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, 2000
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 11, 2000, there were no shares of common stock outstanding. As of
August 11, 2000, 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.
<PAGE>
Main Place Funding, LLC
June 30, 2000 Form 10-Q
<TABLE>
<CAPTION>
<S> <C>
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Statement of Income for the Three Months and Six Months
Ended June 30, 2000 and 1999 3
Balance Sheet as of June 30, 2000 and December 31, 1999 4
Statement of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 5
Statement of Changes in Members' Equity for the
Six Months Ended June 30, 2000 and 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Index to Exhibits 14
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Main Place Funding, LLC
Statement of Income
(Dollars in Thousands)
Three Months Six Months
Ended June 30 Ended June 30
-------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Interest and fees on loans $206,394 $228,403 $424,225 $461,472
Interest on securities 46,460 120,640 95,255 262,396
Interest on time deposits placed 67,051 108,662 142,614 263,270
Gains on sales of securities - 1,922 - 4,420
-------------------------------------------------
Total income 319,905 459,627 662,094 991,558
-------------------------------------------------
Expenses
Interest on securities sold under agreements to repurchase 36,853 80,073 72,587 170,012
Interest on long-term debt 49,853 41,060 112,997 74,328
Provision for credit losses - - - -
Other operating expenses 7,001 5,604 14,066 11,924
-------------------------------------------------
Total expenses 93,707 126,737 199,650 256,264
-------------------------------------------------
Income before income taxes and cumulative effect of accounting change 226,198 332,890 462,444 735,294
Income tax expense 87,518 - 173,428 -
-------------------------------------------------
Net income before cumulative effect of accounting change 138,680 332,890 289,016 735,294
Cumulative effect of change in accounting for income taxes-benefit - - 6,926 -
-------------------------------------------------
Net income 138,680 332,890 295,942 735,294
=================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Main Place Funding, LLC
Balance Sheet
(Dollars in Thousands)
June 30 December 31
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,996,954 $ 901,145
Time deposits placed with affiliates 4,300,000 5,000,000
Securities:
Available-for-sale 2,574,202 2,858,278
Held-for-investment, at cost (market value $12,405 and $45,406) 12,357 45,364
---------------------------------
Total securities 2,586,559 2,903,642
---------------------------------
Loans, net of unearned income 10,833,401 12,328,216
Allowance for credit losses (35,682) (35,988)
---------------------------------
Loans, net of unearned income and allowance for credit losses 10,797,719 12,292,228
Interest receivable 76,293 80,083
Accounts receivable from affiliates 2,647 19,249
Other assets 36,426 14,514
---------------------------------
Total assets $ 19,796,598 $ 21,210,861
=================================
Liabilities
Accrued expenses $ 3,105 $ 3,818
Accrued expenses due to affiliate 160,644 578,249
Securities sold under agreements to repurchase from affiliates 2,251,415 2,557,522
Current portion of long-term debt 1,499,978 2,499,945
Long-term debt 1,500,000 1,500,000
---------------------------------
Total liabilities 5,415,142 7,139,534
---------------------------------
Members' Equity
Contributed equity 13,395,436 13,395,436
Undistributed income 1,018,159 722,217
Accumulated other comprehensive loss (32,139) (46,326)
---------------------------------
Total members' equity 14,381,456 14,071,327
---------------------------------
Total liabilities and members' equity $ 19,796,598 $ 21,210,861
=================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Main Place Funding, LLC
Statement of Cash Flows
(Dollars in Thousands)
Six Months Ended
June 30
-------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income before cumulative effect of accounting change $ 289,016 $ 735,294
Reconciliation of income before cumulative effect to net cash provided by operating activities
Gains on sales of securities - (4,420)
Deferred income tax benefit (18,757) -
Net decrease in interest receivable 3,790 18,984
Net decrease in accounts receivable from affiliates 16,602 421,240
Net (decrease) increase in accrued expenses (713) 1,672
Net (decrease) in accrued expenses due to affiliates (417,723) (9,416)
Other operating activities, net 22,807 28,276
-------------------------------------
Net cash (used in) provided by operating activities (104,978) 1,191,630
-------------------------------------
Investing Activities
Proceeds from maturities of securities held for investment 33,009 117,095
Proceeds from sales and maturities of securities available for sale 279,387 2,390,442
Purchases of securities available for sale - (13,184)
Net decrease in time deposits placed with affiliates 700,000 8,000,000
Purchases of loans - (2,178,396)
Collections of loans outstanding 705,545 2,276,561
Proceeds from sale and securitizations of loans 788,953 -
-----------------------------------
Net cash provided by investing activities 2,506,894 10,592,518
-----------------------------------
Financing Activities
Net decrease in securities sold under agreements
to repurchase (306,107) (2,466,447)
Proceeds from issuance of long-term debt - 1,500,000
Retirement of long-term debt (1,000,000) -
Distribution of capital to affiliates - (12,000,000)
------------------------------------
Net cash used in financing activities (1,306,107) (12,966,447)
------------------------------------
Net increase (decrease) in cash and cash equivalents 1,095,809 (1,182,299)
Cash and cash equivalents at beginning of period 901,145 2,219,988
------------------------------------
Cash and cash equivalents at end of period $ 1,996,954 $ 1,037,689
====================================
Supplemental disclosure of noncash transactions
Distribution of loans to affiliates $ - $ 120,060
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Main Place Funding, LLC
Statement of Changes in Members' Equity
(Dollars in Thousands)
Accumulated
Other Total Compre-
Contributed Undistributed Comprehensive Members' hensive
Equity Income Income (Loss)(1) Equity Income (Loss)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance on December 31, 1998 $24,980,572 $ $ 220,081 $ 25,200,653
Net income 735,294 735,294 $ 735,294
Other comprehensive income (156,428) (156,428) (156,428)
-------------
Comprehensive income $ 578,866
=============
Distribution (11,585,136) (534,924) (12,120,060)
-----------------------------------------------------------
Balance on June 30, 1999 $13,395,436 $ 200,370 $ 63,653 $ 13,659,459
===========================================================
Balance on December 31, 1999 $13,395,436 $ 722,217 $ (46,326)$ 14,071,327
Net income before cumulative effect of accounting change 289,016 289,016 $ 289,016
Cumulative effect of change in accounting for income taxes 6,926 6,926 6,926
Other comprehensive income 14,187 14,187 14,187
-------------
Comprehensive income $ 310,129
----------------------------------------------------------- =============
Balance on June 30, 2000 $13,395,436 $ 1,018,159 $ (32,139)$ 14,381,456
===========================================================
(1) Changes in Accumulated Other Comprehensive Income includes after-tax net unrealized gains (losses) on securities available for
sale.
</TABLE>
<PAGE>
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., 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. (the "Parent").
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. These mergers were each accounted for in a
manner similar to a pooling of interests and, accordingly, the accompanying
financial statements include the results of operations and financial condition
of the combined entities since the beginning of the earliest period presented.
As a result of the December 23, 1998 merger, 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. 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. As a result of the December 23, 1998 merger, 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. As the surviving entity, 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. 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.
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, 1999. Discussion of significant changes in such
accounting policies is below.
Accounting for Income Taxes
After October 14, 1998, 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. Main Place has become aware that the predominant practice for
single-member LLCs is to provide for income taxes in their separate financial
statements, and has concluded that is a more informative presentation than
proforma disclosures. 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, 2000. On a proforma basis, income tax expense for the three and
six month periods ended June 30, 1999 was $121,039, and $267,353, respectively.
For the three-month period ended June 30, 2000 and 1999, income tax expense
differs from
<PAGE>
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.
Note 3 - Loans
The following table presents the composition of loans (dollars in thousands):
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
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<S> <C> <C>
Residential mortgage $10,824,385 $12,304,562
Other consumer - 13,706
Commercial real estate 9,016 9,948
------------------------------------
Total loans $10,833,401 $12,328,216
------------------------------------
</TABLE>
Mortgage loans collateralizing mortgage-backed bonds were comprised of the
following (dollars in thousands):
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
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<S> <C> <C>
Adjustable-rate $3,274,887 $5,086,850
Fixed-rate 1,411,602 1,551,596
------------------------------------
Total mortgage loans $4,686,489 $6,638,446
------------------------------------
Transactions in the allowance for credit losses were as follows (dollars in
thousands):
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended June 30
----------------------
2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Balance on January 1 $35,988 $37,599
Loans charged off (306) (977)
Recoveries of loans previously charged off - 376
Provision for credit losses - -
----------------------
Balance on June 30 $35,682 $36,998
----------------------
</TABLE>
<PAGE>
Main Place had $67.0 million of nonperforming loans on June 30, 2000 compared to
$83.1 million on December 31, 1999. Foreclosed properties on June 30, 2000
totaled $6.0 million compared to $6.1 million on December 31, 1999.
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, 2000 was $67.1 million and $142.6 million,
respectively, compared to $108.7 million and $263.3 million for the same prior
year periods. As of June 30, 2000 and 1999, Main Place had $4.3 billion and $4.0
billion, respectively, of time deposits placed with the Parent.
At June 30, 2000 and December 31,1999, Main Place had $2.6 million and $19.5
million, respectively, of accounts receivable 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.
Interest expense on securities for the six months ended June 30, 2000 and 1999
was $72.6 million and $170.0 million, respectively, related primarily to U.S.
Government securities. On June 30, 2000 and 1999, Main Place had a total of $2.3
billion and $6.2 billion, respectively, of U.S. government securities sold under
agreements to repurchase from the Parent and Banc of America Securities LLC,
wholly owned subsidiaries of the Corporation which mature on demand.
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 $6.4 million and $4.6 million for the six months ended June 30,
2000 and 1999, 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, 2000 and purchased $2.2 billion of loans from the Parent during the same
period in 1999.
Accrued expenses due to affiliates as of June 30, 2000 and December 31, 1999,
were $160.6 million and $578.2 million, respectively composed primarily of
income tax payable to the Parent of $154.6 million and $571.9 million,
respectively.
At June 30, 2000, Main Place had a revolving line of credit agreement with the
Parent for the benefit of the trustee under the Series 1995-2 Mortgage-Backed
Bonds. The maximum borrowing allowed under this agreement, which expires in
2000, is $82.5 million. The borrowings bear interest at prime and are subject to
a .25 percent per annum commitment fee on the unused portion of the facility.
There have been no borrowings under this agreement.
During the six months ended June 30, 2000, Main Place sold $565 million of
mortage loans to the Parent. No gain or loss was recorded on this transaction.
<PAGE>
Note 5 - Long-Term Debt
The following table displays the primary terms of Main Place's 1995-2, and
1999-1 mortgage-backed bonds as of June 30, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
Series Series
1995-2 1999-1
(Issued (Issued
October 1995) May 1999)
------------------------------------
<S> <C> <C>
Amount issued $1,500,000 $1,500,000
Reference rate 3-mo. LIBOR 3-mo. LIBOR
+17 bps +12bps
Period-end interest rate 6.480% 6.940%
Maturity 2000 2002
Mortgage loans and cash collateralizing mortgage-backed bonds:
Collateral - book value $2,396,496 $2,418,700
Collateral - discounted value 1,733,048 1,830,034
Collateral - approximate amount exceeding
minimum indenture requirements 150,548 247,534
</TABLE>
Interest expense on the Series 1995-2, 1997-1 and 1999-1 mortgage-backed bonds
for the three months and six months ended June 30, 2000 was $49.9 million and
$113.0 million, respectively, compared to interest expense on the Series 1995-2,
1997-1 and 1999-1 mortgage-backed bonds of $41.1 million and $74.3 million for
the same periods in 1999. Main Place repaid its obligations on the Series 1997-1
mortgage-backed bonds of $1.0 billion on March 25, 2000.
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. As of June 30, 2000, Main Place had the authority to issue
approximately $3.5 billion of securities under its existing shelf registration
statement.
<PAGE>
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 2000 was $138.7 million and $289.0 million,
respectively, representing decreases of $194.2 million and $446.3 million from
the corresponding periods last year. The decrease primarily resulted from
decreases in interest income, no gains on sales of securities and an increase in
long term debt interest expense. After October 14, 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. Main
Place has become aware that the predominant practice for single-member LLCs is
to provide for income taxes in their separate financial statements, and has
concluded that is a more informative presentation than proforma disclosures.
Income tax expense for the second quarter and first half of 2000 was $87.5
million and $173.4 million, respectively.
Total income for the second quarter and first half of 2000 was $319.9 million
and $662.1 million, respectively, representing a decrease of $139.7 million and
$329.4 million, respectively, from the corresponding periods in 1999. The
decrease included a decline in interest income from the securities portfolio of
$74.2 million and $167.1 million resulting from a reduction of $4.7 billion in
the average balance of the securities portfolio. The decrease also included a
decline in interest income on time deposits placed of $41.6 million and $120.6
million, respectively, for the same periods in 1999, resulting from a reduction
of $6.3 billion in the respective average balances, slightly offset by a 159
basis point increase in average yields to 6.41 percent. Interest and fees on
loans for the second quarter and first half of 2000 declined $22.0 million and
$37.2 million, respectively, due to a consistent reduction in the loan
portfolio. The remaining decrease in total income for the second quarter and
first half of 2000 was the result of $1.9 million and $4.4 million,
respectively, in decreases in gains on sales of available-for-sale securities
from the same period in 1999.
Total expenses (excluding income taxes) for the second quarter and first half of
2000 was $93.7 million and $199.7 million, respectively, representing a decrease
of $33.0 million and $56.6 million compared to the same periods in 1999. The
decrease included a decline in interest expense on securities sold under
agreements to repurchase of $43.2 million and $97.4 million, respectively,
resulting from a reduction of $4.8 billion in average borrowings, and slightly
offset by a 153 basis point increase in average rates to 6.35 percent. Long-term
debt interest expense for the second quarter and first half of 2000 increased by
$8.8 million and $38.7 million to $49.8 million and $113.0 million,
respectively, compared to the same periods in 1999, due to the issuance of $1.5
billion in new debt in May 1999, series 1999-1, and a 137 basis point increase
in average rates to 6.65 percent.
Main Place made no provision for credit losses in the second quarter and first
half of 2000 due to the decline in the average balance of the loan portfolio
throughout 1999 and the $16.2 million decrease in nonperforming loans to $66.9
million at June 30, 2000 from $83.1 million at December 31, 1999. 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 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, 2000.
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12 Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
<PAGE>
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 11, 2000 /s/ Susan R. Faulkner
-----------------------
Susan R. Faulkner
Treasurer and Senior Vice President/
Principal Financial and Accounting Officer
(Principal Financial and
Duly Authorized Officer)
<PAGE>
Main Place Funding, LLC
Form 10-Q
Index to Exhibits
Exhibit Description
12 Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.