-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S57svnkawSZ2YV/bDHLQolLMmoChkPy9+sx+e3+pzJYfu6n6uDlVKBrZuLdquSKH 1y8ClQ1/er3QZxGvTEtqEw== 0001047469-97-007544.txt : 19971216 0001047469-97-007544.hdr.sgml : 19971216 ACCESSION NUMBER: 0001047469-97-007544 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971208 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALFED INC CENTRAL INDEX KEY: 0000793075 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 570821925 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-15334 FILM NUMBER: 97736971 BUSINESS ADDRESS: STREET 1: 107 CHESTERFIELD ST S CITY: AIKEN STATE: SC ZIP: 29801 BUSINESS PHONE: 8036421400 MAIL ADDRESS: STREET 1: PO BOX 1116 CITY: AIKEN STATE: SC ZIP: 29802 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 8, 1997 PALFED, Inc. _______________________________________________________________ (Exact name of registrant as specified in its charter) South Carolina 0-15334 57-0821925 ________________________________________________________________ (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 107 Chesterfield Street South Aiken, South Carolina 29801 ____________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (803) 642-1400 Page 1 of ________sequentially numbered pages The Index to Exhibits is on page 4. Item 5. Other Events. ______________________ On September 23, 1997 PALFED, Inc. (the "Company"), PALFED and Regions Financial Corporation ("Regions") entered into an Agreement and Plan of Merger ("Agreement") pursuant to which PALFED will merge with and into Regions (the "Merger"). The Agreement is subject to PALFED shareholder approval, appropriate regulatory approvals and other customary closing conditions. In anticipation of the Merger, Regions Mortgage, Inc. ("Regions Mortgage") a wholly-owned subsidiary of Regions Bank (a subsidiary of Regions), and Palmetto Federal Savings Bank of South Carolina ("Palmetto Federal"), a wholly-owned subsidiary of PALFED, entered into mortgage loan servicing agreements pursuant to which Regions Mortgage will service approximately $490 million in first mortgage loans which Palmetto Federal either owns or services for others. In the event the Merger is not consummated, Palmetto Federal has the right to terminate the loan servicing agreements. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ____________________________________________________________________________ (a) Financial Statements ____________________ None. (b) Pro Forma Financial Statements ______________________________ None. (c) Exhibits ________ Exhibit Number Description ______________ ___________ Exhibit 10.1 Whole Loan Servicing Agreement dated as of December 1, 1997 by and between Regions Mortgage, Inc. and Palmetto Federal Savings Bank of South Carolina. Exhibit 10.2 Sub-Servicing Agreement dated as of December 1, 1997 by and between Regions Mortgage, Inc. and Palmetto Federal Savings Bank of South Carolina. SIGNATURES 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 hereunto duly authorized. PALFED, INC. By: /s/ John C. Troutman _____________________ John C. Troutman President and Chief Executive Officer Date: December 12, 1997 INDEX TO EXHIBITS _________________ Sequentially Exhibit Number Description Numbered Page ______________ ___________ _____________ Exhibit 10.1 Whole Loan Servicing Agreement dated as of December 1, 1997 by and between Regions Mortgage, Inc. and Palmetto Federal Savings Bank of South Carolina. Exhibit 10.2 Sub-Servicing Agreement dated as of December 1, 1997 by an between Regions Mortgage, Inc. and Palmetto Federal Savings Bank of South Carolina. EX-10.1 2 EX-10.1 EXHIBIT 10.1 WHOLE LOAN SERVICING AGREEMENT THIS AGREEMENT made this 1st day of December, 1997, (the "Agreement"), is made in the State of Alabama by and between Regions Mortgage, Inc., a wholly-owned subsidiary of Regions Bank, ("RMI", the "Servicer"), and Palmetto Federal Savings Bank of South Carolina, a wholly-owned subsidiary of PALFED, Inc., ("Palmetto", the "Owner"), for mutual consideration herein evidenced. Whereas, pursuant to that certain Agreement and Plan of Merger dates as of September 23, 1997 (the "Merger Agreement") between PALFED, Inc. ("PALFED") and Regions Financial Corporation ("Regions"), Regions is acquiring all of the issued and outstanding stock of PALFED. Whereas, Sub-Servicer is engaged in the business activity of servicing residential mortgages. Whereas, Sub-Servicer has the capacity and the ability to service such mortgages. Whereas, the Owner desires Sub-Servicer, from time to time, to assume responsibility for servicing residential mortgages and Sub-Servicer is agreeable thereto. Whereas, this Agreement governs the servicing of real estate mortgage loans previously originated and serviced by Owner, and Owner now desires to transfer such servicing duties to RMI. Whereas, Owner warrants to RMI that the loans transferred under this Agreement were made in compliance with all governmental laws and regulations of whatever nature, and that the loans have been serviced in accordance with such laws and regulations, and that Owner will hold RMI harmless from any and all claims of whatever nature that may arise from the making or servicing of these loans prior to the date of actual transfer of servicing from Owner to RMI. Now, therefore, in consideration of the mutual recitals and covenants set forth herein, and for good and valuable consideration as recited herein, the Parties hereby warrant, covenant and agree as follows: ARTICLE I Definitions Section 1.01. "Guaranteed Loan" means a loan that is guaranteed, including a guarantee to repurchase, in whole or in part, or as to which a commitment to guarantee has been made under the provisions, as time to time amended, of the following: (a) the Servicemen's Readjustment Act of 1994, or Chapter 37 to Title 38, United States Code; (b) Section 221 or 222 of the Foreign Assistance Act of 1961; (c) the Small Business Act; and , (d) the Rural Development Act of 1972. Section 1.02. "Insured Loan" means a loan which is insured, in whole or in part, by a private mortgage insurance company, other insurers or as to which a commitment for any such insurance has been made under the provisions, as time to time amended, of the National Housing Act of 1944, or Chapter 37 of Title 38, United States Code. Section 1.03. "Insured Institution" includes a federal savings and loan association, a savings bank, a building and loan, savings and loan, or homestead association, or a cooperative 1 bank, whose accounts are insured by a state or national bank, or a savings bank whose accounts are insured by the Federal Deposit Insurance Corporation ("FDIC"). Section 1.04. "Loan" and "Loans" include adjustable loans, and security deeds, trust deeds, and deeds of trust relating to adjustable loans. Section 1.05. "Loan Debtor" and "Loan Debtors" mean mortgagors, trustors of trust deeds and deeds of trust, and the grantors or any security deeds relating to adjustable loans. Section 1.06. "Servicer" means the firm designated to be responsible for doing the actual servicing and administration of the loans sold under this Agreement. ARTICLE II Administration and Servicing of the Loan Section 2.01. Identification of Servicer. The Servicer of the servicing transferred pursuant to this Agreement is Regions Mortgage, Inc. ("RMI"). Section 2.02. Servicer's and Loan Debtor's Compliance with Law. RMI hereby represents and warrants that it will comply with, and that it will use its best efforts to cause each Loan Debtor to comply with, all applicable state and federal laws, rules and regulations, or requirements of the private mortgage insurance companies, including those requiring the giving of notices. Where applicable, RMI warrants that it will comply with the following: (a) the National Housing Act of 1934, as from time to time amended, and with all applicable rules and regulations issued thereunder; and, (b) the requirements of private mortgage insurance companies, including the giving of all notices and the submitting of all claims required to be given or submitted to the Federal Housing Administration, the Veterans Administration, or to the private mortgage insurance company to the end that the full benefit of either the Federal Housing Administration insurance, the guaranty of the United States of America, or the private mortgage insurance will inure to Owner. RMI warrants that it will forward copies of all such notices or claims to Owner if requested by Owner. Section 2.03. Collection, Remittance and Accounting Warranties. Until the principal and interest of each loan sold hereunder is paid in full, RMI warrants that it shall: (a) Proceed diligently to collect all payments due under the terms of each loan as they become due; (b) Keep a complete, accurate and separate account of and properly apply all sums collected by it from the Loan Debtor on account of each loan sold hereunder for principal and interest, taxes, assessments and other public charges, hazard insurance premiums and FHA insurance or mortgage insurance premiums, and any and all other expenses and expenditures; (c) Deposit all funds received in behalf of the loans sold under this Agreement in a segregated trust or custodial demand deposit account in a federally insured institution. Such account shall be held by RMI as trustee or custodian which shall maintain detailed records to show the respective interests of each individual Loan Debtor in the account. Each such account shall be established and maintained in a manner which complies with the applicable rules and regulations of the FDIC; 2 (d) From the funds so deposited, (i) Pay promptly to the proper parties when and if due the FHA insurance premiums, mortgage insurance premiums, taxes, special assessments, ground rents, and premiums of hazard insurance policies, and (ii) On or before the 25th of each month and the 5th of each month deliver to Owner or Owner's representative all amounts of principal and interest collected under the loan. (e) Provide to Owner a certification that the loans have been serviced properly and in accordance with this Agreement and customery practices in the mortgage industry. Additionally, Owner will certify that all insurance, taxes, MIP premiums, PMI premiums, etc., have been paid properly and promptly and that all receipts have been posted properly and promptly. Section 2.04. Loan and Other Prepayments. RMI warrants that it will not accept any prepayment of mortgage principal on any loan sold hereunder except as authorized by applicable law and regulations, and provided by the terms of the applicable mortgage instrument. Funds received on the account of the Loan Debtor for the purpose of paying taxes, assessments, insurance premiums, or other similar purpose will be retained and disbursed by RMI. Section 2.05. Loan Adjustments. If the loan is an adjustable rate, it is agreed by Owner that RMI is authorized and required to make loan adjustments in compliance with this Agreement. Until the principal and interest of each loan sold hereunder is paid in full, RMI warrants that it shall make loan adjustments in compliance with the loan contract and applicable regulatory lending requirements, and which reflect the movements of the applicable loan adjustment index, combination or indices or moving average of index values, formula or schedule. The applicable loan adjustments shall be implemented in accordance with applicable lending regulations and loan contract. RMI shall execute and deliver all appropriate notices required by the applicable lending regulations and loan contract regarding such loan adjustments including but not by way of limitation: timely notification to the Owner, or to the Owner's successors or assigns, of all applicable data and information regarding such adjustments, and new schedules of Owner's pro rata share of collections of principal and interest. If the Loan Debtor on any loan hereunder is in default at the time such notices are executed and delivered to such Loan Debtor, RMI shall timely execute and deliver to such Loan Debtor notice that all contractual rights under the applicable loan contract in regard to such default are reserved even though the loan in adjusted. Section 2.06. Loan Debtor's Failure to Perform. RMI warrants that in the event any Loan Debtor fails to make a payment to RMI required to be made under the terms of the applicable loan that RMI will notify Owner of such fact within thirty (30) days after the payment shall have become due and payable, and RMI will conduct due diligence to ascertain, and forthwith will notify Owner, of the failure of any Loan Debtor to perform any other obligation under the applicable loan, and also of any of the following which might come to the attention of RMI , and in RMI's opinion material in fact and circumstances: (a) the vacancy of or any change in the occupancy of any premises securing a loan sold under this Agreement; (b) the sale or transfer of any such premises; (c) the death, bankruptcy, insolvency or other disability of any Loan Debtor which might impair ability to repay the loan; (d) any loss or damage to any such premises, in which event, in addition to notifying Owner, RMI shall see to it that the insurance companies 3 concerned are promptly notified and proper claim made to insurance company; and/or, (e) any lack of repair or any other deterioration or waste suffered or committed in respect to the premises securing the loan. It is understood, however, that no notice need be given to the Owner of any facts other than those of which RMI shall have actual notice, and those of which RMI would, except for its negligence, have had notice. Section 2.07. Foreclosure of Other Acquisition of Security Property. RMI warrants that it will upon the request and under the direction of Owner process the following: (a) the foreclosure or other acquisition of the property securing a loan sold hereunder; (b) the transfer of such property to the FHA or VA where appropriate; and, (c) the collection of any applicable mortgage insurance. Pending completion of these steps, RMI will protect such property from waste and vandalism. At the option of Owner, Owner may assign such mortgage to RMI which will then conduct all such proceedings in its own name, promptly thereafter assigning or conveying to the Owner any title, equity or other property or right acquired by such proceedings. RMI warrants that it will have title to the property conveyed in the name designated by Owner. Owner agrees to reimburse RMI for its reasonable attorney's fees. In the case of voluntary deed in lieu of foreclosure, and purchase by Owner, or for its account, RMI warrants that it will protect the security property so owned. RMI warrants that it will manage, operate, improve, rent and sell such real estate with notice to and the consent of the Owner. All these operations shall be on terms and as determined and directed by Owner. Upon the sale of such security property, on terms as specified by Owner, if payments are deferred and payable under a loan contract, RMI warrants that it will service such loan until completely liquidated, upon the terms provided for the servicing of loans herein. Section 2.08. Custody of Insurance Policies. RMI warrants that it shall hold for Owner's account such insurance records required for servicing and shall be responsible for the procurement of insurance records required for servicing. Section 2.09. Records Maintenance. RMI warrants that it will keep records satisfactory to Owner and keep records in accordance with standard accounting and servicing procedures, pertaining to each loan sold hereunder, and such records shall be the property of Owner and upon termination of this Agreement shall be delivered to Owner. Section 2.10. Other Servicer Duties. Until the principal and interest of each loan sold hereunder is paid in full, RMI warrants that it shall perform such other customary duties, furnish such reports and execute such other documents in connection with its duties hereunder as Owner from time to time reasonably may require. RMI shall be reasonably compensated for additional duties and reports based upon the additional cost incurred by RMI in connection with such request. Section 2.11. Servicer's Fees. RMI shall retain as full compensation for all services performed hereunder the earned portion of the servicing fee of 1/4 of 1% for fixed rate mortgages and 3/8 of 1% for adjustable rate mortgages. RMI also shall retain any loan assumption fees, late charges, and other miscellaneous fees collected from the Loan Debtor pursuant to the terms of the loan, or any other HUD or VA allowable fees. No additional compensation shall be payable to RMI provided that: 4 (a) Sub-Servicer will be fully reimbursed for all foreclosure and liquidation expenses related to the foreclosure and REO process. (b) in the event Owner sells all or any part of its interest in the loans covered by this Agreement to a third party or parties, including the sale of participation ownership interest therein (whether such resales are by Owner or Owner's successors or assigns), then an additional service fee equal to the servicing fee computed as provided hereinabove payable by each such subsequent buyer thereof, and such fee shall be deducted from each monthly remittance to each such subsequent buyer. Section 2.13. Other Warranties and Representations. RMI warrants that it will not waive, modify, release or consent to postponement on the part of the Loan Debtor of any term or provision of the loan contract without the written consent of Owner. ARTICLE III Sale of Loan or Participation Interests to Third Parties In the event Owner sells all or any part of its interests in loans covered by this Agreement to a third party or parties, including the sale of participation ownership interests therein, such third parties shall succeed to all of the rights of Owner hereunder for the portion purchase and this Agreement shall remain in full force and effect. In such event, RMI warrants that it will remit all principal and interest installments collected under the loans directly to such third party or parties by or before the 25th and 5th of each month, after deduction of the service fee as provided in this Agreement. The obligation to make direct remittances and to execute and deliver all appropriate notices required by this Agreement to such third party or parties shall arise upon sixty days (60) notice of such assignment delivered by such subsequent buyers to RMI. ARTICLE IV Termination of This Agreement Section 4.01. Loans Being Serviced. The Owner may, by delivering notice to RMI, terminate this Agreement as to loans being serviced if: (a) RMI in the sole opinion of the Owner, fails to take positive action to correct any deficiency in the performance of its obligations hereunder within ninety (90) days after the Owner has given RMI written notice of such deficiency; or (b) RMI becomes insolvent or bankrupt or is placed under conservatorship or receivership, whether state or federal; or (c) RMI assigns or attempts to assign its rights and obligations hereunder, without the written consent of Owner; or (d) If acquisition of Owner by Regions is not completed by April 30, 1998, in accordance with the Merger Agreement. Should PALFED and Regions extend the Merger Agreement, this agreement shall automatically be modified to continue in effect for the same period as the Merger Agreement; or 5 Section 4.02. Future Acceptance of Loans. This Agreement may be terminated as to the future acceptance of loans by either party at any time upon delivering sixty (60) days written notice of termination to the other party, but such termination shall not in any respect change or modify the obligation of RMI with respect to the servicing of loans already accepted, and RMI shall continue to be responsible for the servicing of such loans unless Owner shall act to terminate this Agreement in accordance with the provisions contained herein. Section 4.03. Servicer's Duties. Upon termination of this Agreement, RMI warrants that it will account for and turn over to Owner all funds collected under each loans sold hereunder, less only the compensation then due RMI, and deliver to Owner all records and documents that it may have in its possession relating to each such loans within sixty (60) days from date of termination. ARTICLE V Miscellaneous Provisions Section 5.01. Appointment or Trustees and/or Foreclosure Attorneys. It is agreed by Owner and RMI that the appointment of any trustees and/or foreclosure attorneys under any trust deeds, deeds of trust, and/or Mortgages shall be subject to the approval of Owner. Section 5.02. Effect of ARTICLE and Section headings. The ARTICLE and section headings are for convenience only and shall not affect the construction of this Agreement. Section 5.03. Document Contains Entire Agreement. This document contains the entire agreement between the parties hereto and cannot be modified in any respect except by an agreement in writing signed by all the parties. The invalidity of any portion of this Agreement shall in no way affect the balance thereof. This Agreement shall remain in effect until Owner's interest in all of the loans sold hereunder, including the underlying security, are liquidated completely. IN WITNESS WHEREOF, each party has caused its corporate seal to be affixed hereto and this instrument to be signed in its corporate name on its behalf by its proper officials duly authorized. This 5th day of December, 1997. PAMLETTO FEDERAL SAVGINS BANK OF SOUTH CAROLINA, Owner ATTEST BY: /s/ Darrell R. Rains BY: /s/ Howard M. Hickey, Jr. --------------------------- ------------------------------- _ Darrell R. Rains Howard M. Hickey, Jr. ITS: EVP and CFO ITS: Secretary --------------------------- ------------------------------- (SEAL) REGIONS MORTGAGE, INC., Servicer ATTEST BY: /s/ A. H. Hethcox, Jr. BY: /s/ Debra Meefer --------------------------- -------------------------------- ITS: Executive Vice President ITS: Vice President --------------------------- -------------------------------- (SEAL) 6 EX-10.2 3 EX-10.2 EXHIBIT 10.2 SUB-SERVICING AGREEMENT This Agreement, made this 1st day of December, 1997, by and between Regions Mortgage, Inc., a wholly-owned subsidiary of Regions Bank (hereinafter referred to as "Sub-Servicer"), and Palmetto Federal Savings Bank of South Carolina, a wholly-owned subsidiary of PALFED, Inc., (hereinafter referred to as "Owner"). RECITALS Whereas, pursuant to that certain Agreement and Plan of Merger dated as of September 23, 1997 (the Merger Agreement ) between PALFED, Inc. ( PALFED ) and Regions Financial Corporation ( Regions ), Regions is acquiring all of the issued and outstanding stock of PALFED. Whereas, Sub-Servicer is engaged in the business activity of servicing residential mortgages. Whereas, Sub-Servicer has the capacity and the ability to service such mortgages. Whereas, the Owner desires Sub-Servicer, from time to time, to assume responsibility for servicing residential mortgages and Sub-Servicer is agreeable thereto. Now, therefore, in consideration of the mutual recitals and covenants set forth herein, and for good and valuable consideration as recited herein, the Parties hereby warrant, covenant and agree as follows: ARTICLE I. TERMS AND DEFINITIONS For purposes of this Agreement, each of the following terms shall have the meaning specified with respect thereto. Agreement shall mean this Agreement as the same may be from time to time amended. Agency shall mean FHLMC, FNMA, GNMA, FHA and VA or any successor thereto. Business Day shall mean any day other than Saturdays, Sundays, or legal holiday or a day or portion thereof during which Sub-Servicer is not open for business. Ancillary Income shall mean late charge fees, NSF fees, processing loan assumptions, collecting mortgage insurance premiums and other fees commonly connected with mortgage servicing. Escrow or Impound Charges shall mean all payments for whatever purpose except for principal and interest, required by the terms of the Mortgage or otherwise to be made by the Mortgagor. FHA shall mean the Federal Housing Administration or any successor thereto. FHLMC shall mean the Federal Home Loan Mortgage Corporation or any successor thereto. FNMA shall mean the Federal National Mortgage Association or any successor thereto. GNMA shall mean the Government National Mortgage Association or any successor thereto. HUD shall mean the Department of Housing and Urban Development or any successor thereto. Investor shall mean the owner and holder of a Mortgage Loan or of a participation interest to whom Owner has servicing responsibilities. Investor Cutoff Date shall mean the date of each month, for an Investor, as of which Mortgage payments received through such date are to be remitted to that Investor in accordance with that Investor's guidelines. Lender shall mean the original lender of mortgagee or any successor thereto. Mortgage Mortgage, Mortgages, Loan, Mortgage Loan, or Loans shall mean the Loans together with the Mortgages, security deeds, trust deeds, deeds of trust and related Loan documents securing the same which comprise the Mortgage Loans or pool of Mortgage Loans to be sub-serviced hereunder as amended from time to time. Mortgage Files shall mean the files containing the original and custodial documents, as well as the other documents, relating to each Mortgage Loan. Mortgagee shall mean the lender or Party receiving the Mortgage from the Mortgagor. Mortgagor shall mean mortgagors, trustors of trust deeds and deeds of trust, and the grantors of any Mortgages. Owner's Cutoff Date shall mean the last business day of each month. Party or Parties shall mean Owner and/or Sub-Servicer. Residential Mortgage Loan shall mean any Mortgage Loan secured by a 1-4 family residential property. 2 Sale and Servicing Agreements shall mean the mortgage loan servicing agreements by and between third Party Investors and the Owner governing the servicing of certain Mortgage Loans, as the same may be amended or modified from time to time. Sub-Servicing shall mean servicing conducted under this Agreement where the ownership rights of the servicing are held by the Owner. Transfer Date shall mean the date that Sub-Servicer accepts the servicing responsibilities contained in this Agreement, which shall be during December, 1997, unless otherwise agreed to by the Parties hereto. VA shall mean the Veterans Administration or any successor thereto. ARTICLE II. REPRESENTATIONS AND WARRANTIES OF OWNER 2.1 Due Organization and Good Standing. Owner is a federally chartered stock savings bank duly organized, validly existing and in good standing under the laws of the United States of America. Owner is qualified or registered to transact business in each jurisdiction in which the ownership of property or the conduct of its business requires such qualifications or registration (except where the failure so to qualify or register would not have a material adverse effect upon the consummation of the transaction contemplated hereby). 2.2 Authority and Capacity. Owner has the power, authority and legal right to enter into and perform this Agreement and to perform the obligations required of it hereunder, and this Agreement and any document or instrument to be delivered to Sub-Servicer by Owner pursuant hereto has been duly authorized, executed, and delivered. 2.3 Binding Obligations. This Agreement and any documents or instruments now or hereafter executed and delivered to Sub-Servicer by Owner pursuant to this Agreement constitute (or shall, when delivered to Sub-Servicer by Owner, constitute) valid and legally binding obligations of Owner enforceable against Owner in accordance with their respective terms except as may be limited by or subject to (i) any bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2.4 No Conflicts. The consummation of the transaction contemplated by this Agreement will not result, in any material respect, in the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any agreement, indenture or loan or credit agreement or other instrument to which Owner or its property is subject, or result in the violation of any law, rule, regulation, order, judgment, or decree to which Owner or its property is subject. 3 2.5 Notice of Breach. Owner shall immediately notify Sub-Servicer of any failure or, to the best of its knowledge, any anticipated failure on its part to observe and perform any representation, warranty, covenant or agreement required to be observed and performed by it hereunder. 2.6 Regulatory Approvals. Except as provided herein below, Owner has received any and all necessary consents and approvals from (and has provided or will provide on a timely basis all notice to) all regulatory authorities and other entities, including without limitation, FNMA, GNMA, FHLMC, FHA, VA, HUD and applicable private mortgage insurance companies and any private investors, authorizing the performance of Sub-Servicer of the transactions contemplated by this Agreement. With respect to FNMA and FHLMC sub-servicing, the approvals will be secured prior to December 15, 1997. Sub-Servicer will work with Owner to complete the forms necessary for sub-servicing approval. With respect to private investors, Owner will secure written approval for the sub-servicing prior to December 15, 1997. All other approvals, notifications, etc. will be secured by Owner prior to December 15, 1997. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SUB-SERVICER Sub-Servicer warrants and represents to, and agrees with, Owner as follows: 3.1 Due Organization and Good Standing. Sub-Servicer is a duly organized, validly existing corporation and in good standing under the laws of Alabama. Sub-Servicer is duly licensed, qualified and in good standing in each state where the property subject to each Mortgage Loan sub-serviced pursuant to this Agreement is located if the laws of such state require licensing or qualification in order to service or sub-service such Mortgage Loan (except where the failure so to qualify or register would not have a material adverse effect upon the consummation of the transaction contemplated hereby). 3.2 Authority and Capacity. Sub-Servicer has the power, authority and legal right to enter into and perform this Agreement, and this Agreement and any document or instrument to be delivered by Sub-Servicer to Owner pursuant hereto has been duly authorized, executed, and delivered. 3.3 Binding Obligations. This Agreement and any documents or instruments now or hereafter executed and delivered to Owner by Sub-Servicer pursuant to this Agreement constitute 4 (or shall, when delivered to Owner by Sub-Servicer, constitute) valid and legally binding obligations of Sub-Servicer enforceable against Sub-Servicer in accordance with their respective terms except as may be limited by or subject to (i) any bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.4 No Conflicts. The consummation of the transaction contemplated by this Agreement will not result, in any material respect, (i) in the breach of any term or provision of the charter or by-laws of Sub-Servicer or (ii) in the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any agreement, indenture or loan or credit agreement or other instrument to which Sub-Servicer is subject, or (iii) result in the violation of any law, rule, regulation, order, judgment, or decree to which Sub-Servicer Owner or its property is subject. 3.5 Notice of Breach. Sub-Servicer shall immediately notify Owner of any failure or, to the best of its knowledge, any anticipated failure on its part to observe and perform any representation, warranty, covenant or agreement required to be observed and performed by it hereunder. 3.6 Regulatory Approvals. Sub-Servicer is an approved FNMA Seller/Servicer, an approved FHLMC Seller/Servicer, an approved GNMA Issuer, an approved HUD mortgagee and an approved VA mortgagee, and Sub-Servicer is in good standing with each of such entities as required in order to service or sub-service any Mortgage Loan covered by this Agreement. 3.7 Cooperation. Recognizing that Owner has an interest in the Mortgage Loans and the servicing responsibilities with respect thereto that must be performed, Sub-Servicer will use its best efforts during the term of this Agreement to fully cooperate with the employees, agents and representatives of Owner and to ensure that its employees, agents and representatives also cooperate with such persons. Without limiting the generality of the foregoing, throughout the term of this Agreement, Sub-Servicer will give representatives of Owner full access, during normal business hours, to the Mortgage Files, and the books, records, agreements, and other documents of Sub-Servicer relating to the Mortgage Loans sub-serviced pursuant to this Agreement or to Sub-Servicer's servicing procedures, and will furnish such representatives with such Mortgage Files and other information concerning the affairs of Sub-Servicer as Owner may reasonably request. Sub-Servicer shall furnish, or cause to be furnished, to Owner such computer reports containing information regarding the Mortgage Loans sub-serviced pursuant to this Agreement as Owner may reasonably request. ARTICLE IV. COVENANTS OF OWNER 4.1 Investor Approval. Owner agrees to request and shall have the responsibility to do all things appropriate and necessary to obtain the approval of any Investor whose express 5 approval is required for the transfer of servicer responsibilities to Sub-Servicer except that Sub-Servicer shall have the responsibility of becoming an approved sub-servicer for any such Investor. 4.2 Corporate Authority. Owner agrees to request and shall have the responsibility to do all things appropriate and necessary to ensure that this Agreement has been duly authorized by all requisite corporate action and is a valid and subsisting obligation of Owner. 4.3 Custodial Bank Accounts. Sub-Servicer shall hold all funds owed to Investors, as well as all Escrow or Impound Charges. 4.4 Compensation. Owner agrees to compensate Sub-Servicer for sub-servicing the Mortgage Loans at a rate of $7 per loan per month for the fixed rate loans and $10 per loan per month for the adjustable rate loans. 4.5 Ancillary Income. Sub-Servicer will retain all Ancillary Income as defined herein, in addition to the sub-servicing compensation provided in Article VI of this Agreement. 4.6 Notices. Owner agrees to provide prompt written notice to Mortgagors, governmental agencies (as required), tax service companies, taxing authorities, and insurance companies and Investors of the assumption of sub-servicing responsibility by Sub-Servicer at least fifteen (15) days prior to the assumption of those responsibilities by Sub-Servicer or earlier if required by Agency/Investor guidelines or law. 4.7 Foreclosures and REO Losses. Notwithstanding any other provision of this Agreement to the contrary, it is understood and agreed that the Owner shall remain responsible for all loss, liability and damage resulting from net foreclosure losses and REO losses relating to any of the Mortgages at all times prior to and subsequent to the Transfer Date except for losses directly attributable to the failure of Sub-Servicer to perform its obligations under this Agreement which directly cause any such foreclosure loss and/or REO loss. 4.8 Custodial Advances. Owner agrees to advance funds monthly necessary to pay security holders and/or Investor if there is a shortage of monthly collections in the P&I custodial accounts. 4.9 Negative Service Fees. Owner shall be solely responsible for payment of any negative service fees associated with the servicing of the Mortgage Loans. 4.10 Payoffs. Owner shall incur the interest loss on payoffs received, to the extent that said loss is not a result of a servicing deficiency by Sub-Servicer. 6 ARTICLE V. COVENANTS OF SUB-SERVICER 5.1 Assumption of Duties; Standard of Care. Sub-Servicer shall at all times service the Mortgage Loans in accordance with prudent mortgage banking standards and practices. It is understood and agreed that Sub-Servicer shall exercise the same standard of care that it exercises in the servicing of Mortgage Loans for its own account. Correspondingly, Owner does hereby grant to Sub-Servicer the right to exercise and enjoy all of the rights, powers and privileges granted to Owner in connection with the Mortgage Loans except as otherwise provided herein, subject to applicable rules and regulations. Sub-Servicer shall, consistent with Investor requirements, perform such duties and responsibilities on behalf of Owner as permitted by Investor or Mortgage Loans, as appropriate, during the period of this Agreement. 5.2 Mortgages. Without limiting any other provision of this Agreement, from the Transfer Date hereof until the termination of this Agreement, with respect to each Mortgage Loan sub-serviced pursuant to this Agreement, Sub-Servicer covenants that it will: 5.2.1 Collect all payments due under the terms of such Mortgage Loan as such payments become due in accordance with any applicable laws and regulations and with prudent mortgage banking standards and practices; 5.2.2 Keep a complete, accurate and separate accounting or and properly apply all sums collected by it from the Mortgagor of such Mortgage Loans, including without limitation, payments for principal and interest, taxes, assessments and other public charges, hazard insurance premiums, private mortgage insurance premiums and any FHA insurance. Upon Owner's request, Sub-Servicer shall furnish Owner with evidence of all expenditures for taxes, assessments and other public charges, hazard insurance premiums, private mortgage insurance premiums and any FHA insurance within a reasonable time after all such expenditures are made; 5.2.3 From the funds received by Sub-Servicer with respect to such Mortgage: (i) pay promptly to the proper Parties when and if due all FHA insurance premiums, private mortgage insurance premiums, taxes, and special assessments and premiums on fire, windstorm, hazard and flood insurance policies, and (ii) pay promptly when due all amounts of principal and interest collected with respect to such Mortgage Loan to the entity entitled thereto; 5.2.4 On or before the fifth (5th) Business Day following the applicable Investor Cutoff Date of each calendar month, including without limitation the month in which the Transfer Date occurs with respect to such Mortgage Loan, submit to Owner such reports with respect to investor trial balances, loan activity, delinquent Mortgage Loans and other information as Owner reasonably may request, each certified to be true and correct by Sub-Servicer; 7 5.2.5 Remit to Owner no later than the fifth (5th) Business Day following the Owner's Cutoff Date of each calendar month end all required funds. 5.3 Additional Duties. Sub-Servicer additionally covenants that until the termination of this Agreement with respect to each Mortgage Loan sub-serviced pursuant to this Agreement, it will (i) handle and apply all prepayments of mortgage principal on such Mortgage Loan in accordance with all applicable laws and regulations and the relevant loan documents, (ii) maintain records pertaining to such Mortgage Loan in conformity with all applicable laws and regulations and with prudent mortgage banking standards and practices, and deliver such records to Owner following the termination of this Agreements, (iii) maintain the Mortgage Files delivered to it for Owner, (iv) permit no assumption or subordination of any Mortgage Loans unless expressly provided for by the terms of the respective Mortgage Loans, (v) refrain from engaging in any active solicitation of refinancing any Mortgage, (vi) pursue collection of any Loan in default in accordance with prudent mortgage banking standards and practices and submit appropriate claims with the proper Agency/Investor in connection therewith, and (vii) perform such other duties, furnish such other reports and execute such other documents in connection with its sub-servicing duties hereunder as Owner from time to time reasonably may require. ARTICLE VI. COMPENSATION 6.1 Sub-servicing Fee. Sub-Servicer is to retain the sub-servicing fees as outlined in Article IV, Section 4.4. 6.2 Ancillary Income. Sub-Servicer shall retain, and not remit to Owner, any Ancillary Income. ARTICLE VII. BOOKS AND RECORDS 7.1 Audit and Access to Information. During the period of this Agreement, Sub-Servicer shall give Owner and its authorized representatives reasonable access to all books and records of Sub-Servicer relative to the Mortgage Loans contemplated by this Agreement upon reasonable advance notice, and permit Owner to make such inspections thereof as Owner may reasonable request during normal business hours, provided, however, that such investigation 8 or inspection shall be conducted in such a manner as to not interfere unreasonably with Sub-Servicer's business. 7.2 Maintenance Of Books and Records. Sub-Servicer shall keep full and complete records pertaining to (i) each Mortgage Loan and the collections made thereon, and (ii) each check paid as distribution of principal and interest collected, to appropriate entities (Investors, security holders, etc.) which records are and shall be the property of Owner. 7.3 Transfer of Books and Records. All books, records, documents, Mortgage Files, and other information and data in Sub-Servicer's possession, pertaining to the Mortgage Loans, including all documents, records and reports relating to any pool in which the Mortgage Loans are contained from the inception of the pool are and shall at all times remain the property of Owner. Upon termination of this Agreement, Sub-Servicer shall be obligated to transfer in an orderly manner and in accordance with Owner's instructions at Owner's expense, to Owner or a designee of Owner the records held by it. Sub-Servicer shall also, following termination of this Agreement, account for and turn over to Owner all funds collected and held by it for Owner, which are the property of the Owner. 7.4 Confidentiality. In the event of the termination of this Agreement, each Party shall hold confidential all information obtained hereunder with respect to the other Party which is not otherwise public knowledge, and all documents (including copies thereof) obtained hereunder by any Party from the other Party shall be returned to such Party (unless readily available from public information sources). The preceding sentence shall survive any termination of this Agreement. ARTICLE VIII. INDEMNIFICATION 8.1 Indemnification by Sub-Servicer. (a) Sub-Servicer agrees to indemnify and hold Owner harmless from any and all liability, claim, loss or damage to Owner directly resulting from Sub-Servicer's failure: (i) to observe and perform any or all of Sub-Servicer's covenants, agreements, warranties or representations contained in this Agreement in any material respect; or (ii) to comply in all material respects with all applicable Investor requirements with respect to the servicing of the Mortgage Loans. (b) Sub-Servicer's indemnification obligation under this Section 8.1, and the representations, warranties and covenants of Article III and IV hereof, shall 9 be applicable only to the time Sub-Servicer services the Mortgages. However, Sub-Servicer shall not be obligated to indemnify Owner nor hold Owner harmless from any liability, claim, loss or damage to Owner due in whole or in part to servicing or origination deficiencies which occurred prior to Sub-Servicer assuming the servicing responsibilities as described in this Agreement. 8.2 Indemnification by Owner. Owner shall indemnify and hold Sub-Servicer harmless from any and all liability, claim, loss or damage incurred by Sub-Servicer which result (i) from any representation or warranty of Owner made in this Agreement or in any schedule, written statement, document or certificate furnished by Owner pursuant to this Agreement's being not accurate in any material respect at the time it was made by Owner, or the material non fulfillment of any covenant or condition of Owner contained in the Agreement or in any schedule, written statement, document or certificate furnished by Owner pursuant to this Agreement, (iii) from errors or omissions in the origination or servicing of any Mortgage Loan sub-serviced pursuant to this Agreement which error occurred prior to the transfer of the Mortgage Loans to Sub-Servicer. ARTICLE IX. TERMS AND TERMINATION 9.1 Term and Termination. This Agreement shall continue in full force and effect commencing on the Transfer Date and continuing thereafter, unless earlier terminated (i) by mutual agreement of the Parties upon thirty (30) days written notice; or (ii) in the event of a material breach by either Party of this Agreement, by the other Party upon thirty (30) days written notice describing such breach, provided such other Party is not then also in material breach of this Agreement; or (iii) by Owner, if acquisition of Owner by Regions is not completed by April 30, 1998, in accordance with the Merger Agreement. Should PALFED and Regions extend the Merger Agreement, this Agreement shall automatically be modified to continue in effect for the same period as the Merger Agreement; or (iv) Upon termination, subject to Owner obtaining consents of any Investor or regulatory authorities, as may be required by such entities, Sub-Servicer shall comply with Owner's instructions to transfer all books, records, and other documents related to the sub-servicing of the Mortgage Loans pursuant to this Agreement to Owner. 10 9.2 If this Agreement is terminated pursuant to Article 9.1(iii), Sub-Servicer shall reimburse Owner for any and all expenses reasonably and actually incurred as a result of this agreement including, but not limited to, any and all personnel costs occasioned by the effects of this Agreement. ARTICLE X. CONVERSION 10.1 Conversion Procedures. Owner shall comply with Sub-Servicer's written instructions for conversion of mortgage data to Sub-Servicer's data processing and record keeping systems, at Owner's expense. Delivery of all documents and data requested by Sub-Servicer shall be in accordance with procedures set forth by Sub-Servicer. 10.2 Transfer of Records. Owner shall deliver, and bear the cost of the transfer and deliver, to Sub-Servicer of all documents, Mortgage Files, reports, and similar items, as set forth by Sub-Servicer. Owner shall comply with the requirements of Sub-Servicer. Owner agrees to pay for overnight shipping of Mortgage Files to be delivered to Sub-Servicer's offices within five (5) Business Days after the sub-servicing period. Owner will arrange for inside delivery of Mortgage Files to: Regions Mortgage, Inc. Attn: A. H. Hethcox, Jr. Executive Vice President 605 South Perry Street Montgomery, Alabama 36104 10.3 Custodial Files. Custodial Files shall be delivered to Sub-Servicer's custodian within five (5) Business Days after the sub-servicing period. Owner will make arrangements for inside delivery of the Custodial Files being transferred. Custodial Files will be delivered to: Regions Mortgage, Inc. Attn: Garnett Eubanks First Alabama Bank Custodian 605 South Perry Street Montgomery, Alabama 36104 10.4 Notification to Mortgagors. Owner shall at its sole cost and expense notify all Mortgagors advising them of the transfer of sub-servicing responsibilities and when and where to make payments on and after the Transfer Date. The letter affecting such notification shall be subject to review and approval by Sub-Servicer prior to mailing out to Mortgagors. 10.5 Notification to Insurance Carriers. Owner shall notify all appropriate insurance companies of the transfer of sub-servicing responsibility and request that: 11 (a) The fire and extended coverage policy with respect to the property securing each Mortgage Loan name Sub-Servicer as an insured and contain a lender's loss payable endorsement in favor of Sub-Servicer and its successors and assigns, and (b) When appropriate, the flood insurance policy and the catastrophe insurance policy name Sub-Servicer as an insured and contain a lender's loss payable endorsement in favor of Sub-Servicer and its successors and assigns. ARTICLE XI. CONDITIONS OF TRANSFER 11.1 Sub-Servicer Obligations. The obligations of the Sub-servicer hereunder shall be subject to the following conditions: (a) Delivery by Owner to Sub-Servicer of Investor's written approval of the transfer of sub-servicing obligations for the Mortgage Loans to Sub-Servicer if required by the applicable Sale and Servicing Agreement; (b) Compliance by Owner with all its obligations hereunder. 11.2 Owner Obligations. The obligations of Owner hereunder shall be subject to the following conditions: (a) Investor approval of Sub-Servicer, as required by the applicable Sale and Servicing Agreement; (b) Compliance by Sub-Servicer with all its obligations hereunder. ARTICLE XII. MISCELLANEOUS PROVISIONS 12.1 Notices. All notices, requests, demands and other communications which are required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given when received, whether sent by certified mail, return receipt requested, telex, telegram, telecopy or overnight express mail: 12 (a) If to Owner, to: Palmetto Federal Savings Bank of South Carolina Attn: Darrell Rains 107 Chesterfield Street Second Floor Aiken, South Carolina 29801 (803) 642-1328 (b) If to Sub-Servicer, to: Regions Mortgage, Inc. Attn: A. H. Hethcox, Jr. Executive Vice President 605 South Perry Street Montgomery, Alabama 36104 (334) 223-3418 12.2 Waivers. Either Owner or Sub-Servicer may upon mutual consent of the Parties, evidenced by a writing signed by both Parties: (a) Waive compliance with any of the terms, conditions, or covenants required to be complied with by the other hereunder; and (b) Waiver of modify performance of any of the obligations of the other hereunder. The waiver by either Party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach. 12.3 Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the Parties with respect to sub-servicing of the Mortgages and supersedes all prior agreements with respect thereto. This Agreement may be amended and any provision hereof waived, but only in writing signed by the Party against whom such enforcement is sought. 12.4 Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their successors and assigns. Unless and until terminated as provided in accordance with Article IX, Owner may not resign or assign its rights under this Agreement, and Sub-Servicer may not assign its rights under this Agreement. 12.5 Headings. Headings of the Articles and Sections in this Agreement are for reference purposed only and shall not be deemed to have any substantive effect. 13 12.6 Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Alabama without reference to the choice of law provisions of the State of Alabama. 12.7 Relationship of Parties. Nothing herein contained shall be deemed or construed to create a partnership or joint venture between the Parties. The duties and responsibilities of Sub-Servicer shall be rendered by Sub-Servicer as an agent or Sub-Servicer. Sub-Servicer shall have full control of all of its acts, doings, proceedings, relating to or requisite in connection with the discharge of its duties and responsibilities under this Agreement. 12.8 Further Acts. The Parties agree that each shall, at its own expense, at any time and from time to time after the date hereof, upon the other's request, do execute, acknowledge and deliver all such further acts, assignments, transfer, conveyances and assurances as may be required or reasonably advisable for the transactions provided for or contemplated by this Agreement. 12.9 Brokerage. Each of the Parties hereto represents and warrants that all negotiations relative to this Agreement and the transactions contemplated hereby have been carried on each with the other without intervention of any person other than such Parties' respective employees, agents, and consultants, and each Party agrees to indemnify the other and hold it harmless against and in respect of any claims against it for brokerage or other commissions relative to this Agreement by the indemnifying Party's employees, agents or consultants. 12.10 Counterparts. This Agreement may be exercised in any number of counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the Parties have executed this Agreement as of this 5th day of Dec., 1997. Regions Mortgage, Inc. Palmetto Federal Savings Bank of South Carolina "Sub-Servicer" "Owner" By: /s/ S.H. Helinger By: /s/ Darrell R. Rains ------------------------ ------------------------ Its: Executive Vice President Its: EVP and CFO ---------------------- Attest: /s/ Debra Meefer Attest: /s/ Howard M. Hickey, Jr. ---------------------- ------------------------- Its: Vice President Its: Secretary ------------------------- [Corporate Seal] [Corporate Seal] NOTARY ACKNOWLEDGMENTS ON FOLLOWING PAGE] 14 ACKNOWLEDGMENTS STATE OF ALABAMA ) ) COUNTY OF MONTGOMERY ) I, Jan M. Lemonds, a Notary Public, in and for said County and State, hereby certify that A. H. Hethcox, Jr. and Lisa M. Farmer whose names as Executive Vice President and Vice President of Regions Mortgage, Inc., a corporation, are signed to the foregoing and are known to me, acknowledged before me on this day that, being informed of the contents of this Agreement, they, as officers and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this 5th day of December, 1997. /s/ Jan M. Lemonds -------------------------------------- NOTARY PUBLIC Jan M. Lemonds [SEAL] My Commission Expires September 26, 1999 STATE OF SOUTH CAROLINA ) ) COUNTY OF AIKEN ) I, Susan M. Beasley, a Notary Public, in and for said County and State, hereby certify that Darrell R. Rains and Howard M. Hickey, Jr. whose names as EVP and CFO and Secretary of Palmetto Federal Savings Bank of South Carolina, Inc., a corporation, are signed to the foregoing and are known to me, acknowledged before me on this day that, being informed of the contents of this Agreement, they, as officers and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this 8th day of December, 1997. /s/ Susan M. Beasley -------------------------------------- NOTARY PUBLIC [SEAL] My Commission Expires 7-29-2006 -----END PRIVACY-ENHANCED MESSAGE-----