10-Q 1 d10q.txt MAIN PLACE FUNDING, LLC 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, 2001 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number 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) 388-7436 -------------- (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___ --- As of August 14, 2001, common equity membership interests consisted solely of ownership percentages of 99 percent and 1 percent in favor of 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, 2001 Form 10-Q Index

2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements Main Place Funding, LLC Statement of Income (Dollars in Thousands)

See accompanying notes to financial statements. 3 Main Place Funding, LLC Balance Sheet (Dollars in Thousands)

See accompanying notes to financial statements. 4 Main Place Funding, LLC Statement of Cash Flows (Dollars in Thousands)

See accompanying notes to financial statements. 5 Main Place Funding, LLC Statement of Changes in Members' Equity (Dollars in Thousands)

(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 presentation 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, 2000. Accounting for 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. Accordingly, 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 three and six month periods ended June 30, 2001 and 2000. For the three-month and six-month periods ended June 30, 2001 and 2000, income tax expense differs from the amount of income tax determined by applying the federal statutory rate of 35 percent to pre-tax income, primarily as a result of state taxes. 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. The operating results of Main Place are included in the consolidated federal income tax return of the Corporation. The method of allocating federal income tax expense was determined under a tax allocation agreement with the Corporation. This agreement specified that income tax expense be computed for all subsidiaries on a separate company method, taking into account tax planning strategies and tax position of the consolidated group. 7 Note 3 - Loans The following table presents the composition of loans (dollars in thousands): June 30 December 31 2001 2000 ----------------------------------------------------------------------------- Residential mortgage................ $8,552,926 $9,737,355 Commercial real estate.............. 3,501 3,946 ------------------------------------ Total loans..................... $8,556,427 $9,741,301 ------------------------------------ Mortgage loans collateralizing mortgage-backed bonds were comprised of the following (dollars in thousands): June 30 December 31 2001 2000 ----------------------------------------------------------------------------- Adjustable-rate..................... $1,570,882 $1,760,555 Fixed-rate.......................... 423,859 457,479 ------------------------------------ Total mortgage loans............. $1,994,741 $2,218,034 ------------------------------------ Transactions in the allowance for credit losses were as follows (dollars in thousands): Six Months Ended June 30 ---------------------- 2001 2000 --------------------------------------------------------------------- Balance on January 1.......................... $ 35,345 $ 35,988 Loans charged off............................. (136) (306) Recoveries of loans previously charged off.... - - Provision for credit losses................... - - ---------------------- Balance on June 30............................ $ 35,209 $ 35,682 ---------------------- Main Place had $48.1 million of nonperforming loans on June 30, 2001 compared to $63.3 million on December 31, 2000. Foreclosed properties on June 30, 2001 totaled $5.0 million compared to $6.6 million on December 31, 2000. 8 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 months and six months ended June 30, 2001 was $71.7 million and $129.2 million, respectively, compared to $67.1 million and $142.6 million for the same prior year periods. As of June 30, 2001 and December 31, 2000, Main Place had $7.5 billion and $3.8 billion, respectively, of time deposits placed with the Parent. At June 30, 2001, Main Place had no accounts receivables outstanding from affiliates of the Corporation. Main Place had $265.8 million of accounts receivable from affiliates of the Corporation at December 31, 2000. These receivables were related to mortgage payments and securities principal and interest payments in process, which generally clear within 30 days. At June 30, 2001 and December 31, 2000, Main Place had $1.8 billion and $2.1 billion, 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 months and six months ended June 30, 2001 was $21.0 million and $49.7 million, respectively, compared to $36.9 million and $72.6 million for the same prior year periods. 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 $7.4 million and $6.4 million for the six months ended June 30, 2001 and 2000, respectively, and are included in "Other operating expenses" on the accompanying statement of income. From time to time, Main Place purchases certain mortgage loans originated by the Parent. Main Place did not purchase any loans during the six months ended June 30, 2001 and 2000. During the six monthes ended June 30, 2001, Main Place sold $10.9 million of mortgage loans to the Parent. Purchases or sales of loans between Main Place and the Parent have been at book value which approximates fair value. Accrued expenses due to affiliates as of June 30, 2001 and December 31, 2000, were $520.0 million and $458.5 million, respectively, composed primarily of income tax payable to the Parent of $499.4 million and $338.9 million, respectively. 9 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 backed bonds ("Bonds"). Bonds have been issued under this as well as previously effective 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 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 that Main Place should fail to comply and two thirds of bondholders not waive the default event, the Trustee is provided the pledged collateral. As of June 30, 2001 Main Place had the authority to issue approximately $3.5 billion of securities under its existing shelf registration statement. The following table displays the primary terms of Main Place's 1999-1 mortgage- backed bonds as of June 30, 2001 (dollars in thousands): Series 1999-1 (Issued May 1999) -------------- Amount issued............................................. $1,500,000 Reference rate............................................ 3-mo. LIBOR +12bps Period-end interest rate.................................. 4.190% Maturity.................................................. 2002 Mortgage loans and cash collateralizing mortgage-backed bonds: Collateral - book value................................. $2,065,749 Collateral - discounted value........................... 1,626,046 Collateral - approximate amount exceeding minimum indenture requirements........................ 43,546 10 Interest expense on the Series 1999-1 mortgage-backed bonds for the three months and six months ended June 30, 2001 was $19.3 million and $43.9 million, compared to interest expense on the Series 1995-2, 1997-1 and 1999-1 mortgage-backed bonds of $49.9 million and $113.0 million for the same periods in 2000. On March 25, 2000, Main Place repaid its obligations of $1.0 billion on the Series 1997-1 mortgage-backed bonds. On October 25, 2000, Main Place repaid its obligations of $1.5 billion on the Series 1995-2 mortgage-backed bonds. 11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Total net income before cumulative effect of accounting change for the second quarter and first half of 2001 was $137.3 million and $268.0 million, respectively, representing decreases of $1.4 million and $21.0 million from the corresponding periods last year. The decrease primarily resulted from decreases in interest income, partially offset by a decline in interest expense. Total income for the second quarter and first half of 2001 was $267.4 million and $536.7 million, respectively, representing a decrease of $52.5 million and $125.4 million, respectively, from the corresponding periods in 2000. The decrease included a decline in interest and fees on loans of $48.5 million and $94.7 million, respectively, due to a consistent reduction in the loan portfolio. Interest income from the securities portfolio for the second quarter and the first half of 2001 declined $8.7 million and $17.4 million, respectively, resulting from a reduction of $519.6 million in the average balance of securities portfolio for the six months ended June 2001, compared to the same period in 2000. The net change in total income also included an increase in interest income on time deposits placed of $4.6 million for the second quarter of 2001 and a decrease of $13.4 million for the first half of 2001, compared to the same period in 2000. The changes in interest income on time deposits placed resulted from an increase in average balances of $2.3 billion and $625.3 million for the second quarter and first half of 2001, respectively, partially offset by a 200 basis point decrease in average yields to 4.41 percent for the six months ended June 2001, compared to the same period in 2000, reflecting market interest rate declines. Total expenses (excluding income taxes) for the second quarter and first half of 2001 were $47.8 million and $107.9 million, respectively, representing a decrease of $45.9 million and $91.8 million compared to the same periods in 2000. The decrease included a decline in interest expense on securities sold under agreements to repurchase of $15.9 million and $22.9 million, respectively, resulting from a reduction of $427.1 million in average borrowings, and 194 basis point decrease in average rates to 4.41 percent for the six months ended June 2001, compared to the same period in 2000. Long-term debt interest expense for the second quarter and first half of 2001 decreased by $30.5 million and $69.1 million to $19.3 million and $43.9 million, respectively, compared to the same periods in 2000, due to the retirement of $1.0 billion in debt in March and $1.5 billion in debt in October 2000, partially offset by a 149 basis point decrease in average rates to 5.16 percent for the six months ended June 2001, compared to the same period in 2000. Main Place made no provision for credit losses in the first half of 2001 and 2000 due to the decline in the average balance of the loan portfolio throughout both periods, and a $15.2 million decrease in nonperforming loans to $48.1 million at June 30, 2001 from $63.3 million at December 31, 2000. Future economic conditions and changes in the loan portfolio may increase nonperforming loans and, accordingly, may effect 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 review of all relevant matters affecting loan collectibility, management believes that the allowance for credit losses is appropriate given its analysis of probable incurred credit losses at June 30, 2001. 12 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. 13 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. As Regisrant, Main Place Funding, LLC ------------------------------------- Date: August 14, 2001 ________________________ Susan R. Faulkner Treasurer and Senior Vice President/ Principal Financial and Accounting Officer 14 Main Place Funding, LLC Form 10-Q Index to Exhibits Exhibit Description ------- ----------- 12 Ratio of Earnings to Fixed Charges. 15

MAIN PLACE FUNDING LLC 10-Q