is uncertain are applied as principal reductions.
Otherwise, such collections are credited to income when received.
Allowance for Credit Losses
The allowance for credit losses is management's estimate of probable incurred
credit losses in the loan portfolio. Additions to the allowance for credit
losses are made by charges to the provision for credit losses. 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.
Main Place performs periodic and systematic detailed reviews of its loan
portfolios to identify inherent risks, and to assess the overall collectibility
of, the portfolio. The allowance on certain homogeneous portions of the loan
portfolio, which generally consist of consumer loans, is based on aggregated
portfolio segment evaluations generally by loan type. Loss forecast models are
utilized for these segments which consider a variety of factors including, but
not limited to, historical loss experience, anticipated defaults or foreclosures
based on portfolio trends, delinquencies and credit scores, and expected loss
factors by loan type. Main Place has procedures in place to monitor differences
between estimated and actual incurred credit losses, which include detailed
periodic assessments by senior management of both individual loans and credit
portfolios and the models used to estimate incurred credit losses in those
portfolios.
Foreclosed Properties
Assets are classified as foreclosed properties and included in other assets upon
actual foreclosure or when physical possession of the collateral is taken
regardless of whether foreclosure proceedings have taken place.
17
Foreclosed properties are carried at the lower of the recorded amount of the
loan for which the foreclosed property previously served as collateral or the
fair value of the property less estimated costs to sell. Prior to foreclosure,
any write downs, if necessary, are charged to the allowance for credit losses.
Subsequent to foreclosure, gains or losses on the sale of, and losses on the
periodic revaluation of, foreclosed properties are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.
Securities Sold Under Agreements To Repurchase
Securities sold under agreements to repurchase are with affiliates and are
treated as collateralized financing transactions and are recorded at the amounts
at which the securities were sold. (see Note 6)
Income Taxes
Main Place is classified as a single-member LLC and, as such, is disregarded as
an entity separate from its owners for income tax purposes. The predominant
practice for single-member LLCs is to provide for income taxes in their separate
financial statements. Effective January 1, 2000, Main Place recognized through a
cumulative effect adjustment, deferred tax assets and liabilities determined in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", and the accompanying financial statements include an income
tax provision for the years ended December 31, 2002, 2001 and 2000. (see Note 8)
There are two components of income tax expense: current and deferred. Current
income tax expense approximates taxes to be paid or refunded for the applicable
period. Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the basis of assets and liabilities as measured by tax laws
and their basis 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 assets is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences will be recognized. A valuation allowance is
recorded for those deferred tax items for which it is more likely than not that
realization will not occur.
Main Place'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 between Main Place and
the Corporation. This allocation 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.
Recently Issued Accounting Pronouncements
In November 2002, the Emerging Issues Task Force (EITF) finalized the minutes to
its discussion of EITF Issue 02-3, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities" (EITF 02-3), which included
clarification of the Financial Accounting Standard Board's staff view that an
entity should not recognize an unrealized gain or loss at inception of a
derivative instrument unless the fair value of the instrument is obtained from a
quoted market price in an active market or is otherwise evidenced by comparison
to other observable current market transactions or based on a valuation
technique incorporating observable market data. This view is applicable to all
derivative instruments held for trading purposes entered into on or after
November 21, 2002. EITF 02-3 did not have an impact on Main Place's results of
operations or financial condition.
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees", (FIN 45) was issued in November 2002. FIN 45 requires that a
liability be recognized at the inception of certain guarantees for the fair
value of the obligation, including the ongoing obligation to stand ready to
perform over the term of the guarantee. Guarantees, as defined in FIN 45,
include contracts that contingently require Main Place to make payments to a
guaranteed party based on changes to an asset, liability or equity security of
the guaranteed party, performance guarantees, indemnification agreements or
indirect guarantees of indebtedness of others. This new accounting is effective
for certain guarantees issued or modified after December 31, 2002. In addition,
FIN 45 requires certain additional disclosures that are located in Note 4.
Management does not expect that the adoption of FIN 45 will have a material
impact on Main Place's results of operations or financial condition.
18
Note 3 - Securities
The amortized cost and market values of available-for-sale mortgage-backed
securities at December 31 were (dollars in thousands):
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------ -------------
2002 $ - $ - $ - $ -
============= ============ ============ =============
2001 $ 1,005,244 $ 28,350 $ (530) $ 1,033,064
============= ============ ============ =============
The amortized cost and market values of held-to-maturity mortgage-backed
securities at December 31 were (dollars in thousands):
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------ -------------
2002 $ - $ - $ - $ -
============= ============ ============ =============
2001 $ 5,118 $ 17 $ (4) $ 5,131
============= ============ ============ =============
Gains of approximately $10.4 million and $13.4 million were realized on sales of
available-for-sale securities during 2002 and 2001, respectively. No gains or
losses on sales of securities were recognized during 2000. During the fourth
quarter of 2002, Main Place made a fair market value distribution of its
remaining securities to the Parent. No gain or loss was recognized on this
transaction.
Note 4 - Derivatives - Financial Warranty Agreements
On October 29, 2002, Main Place entered into a financial warranty agreement with
Pioneer Principal Protection Trust on behalf of its series Pioneer Protected
Principal Plus Fund and Pioneer Investment Management, Inc., filed under cover
of Form 8-K dated as of October 21, 2002. The trust is an open-ended
diversified, registered investment company registered under the Investment
Company Act of 1940, as amended. Under the terms of the agreement, Main Place
provided a financial warranty to the trust in the amount of up to $180.3 million
in order to ensure that the trust is able to redeem all of the outstanding
shares of the series on the maturity date, as defined in the financial warranty
agreement. The last day upon which the financial warranty may be drawn is
January 8, 2010.
On December 20, 2002, Main Place entered into a financial warranty agreement
with the Parent, filed on the third quarter 10-Q as Exhibit 10.1 Under the terms
of this agreement, the Parent provided a financial warranty in favor of Main
Place in the amount of up to $180.3 million, corresponding to Main Place's
obligations under the financial warranty in favor of Pioneer Principal
Protection Trust on behalf of its series, Pioneer Protected Principal Plus Fund.
The financial warranty amount of $180.3 million represents the maximum potential
exposure of these agreements. There is no specific collateral associated with
the financial warranty agreements.
On November 1, 2002, Main Place entered into a financial warranty agreement with
Merrill Lynch Principal Protected Trust, on behalf of its series Merrill Lynch
Fundamental Growth Principal Protected Fund and Merrill Lynch Investment
Managers, L.P., filed under cover of Form 8-K dated as of October 21, 2002. The
trust is an open-ended diversified, registered investment company registered
under the Investment Company Act of 1940, as amended. Under the terms of the
agreement, Main Place provided a financial warranty in the amount of up to
$265.9 million in order to
19
ensure that the trust is able to redeem all of the outstanding shares of the
series on the maturity date, as defined in the financial warranty agreement. The
last day upon which the financial warranty may be drawn is December 1, 2009.
On November 13, 2002, Main Place entered into a financial warranty agreement
with the Parent, filed on the third quarter 10-Q as Exhibit 10.2. Under the
terms of this agreement, the Parent provided a financial warranty in favor of
Main Place in the amount of up to $265.9 million, corresponding to Main Place's
obligations under the financial warranty in favor of Merrill Lynch Principal
Protected Trust, on behalf of its series Merrill Lynch Fundamental Growth
Principal Protected Fund.
The financial warranty amount of $265.9 million represents the maximum potential
exposure of these agreements. There is no specific collateral associated with
the financial warranty agreements.
On November 1, 2002, Main Place entered into a financial warranty agreement with
Merrill Lynch Principal Protected Trust, on behalf of its series Merrill Lynch
Basic Value Principal Protected Fund and Fund Asset Management, L.P., filed
under cover of Form 8-K dated as of October 21, 2002. The trust is an open-ended
diversified, registered investment company registered under the Investment
Company Act of 1940, as amended. Under the terms of the agreement, Main Place
provided a financial warranty in the amount of up to $335.8 million in order to
ensure that the trust is able to redeem all of the outstanding shares of the
series on the maturity date, as defined in the financial warranty agreement. The
last day upon which the financial warranty may be drawn is December 1, 2009.
On November 13, 2002, Main Place entered into a financial warranty agreement
with the Parent, filed on the third quarter 10-Q as Exhibit 10.3. Under the
terms of this agreement, the Parent provided a financial warranty in favor of
Main Place in the amount of up to $335.8 million, corresponding to Main Place's
obligations under the financial warranty in favor of Merrill Lynch Principal
Protected Trust, on behalf of its series Merrill Lynch Basic Value Principal
Protected Fund.
The financial warranty amount of $335.8 million represents the maximum potential
exposure of these agreements. There is no specific collateral associated with
the financial warranty agreements.
Main Place has recorded a derivative trading account receivable associated with
the financial warranty agreements with third parties and a derivative trading
account payable associated with the financial warranty agreements with the
Parent. At December 31, 2002, these balances were $37.4 million and $28.2
million, respectively.
Note 5 - Loans
The following table presents the composition of loans at December 31 (dollars in
thousands):
December 31
2002 2001
- ----------------------------------------------------------------------------
Residential mortgage $ - $ 5,149,783
Commercial real estate - 2,930
----------------------------
Total loans, net of unearned income $ - $ 5,152,713
============================
Mortgage loans collateralizing mortgage-backed bonds (as described in Note 7)
were comprised of the following at December 31 (dollars in thousands):
December 31
2002 2001
- ---------------------------------------------------------------------------
Adjustable-rate $ - $ 1,892,016
Fixed-rate - 482,821
----------------------------
Total mortgage loans $ - $ 2,374,837
============================
20
Changes in the allowance for credit losses for the years ended December 31 were
as follows (dollars in thousands):
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Balance, January 1 ............................................. $ 7,729 $ 35,345 $ 35,988
Net loans charged off .......................................... (335) (207) (643)
Allowance for loans transferred ................................ (6,599) (5,571) (2,994)
(Release of) provision for allowance for credit losses ......... (795) (21,838) 2,994
------- -------- --------
Balance, December 31 ........................................... $ - $ 7,729 $ 35,345
======= ======== ========
Main Place had no nonperforming loans at December 31, 2002 compared to $23.5
million at December 31, 2001. Foreclosed properties at December 31, 2002, were
$48 thousand compared to $5.3 million at December 31, 2001. During December
2002, Main Place distributed its remaining loan portfolio to the Parent.
Note 6 - Affiliate Transactions
Main Place maintains its cash and cash equivalent accounts with the Parent. Main
Place had $14.3 billion and $11.2 billion of time deposits placed with the
Parent at December 31, 2002 and 2001, respectively. Interest income on time
deposits placed with the Parent for the years ended December 31, 2002, 2001 and
2000 was $214.6 million, $259.4 million and $302.5 million, respectively. On
February 28, 2003, Main Place distributed $7.5 billion of this time deposit to
the Parent as a return of capital.
At December 31, 2002 Main Place had no accounts receivable from affiliates,
compared to $116.1 million at December 31, 2001. These receivables related to
sales of loans to the Parent, mortgage payments and securities principal and
interest payments in process of collection.
As described more fully in Note 4, the Parent has entered into financial
warranty agreements with Main Place. Under the terms of these agreements, the
Parent provides financial warranties in favor of Main Place in an aggregate
amount of $782.0 million which corresponds with Main Place's obligations under
financial warranty agreements in favor of third parties.
At December 31, 2002 Main Place had no U.S. government securities sold under
agreements to repurchase from the Parent or Banc of America Securities LLC, a
wholly-owned subsidiary of the Corporation, which mature on demand, compared to
$885.5 million at December 31, 2001. Interest expense on these securities for
the years ended December 31, 2002, 2001 and 2000 was $5.0 million, $70.9 million
and $143.1 million, respectively. On December 20, 2002, Main Place terminated
its securities sold under agreements to repurchase transactions in conjunction
with the distribution of its remaining securities portfolio to the Parent.
Main Place has entered into agreements with the Parent for the servicing and
administration of its mortgage loan portfolio. Servicing fees paid to the Parent
approximated $8.5 million, $24.4 million and $25.4 million for the years ended
December 31, 2002, 2001 and 2000, respectively, and are included in "Other
operating expenses" on the accompanying statement of income. Servicing fees are
based on actual collections on loans.
Due to affiliates as of December 31, 2002 and 2001 were $1.1 billion and $339.2
million, respectively. The December 31, 2002 balance was composed primarily of a
$900.5 million payable that was a result of an operational error made during the
distribution of loans to the Parent in December 2002. The payable was settled
during January 2003.
During the years ended December 31, 2002, 2001 and 2000, Main Place sold $2.8
billion, $1.5 billion and $831.8 million of mortgage loans to the Parent,
respectively. No gains were recorded on these transactions during 2002, as the
sale price equaled Main Place's cost basis. Gains on sales of loans sold to the
Parent for the years ended December 31, 2001 and 2000 were $5.6 million and $2.9
million, respectively.
Main Place purchased $855 thousand of available-for-sale securities from the
Parent during 2002. There were no securities purchased from the Parent during
the year ended December 31, 2001. During the year ended December 31, 2000, Main
Place purchased $112.4 million of available-for-sale securities from the Parent.
21
Main Place distributed $268.5 million of available-for-sale securities and
$900.5 million of loans to the Parent on December 20, 2002. As these were equity
distributions, no gains or losses were recognized on these transactions.
Note 7 - 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 or substitute
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 Main Place should fail to comply and two
thirds of bondholders not waive the default event, the Trustee is provided
certain remedies on behalf of the bondholders which may include liquidation of
the pledged collateral. As of December 31, 2002, Main Place had the authority to
issue approximately $3.5 billion of securities under its existing shelf
registration statement.
On May 28, 2002 Main Place repaid its remaining obligations of $1.5 billion on
the Series 1999-1 mortgage-backed bonds. There are no additional bonds
outstanding.
Note 8 - Income Taxes
The components of actual income tax expense for the years ended December 31,
2002, 2001 and 2000 were as follows (dollars in thousands):
2002 2001 2000
- --------------------------------------------------------------- ---------
Current - expense
Federal $ 138,851 $ 273,845 $ 316,642
State 6,192 19,563 22,636
--------- --------- ---------
145,043 293,408 339,278
--------- --------- ---------
Deferred - expense/(benefit)
Federal 583 9,480 2,393
State (355) 428 61
--------- --------- ---------
228 9,908 2,454
--------- --------- ---------
Total income tax expense $ 145,271 $ 303,316 $ 341,732
--------- --------- ---------
A reconciliation of the expected federal income tax expense, based on the
federal statutory rate of 35 percent for 2002, 2001 and 2000, to the actual
income tax expense for the years ended December 31, 2002, 2001 and 2000, is as
follows (dollars in thousands):
22
2002 2001 2000
- ------------------------------------------------------------------------------ ---------
Expected federal tax expense $ 141,232 $ 283,099 $ 318,929
Increase in taxes resulting from
State tax expense, net of federal benefit 3,794 13,144 14,774
Other 245 7,073 8,029
--------- --------- ---------
Actual income tax expense $ 145,271 $ 303,316 $ 341,732
--------- --------- ---------
Significant components of Main Place's actual net deferred tax liabilities on
December 31, 2002 and 2001 are as follows (dollars in thousands):
2002 2001
- ------------------------------------------------------------------------------
Deferred tax liabilities
Unrealized gain on securities available for sale $ - $ (10,293)
Discount accretion - (1,440)
Other, net - (6,598)
-------- ---------
Gross deferred tax liabilities - (18,331)
-------- ---------
Deferred tax assets
Allowance for credit losses - 2,831
-------- ---------
Gross deferred tax assets - 2,831
-------- ---------
Valuation Allowance - -
-------- ---------
Net deferred tax liabilities $ - $ (15,500)
-------- ---------
Main Place had current taxes payable to the Parent of $152 million and $339
million for the years ended December 31, 2002 and 2001 respectively, which are
included in due to affiliates on the Balance Sheet. The decrease in Deferred Tax
Liabilities and Assets is due primarily to a distribution of the related assets
to the Parent.
Note 9 - 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 prices exist have
been derived based on management's assumptions, the estimated 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 Main Place.
Short-Term Financial Instruments
The carrying value of short-term financial instruments and derivatives,
including cash and cash equivalents, repurchase agreements, accounts receivable
from affiliates and interest receivable approximates the fair value. These
financial instruments generally expose Main Place to limited credit risk, have
no stated maturities or have maturities of less than 90 days and carry interest
rates which approximate market.
23
Held-to-Maturity and Available-for-Sale Securities
The carrying value of held-to-maturity and available-for-sale securities
approximates the fair value. (see Note 3)
Derivatives
All derivatives are recognized on the balance sheet at fair value.
Loans
Fair values were estimated for the loans based on type of loan and maturity. The
fair value of loans was determined by discounting estimated cash flows using
interest rates approximating the December 31 origination rates of the Parent and
its affiliates for similar loans and using credit factors. Contractual cash
flows for residential mortgage loans were adjusted for estimated prepayments
using published industry data. Where quoted market prices were available, such
market prices were utilized as estimates of fair value.
Long-Term Debt
The series 1999-1 mortgage-backed bonds were variable rate instruments and the
fair value approximated book value.
The book and fair values of financial instruments for which book and fair value
differed on December 31 were (dollars in thousands):
2002 2001
--------------------------------------------------------------
Book Fair Book Fair
Value Value Value Value
- -----------------------------------------------------------------------------------------------------
Financial assets
Loans, net of unearned income $ - $ - $ 5,152,713 $ 5,292,894
(dollars in thousands)
24
Main Place Funding, LLC
Form 10-K
Index to Exhibits
Exhibit No. Description
2 (a) Agreement of Merger merging Main Place Holdings Corporation into
MainPlace Holdings, LLC, dated as of October 15, 1998. (1)
2 (b) Agreement and Plan of Merger between Main Place Real Estate
Investment Trust and Main Place Funding, LLC, dated as of December
22, 1998. (1)
3 (a) Limited Liability Company Agreement of Main Place Holdings, LLC,
dated as of October 15, 1998. (1)
3 (b) Amended and Restated Limited Liability Company Agreement of Main
Place Funding, LLC, dated as of December 14, 1998. (1)
3 (c) Amended and Restated Limited Liability Company Agreement of Main
Place Funding, LLC, dated as of October 21, 2002. (incorporated by
reference from the Report on Form 8-K previously filed on October
21, 2002)
4 (a) Indenture of Trust dated as of October 31, 1995, between Main
Place Funding Corporation and First Trust National Association,
pursuant to which Main Place Funding Corporation issued
Mortgage-Backed Bonds, Series 1995-2. (incorporated by reference
from the Form 8-K previously filed on October 31, 1995)
4 (b) First Supplemental Indenture of Trust dated as of November 1, 1996
to Indenture of Trust dated as of October 31, 1995 between Main
Place Funding Corporation and First Trust National Association, as
Trustee. (incorporated by reference from the Form 10-Q previously
filed on November 14, 1996)
4 (c) Indenture of Trust dated as of March 18, 1997, between Main Place
Funding Corporation and First Trust National Association, as
Trustee. (incorporated by reference from the Form 10-Q previously
filed on May 13, 1997)
4 (d) Second Supplemental Indenture of Trust, dated as of December 23,
1998, between Main Place Funding, LLC and U.S. Bank Trust National
Association, as Trustee, in connection with the Indenture of Trust
dated as of October 31, 1995. (1)
4 (e) First Supplemental Indenture of Trust, dated as of December 23,
1998, between Main Place Funding, LLC and U.S. Bank Trust National
Association, as Trustee, in connection with the Indenture of Trust
dated as of March 18, 1997. (1)
4 (f) Indenture of Trust dated as of May 25, 1999, between Main Place
Funding, LLC and U.S. Bank National Association, as Trustee.
(incorporated by reference from the Form 8-K filed on May 25,
1999) 4 (g) Assignment and Assumption Agreement between
NationsBank, N.A. and Main Place Trust, dated as of December 14,
1998. (1)
4 (h) Trust Agreement of Main Place Trust, dated as of December 14,
1998. (1)
10 (a) Servicing Agreement dated as of July 18, 1995, between Main Place
Funding Corporation and NationsBanc Mortgage Corporation.
(incorporated by reference from the Current Report on Form 8-K
previously filed on July 18, 1995)
25
10 (b) Servicing Agreement dated as of October 31, 1995, between Main
Place Funding Corporation and NationsBanc Mortgage Corporation.
(incorporated by reference from the Current Report on Form 8-K
previously filed on October 31,1995)
10 (c) Servicing Agreement dated November 1, 1996, between Main Place
Real Estate Investment Trust and NationsBanc Mortgage Corporation.
(incorporated by reference from the Quarterly Report on Form 10-Q
previously filed on November 14, 1996)
10 (d) Servicing Agreement dated as of November 1, 1996, between Main
Place Real Estate Investment Trust and NationsBank, N.A.
(incorporated by reference from the Quarterly Report on Form 10-Q
previously filed on November 14, 1996)
10 (e) Servicing Agreement dated as of March 18, 1997, between Main Place
Funding Corporation and NationsBanc Mortgage Corporation.
(incorporated by reference from the Quarterly Report on Form 10-Q
previously filed on May 13, 1997)
10 (f) Servicing Agreement dated as of May 25, 1999, by and between Main
Place Funding LLC and Nationsbanc Mortgage Corporation.
(incorporated by reference from the Form 8-K filed on May 25,
1999)
10 (g) Financial Warranty Agreement by and among Main Place Funding, LLC,
Pioneer Investment Management, Inc., and Pioneer Principal
Protection Trust on behalf of its series, Pioneer Protected
Principal Plus Fund, dated as of October 29, 2002. (incorporated
by reference from the Current Report on Form 8-K previously filed
and dated as of October 21, 2002)
10 (h) Financial Warranty Agreement by and between Main Place Funding,
LLC and Bank of America, N.A., dated as of November 13, 2002.
(incorporated by reference from the Quarterly Report on Form 10-Q
previously filed on November 14, 2002)
10 (i) Financial Warranty Agreement by and among Main Place Funding, LLC,
Merrill Lynch Principal Protected Trust, on behalf of its series
Merrill Lynch Fundamental Growth Principal Protected Fund and
Merrill Lynch Investment Managers, L.P., dated as of November 1,
2002. (incorporated by reference from the Current Report on Form
8-K previously filed and dated as of October 21, 2002)
10 (j) Financial Warranty Agreement by and between Main Place Funding,
LLC and Bank of America, N.A., dated as of November 13, 2002.
(incorporated by reference from the Quarterly Report on Form 10-Q
previously filed on November 14, 2002)
10 (k) Financial Warranty Agreement by and among Main Place Funding,
LLC, Merrill Lynch Principal Protected Trust, on behalf of its
series Merrill Lynch Basic Value Principal Protected Fund and
Fund Asset Management, L.P., dated as of November 1, 2002.
(incorporated by reference from the Current Report on Form 8-K
previously filed and dated as of October 21, 2002)
10 (l) Financial Warranty Agreement by and between Main Place Funding,
LLC and Bank of America, N.A., dated as of November 13, 2002.
(incorporated by reference from the Quarterly Report on Form 10-Q
previously filed on November, 14 2002)
12 Ratio of Earnings to Fixed Charges.
23 Consent of PricewaterhouseCoopers LLP.
99.1 Certification of President pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
26
99.2 Certification of Principal Financial and Accounting Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference from the Form 10-K previously filed on April 1,
2002
27