10-Q 1 d10q.txt MAIN PLACE 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 ------- ------- 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 --- --- 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)

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 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 ----------------------------------------------------------------------------- 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 ------------------------------- 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 ------------------------------------------------------------------------------- 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 ------- ----------- 12 Ratio of Earnings to Fixed Charges 13

MAIN PLACE FUNDING LLC 10-Q