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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
Commission file number 0-15083
CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0824914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 South Main Street, Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 255-7900
(Former name, former address and former fiscal year, if changed since
last report.)
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
The number of outstanding shares of the issuer's $1.00 par value common
stock as of August 9, 1995 was 5,848,799.
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Consolidated Balance Sheets
Carolina First Corporation and Subsidiaries
(Unaudited)
($ in thousands, except share data)
June 30, December
ASSETS 1995 1994
Cash and due from banks................... $ 56,351 59,750
Federal funds sold and securities
purchased under resale agreements....... 530 4,420
Securities
Trading................................ 1,004 1,155
Available for sale..................... 74,947 59,078
Held for investment (market value
$79,041 in 1995 and $66,820 in 1994)... 79,907 70,264
Total securities..................... 155,858 130,497
Loans held for sale....................... 3,175 71,695
Loans..................................... 968,742 852,246
Less unearned income................... (534) (873)
Less allowance for loan losses......... (8,275) (6,002)
Net loans............................ 963,108 917,066
Premises and equipment.................... 38,900 39,823
Accrued interest receivable............... 8,866 7,674
Other assets.............................. 54,889 45,120
$1,278,502 1,204,350
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing................... $ 136,798 126,974
Interest-bearing...................... 881,575 874,774
Total deposits...................... 1,018,373 1,001,748
Borrowed funds.......................... 135,378 107,236
Subordinated notes...................... 25,172 --
Accrued interest payable................ 5,428 4,141
Other liabilities....................... 4,094 4,743
Total liabilities.................... 1,188,445 1,117,868
Shareholders' Equity
Preferred stock-no par value; authorized
10,000,000 shares; issued and
outstanding 917,200 shares (Series 1994),
533,000 shares (Series 1993) and 53,575
shares (Series 1993B) in 1995 and
920,000 shares (Series 1994), 621,000
shares (Series 1993) and 60,000 shares
(Series 1993B) in 1994; liquidation
preference $25 per share (Series
1994 and 1993) and $20 per share
(Series 1993B)........................ 34,821 37,014
Common stock-par value $1 per share;
authorized 20,000,000 shares; issued
and outstanding 5,831,724 shares in
1995 and 5,618,873 in 1994............ 5,832 5,619
Surplus................................. 48,016 45,543
Retained earnings....................... 2,572 515
Nonvested restricted stock.............. (914) (1,083)
Guarantee of ESOP debt.................. (126) (126)
Unrealized gain (loss) on securities
available for sale.................... (144) (1,000)
Total shareholders' equity........... 90,057 86,482
$1,278,502 1,204,350
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Consolidated Statements of Income
Carolina First Corporation and Subsidiaries
(Unaudited)
($ in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans................................ $ 22,177 $ 16,500 $ 43,404 $ 29,876
Interest on securities
Taxable................................................. 1,683 1,430 3,201 2,871
Exempt from Federal income taxes........................ 239 256 492 449
Total interest on securities.......................... 1,922 1,686 3,693 3,320
Interest on federal funds sold and securities
purchased under resale agreements....................... 105 247 253 441
Total interest income................................... 24,204 18,433 47,350 33,637
Interest expense
Interest on deposits...................................... 9,927 7,126 19,011 13,515
Interest on borrowed funds and subordinated notes......... 2,216 268 3,638 509
Total interest expense.................................. 12,143 7,394 22,649 14,024
Net interest income..................................... 12,061 11,039 24,701 19,613
Provision for loan losses................................... 990 204 4,390 242
Net interest income after
provision for loan losses............................. 11,071 10,835 20,311 19,371
Noninterest income
Service charges on deposit accounts....................... 1,370 881 2,665 1,781
Credit card trust income.................................. 790 -- 1,167 --
Fees for trust services................................... 212 251 512 496
Mortgage banking income................................... 584 550 892 1,050
Gain on sale of securities................................ 92 62 197 135
Sundry.................................................... 519 365 1,243 743
Gain on sale of purchased mortgage servicing rights....... -- -- 2,026 --
Total noninterest income................................ 3,567 2,109 8,702 4,205
Noninterest expenses
Salaries and wages........................................ 4,224 4,088 8,483 7,177
Employee benefits......................................... 1,031 777 2,130 1,935
Occupancy................................................. 1,044 867 2,106 1,669
Furniture and equipment................................... 828 676 1,565 1,200
Acquisition costs......................................... 493 -- 493 --
Sundry.................................................... 3,702 3,725 7,603 6,668
Total noninterest expenses.............................. 11,322 10,133 22,380 18,649
Income before income taxes.............................. 3,316 2,811 6,633 4,927
Income taxes................................................ 1,163 880 2,297 1,420
Net income ............................................. 2,153 1,931 4,336 3,507
Dividends on preferred stock................................ 685 661 1,412 971
Net income applicable to common shareholders............ $ 1,468 $ 1,270 $ 2,924 $ 2,536
Net income per common share:*
Primary................................................. $ 0.24 $ 0.22 $ 0.48 $ 0.44
Fully diluted........................................... 0.24 0.22 0.47 0.44
Average common shares outstanding:*
Primary.................................................6,231,337 5,829,209 6,144,354 5,821,200
Fully diluted...........................................9,160,880 8,652,326 9,149,002 7,912,971
</TABLE>
*Per share data have been restated to reflect 5% stock dividends.
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Consolidated Statements of Cash Flows
Consolidated
(Unaudited)
(All Amounts, Except Per Share Data, in Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net income..................................................... $ 4,336 $ 3,507
Adjustments to reconcile net income to net cash
used for operations
Depreciation............................................... 1,668 1,262
Amortization of intangibles................................ 1,687 731
Provision for loan losses.................................. 4,390 242
Gain on sale of securities................................. (197) (135)
Gain of sale of purchased mortgage servicing rights........ (2,026) --
Unrealized gain on securities.................................. (6) --
Proceeds from sale of trading securities................... 248,497 175,449
Proceeds from maturity of trading securities............... 3,432 16,406
Purchase of trading securities............................. (251,772) (192,771)
Originations of mortgage loans held for sale............... (29,348) (20,816)
Proceeds from sale of mortgage loans held for sale......... 26,245 22,681
Increase in interest receivable............................ (1,192) (2,025)
Increase in interest payable............................... 1,287 579
Increase in other assets................................... (9,551) (12,699)
Decrease in other liabilities.............................. (1,103) (3,761)
FHLB stock dividend........................................ -- (33)
Net cash used for operating activities....................... (3,653) (11,383)
Cash Flows from Investing Activities
Proceeds from maturity of securities available for sale........ 32,533 137,037
Proceeds from maturity of securities held for investment....... 2,817 6,906
Purchase of securities available for sale...................... (49,547) (158,610)
Purchase of securities held for investment..................... (9,842) (14,974)
Proceeds from sale of securities available for sale................ -- 10,099
Net decrease in federal funds sold and securities purchased
under resale agreements...................................... 3,890 49,841
Net increase in loans.......................................... (47,039) (140,331)
Capital expenditures........................................... (745) (7,447)
Net cash used for investing activities ...................... (67,933) (117,479)
Cash Flows from Financing Activities
Acquired deposits (net)............................................ -- 97,735
Net increase (decrease) in deposits............................ 16,625 (498)
Increase in borrowed funds..................................... 28,142 22,386
Issuance of subordinated notes................................. 25,172 --
Issuance of preferred stock........................................ -- 21,442
Dividends on preferred and common stock........................ (2,132) (1,182)
Other common stock activity........................................ 380 267
Net cash provided by financing activities.................... 68,187 140,150
Net change in cash and due from banks............................ (3,399) 11,288
Cash and due from banks at beginning of year..................... 59,750 31,516
Cash and due from banks at end of period......................... $ 56,351 $ 42,804
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of these policies is included in the 1994 Annual
Report to shareholders.
(2) SECURITIES
The change in the net unrealized loss on securities
available for sale was a decrease of $315,000 for the three
months ended June 30, 1995 and $856,000 for the six months
ended June 30, 1995.
(3) STATEMENTS OF CASH FLOWS
Cash includes currency and coin, cash items in process of
collection and due from banks. Interest paid, net of
interest capitalized as a part of the cost of construction,
amounted to approximately $21,362,000 for the six months
ended June 30, 1995. Income tax payments of $4,480,000 were
made for the six months ended June 30, 1995.
In connection with the business combinations described in
Note 5, securities totaling $2,618,000 were reclassified
from Available for Sale to Held for Investments in a non-
cash transaction.
(4) SUBORDINATED NOTES
On May 18, 1995, the Company completed a $26.45 million
public offering of its Notes. The Notes, which are due on
September 1, 2005, pay interest quarterly at an annual rate
of 9.00%.
(5) COMMON STOCK
Primary earnings per share is based on the weighted average
number of common shares outstanding during each period,
including the assumed exercise of dilutive stock options,
using the treasury stock method. Primary earnings per share
also reflects provisions for dividend requirements on all
outstanding shares of Carolina First Corporation (the
"Company") preferred stock.
Fully diluted earnings per share is based on the weighted
average number of common shares outstanding during each
period, including the assumed conversion of convertible
preferred stock into common stock and the assumed exercise
of dilutive stock options using the treasury stock method.
The Board of Directors of the Company declared the issuance
of a 5% common stock dividend to be issued on August 15, 1995
to common shareholders of record as of August 1, 1995. Per share
data of prior periods have been restated to reflect this dividend.
4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(continued)
(6) BUSINESS COMBINATIONS
On April 10, 1995, Aiken County National Bank ("ACNB"), a
national bank headquartered in Aiken, South Carolina, was
merged into Carolina First Bank, a wholly-owned subsidiary
of the Company. Each share of ACNB common stock outstanding
on April 10, 1995 was converted into 1.125 shares of the
Company's common stock. The Company issued 452,658 shares
of common stock and cash in lieu of fractional shares for
all of the outstanding shares of ACNB. Immediately prior to
the acquisition, ACNB had assets of $39 million, net loans
of $30 million, deposits of $35 million, and shareholders'
equity of $3.5 million. The consolidated financial
statements of the Company give effect to the merger, which
has been accounted for as a pooling of interests.
On June 30, 1995, Midlands National Bank ("MNB"), a national
bank headquartered in Prosperity, South Carolina, was merged
into Carolina First Bank, a wholly-owned subsidiary of the
Company. Each share of MNB common stock outstanding on June
30, 1995 was converted into 1.65 shares of the Company's
common stock. The Company issued 584,968 shares of common
stock and cash in lieu of fractional shares for all of the
outstanding shares of ACNB. Immediately prior to the
acquisition, MNB had assets of $44 million, net loans of
$26 million, deposits of $40 million, and shareholders'
equity of $3.9 million. The consolidated financial
statements of the Company give effect to the merger, which
has been accounted for as a pooling of interests.
The accounts of ACNB and MNB have been combined with those
of the Company for all periods presented.
(7) MANAGEMENT'S OPINION
The financial statements in this report are unaudited. In
the opinion of management, all adjustments necessary to
present a fair statement of the results for the interim
periods have been made. All such adjustments are of a
normal, recurring nature.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On April 10, 1995, the Company completed its acquisition of Aiken County
National Bank, a national bank headquartered in Aiken, South Carolina
("ACNB"). On June 30, 1995, the Company completed its acquisition of Midlands
National Bank ("MNB"). Both transactions were accounted for as pooling of
interests. All financial information contained in this filing includes the
results of ACNB and MNB for all periods presented.
GENERAL
Carolina First Corporation (the "Company") is a bank holding
company headquartered in Greenville, South Carolina which
operates through two subsidiaries: Carolina First Bank, a state-
chartered bank headquartered in Greenville, South Carolina and
Carolina First Mortgage Company, a South Carolina corporation
headquartered in Columbia, South Carolina ("CF Mortgage").
Through its subsidiaries, the Company provides a full range of
banking services, including mortgage, trust and investment
services, designed to meet substantially all of the financial
needs of its customers. The Company, which commenced banking
operations in December 1986, currently conducts business through
50 locations in South Carolina. At June 30, 1995, the Company
had approximately $1.28 billion in assets, $971.4 million in
loans, $1.06 billion in deposits and $90.1 million in
shareholders' equity.
The Company was formed principally in response to perceived
opportunities resulting from the takeovers of several South
Carolina-based banks by large southeastern regional bank holding
companies. A significant number of the Company's executive
officers and management personnel were previously employed by
certain of the larger South Carolina-based banks that were
acquired by these southeastern regional institutions.
Consequently, these officers and management personnel have
significant customer relationships and commercial banking
experience that have contributed to the Company's loan and
deposit growth.
The Company's objective is to become the leading South
Carolina-based banking institution. It believes that it can
accomplish this goal by pursuing a "super-community bank"
strategy, offering the personalized service and local decision-
making authority that characterize community banks, as well as
the sophisticated banking products offered by regional and super-
regional institutions. The Company targets individuals and
small- to medium-sized businesses in South Carolina that require
a full range of quality banking services.
The Company currently serves three principal market areas:
the Greenville metropolitan area and surrounding counties
(located in the Upstate region of South Carolina); the Columbia
metropolitan area and surrounding counties (located in the
Midlands region of South Carolina); and Georgetown and Horry
counties (located in the Coastal region of South Carolina). In
April 1994, the Company entered the Charleston market with its
acquisition of Citadel Federal Savings and Loan Association
("Citadel Federal") from the Resolution Trust Corporation. The
Company's principal market areas, together with the Charleston
market, represent the four largest Metropolitan Statistical Areas
in the state.
The Company began its operations with the de novo opening of
Carolina First Bank in Greenville and has pursued a strategy of
growth through internal expansion and through the acquisition of
branch locations and financial institutions in selected market
areas. Its more significant acquisitions include (i) the
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acquisition in August 1990 of First Federal Savings and Loan
Association of Georgetown (subsequently renamed Carolina First
Savings Bank ("CF Savings Bank") and merged into Carolina First
Bank in February 1995), (ii) the acquisitions in March 1993 and
May 1994 of twelve branch locations and six branch locations (the
"6 Republic Branches"), respectively, of Republic National Bank,
(iii) the acquisition of First Sun Mortgage Corporation
(subsequently renamed Carolina First Mortgage Company) in
September 1993, (iv) the merger of ACNB into Carolina First Bank
in April 1995, and (v) the merger of MNB into Carolina First Bank
in June 1995. Approximately half of the Company's total deposits
have been generated through acquisitions.
In the fourth quarter of 1994, the Company initiated a
restructuring which was designed to improve its long-term
competitive position. This restructuring had several unrelated
components and involved (i) the merger of Carolina First Bank and
CF Savings Bank, (ii) the securitization of credit card
receivables, and (iii) the write-off of certain intangible
assets. In connection with these transactions, the Company
incurred in the fourth quarter of 1994 an aggregate, one-time,
after-tax charge of $9.4 million ($12.2 million pre-tax). The
Company believes that on a going-forward basis, the aggregate
effect of the restructuring will be to increase pre-tax income by
approximately $2.8 million a year. Absent the one-time charge
associated with these transactions, the Company would have had
net income of $7.5 million during 1994.
Since 1990, Carolina First Bank acquired or originated
credit card receivables which had outstanding balances of
approximately $104 million as of December 31, 1994. In January
1995, Carolina First Bank contributed approximately $97 million
of its credit card receivables to a master trust (the "Trust") in
connection with a securitization of such credit card receivables
(the "Securitization"). In connection with the Securitization,
certain interests in the Trust were sold to an institutional
investor, while Carolina First Bank retained certain residual
interests in the Trust assets and potential income. In
connection with the sale of such interests, Carolina First Bank
received cash proceeds of approximately $66 million.
In February 1995, the Company completed the merger of CF
Savings Bank into Carolina First Bank. Management believes that
there will be significant economic and managerial benefits from
this combination including the elimination of duplicative
administration, the consolidation of regulators, the reduction of
regulatory burdens and increased management focus.
CF Mortgage's principal activities include the origination
and servicing of one-to-four family residential mortgage loans
through its seven offices in South Carolina. At July 31, 1995,
CF Mortgage was servicing 5,444 loans having an aggregate
principal balance of approximately $395 million. This servicing
excludes approximately $435 million in servicing sold to an
unrelated party as of March 31, 1995. The Company subserviced
these loans until June 1995. This sale resulted in a gain for
the Company of approximately $2 million and was effected because
the Company believed that the terms were favorable. On June 6,
1995, Carolina First Bank entered into an agreement with HomeBanc
Mortgage Corporation ("HomeBanc") to purchase mortgage servicing
rights for 9,995 loans having an aggregate principal balance of
approximately $933 million. The purchase price for the servicing
was approximately $13 million. In connection with the
transaction, Carolina First Bank received a letter of credit
equal to 5% of the purchase price, which can be drawn upon by
Carolina First Bank in certain instances, including for breaches
of warranties by HomeBanc. HomeBanc is subservicing these loans
until August 1995. Following the closing of the purchase of
servicing rights from HomeBanc (which is expected to occur on or
about August 31, 1995), CF Mortgage expects to service over
15,000 loans with an aggregate principal balance of approximately
$1.3 billion.
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On May 18, 1995, the Company completed a $26.5 million
public offering of its 9.0% Subordinated Notes due 2005 (the
"Notes"). A substantial portion of the proceeds was contributed
to Carolina First Bank to provide additional capital to support
internal growth and acquisitions and for working capital
purposes.
At its June 1995 meeting, the Board of Directors of the
Company declared the issuance of a 5% common stock dividend on
August 15, 1995 to common shareholders of record as of August 1,
1995. Per share data of prior periods have been restated to
reflect this dividend.
RECENT ACQUISITIONS
On April 10, 1995, the Company completed its acquisition of
ACNB, a national bank headquartered in Aiken, South Carolina. At
March 31, 1995, ACNB had two locations and approximately $39
million in assets, $35 million in deposits and $30 million in
loans. In connection with this acquisition, ACNB was merged into
Carolina First Bank, and the Company issued 452,658 shares of the
Company's $1 par value common stock ("Common Stock") and cash in
lieu of fractional shares to the ACNB shareholders. The
transaction was accounted for as a pooling of interests. All
financial information contained in this filing includes the
results of ACNB for all periods presented.
On June 30, 1995, the Company completed its acquisition of
MNB, a national bank headquartered in Prosperity, South Carolina.
At June 30, 1995, MNB operated through three locations and had
approximately $44 million in assets, $40 million in deposits and
$26 million in loans. In connection with this acquisition, MNB
was merged into Carolina First Bank, and the Company issued
584,968 shares of the Company's $1 par value Common Stock and
cash in lieu of fractional shares to the MNB shareholders. The
transaction was accounted for as a pooling of interests. All
financial information contained in this filing includes the
results of MNB for all periods presented.
EARNINGS REVIEW
Net Interest Income
The largest component of the Company's net income is
Carolina First Bank's net interest income. Net interest income
is the difference between the interest earned on assets and the
interest paid for the liabilities used to support such assets.
Variations in the volume and mix of assets and liabilities and
their relative sensitivity to interest rate movements determine
changes in net interest income. As the primary contributor to
the Company's earnings, net interest income constituted 79% and
82% of net revenues (net interest income plus noninterest income
excluding the gain on sale of purchased mortgage servicing
rights) in the first six months of 1995 and 1994, respectively.
Fully tax-equivalent net interest income adjusts the yield
for assets earning tax-exempt income to a comparable yield on a
taxable basis. Fully tax equivalent net interest income
increased $5.3 million, or 25%, to $25.0 million for the first
six months of 1995 from $19.9 million for the first six months of
1994. The increase resulted principally from a higher level of
average earning assets. The growth in average earning assets,
which increased $195.4 million to $1.06 billion in the first half
of 1995 from $865.3 million in the first half of 1994, resulted
primarily from internal loan growth, which more than offset a
decrease in investment securities. Loans averaged $224.5 million
higher in the first six months of 1995
8
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than in the same period in 1994.
The net interest margin for the six months ended June 30,
1995 of 4.75% was higher than the margin of 4.60% for the same
period of 1994. For the second quarter, however, the 1995 net
interest margin of 4.50% lagged the second quarter 1994 margin of
4.87%. The decline in the net interest margin is primarily due
to an especially competitive deposit rate environment. During
the second quarter of 1995, many financial institutions were
offering deposit promotions above the market rates, creating
upward pressure on the Company's cost of funds. During the first
six months of 1995, Carolina First Bank did not change the
interest rates paid on transaction accounts and savings deposits,
except for a money market promotion in the Aiken market. Rates
paid on certificates of deposits, however, were increased which
caused the cost of funds to rise. In particular, Carolina First
Bank offered a rolling 5-month certificate of deposit promotion
at a rate above the prevailing market rate. A substantial
portion of the 5-month certificates of deposit will mature in the
early part of the third quarter of 1995 with a renewal rate at
the current lower market rate.
Provision for Loan Losses
The provision for loan losses was $4.4 million for the first
six months of 1995 and $242,000 for the first six months of 1994.
The 1995 provision for loan losses included a $3.4 million
provision for loan losses made in the first quarter of 1995.
This provision was made for several reasons. As a general
matter, management believed that such provision was appropriate
in view of a potential slowdown in the economy (which became
evident in the first quarter) and an increase in the prime
interest rate in February 1995, both of which could make it more
difficult for certain borrowers to repay loans. Furthermore,
management believed that such provision was prudent because the
Company was expanding in new markets and was expecting to
experience continued strong growth in loans. Also, the mix of
its loan portfolio was changing such that a number of small loans
were being replaced by larger credits, particularly in connection
with the Securitization which occurred in January 1995. Finally,
management determined that such provision was warranted because
of the increase in charge-offs, including credit card
receivables, in the first quarter to $1.1 million. Charge-offs
for the second quarter of 1995 were $1.0 million.
At June 30, 1995, the Company's allowance for loan losses as
a percentage of nonperforming assets was 318%, compared to 166% a
year earlier. The allowance for loan losses as percentage of
total loans was 0.85% and 0.86% at June 30, 1995 and 1994,
respectively. Annualized net charge-offs as a percentage of
average loans, including credit card receivables, were 0.46% in
the first six months of 1995, compared with 0.29% in the first
six months of 1994.
Noninterest Income
Noninterest income, excluding the gain on sale of purchased
mortgage servicing rights and securities transactions, increased
59% to $6.5 million for the six months ended June 30, 1995 from
$4.1 million for the same period of 1994, for an increase of $2.4
million. On March 31, 1995, the Company sold purchased mortgage
servicing rights associated with $435 million in loans, which
resulted in a gain of approximately $2 million.
Service charges on deposit accounts, generally the largest
contributor to noninterest income, rose
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50% to $2.7 million in the first six months of 1995 from $1.8
million in the first six months of 1994. Average deposits for
the same period increased 15%. The increase in service charges
was attributable to the acquisition of branches and new deposit
accounts, increased fee charges and improved collection results.
In addition, effective March 1, 1995, Carolina First Bank implemented
new service charges, including a charge for foreign automated teller
machine transactions.
During the first six months of 1995, the Company received
credit card trust income of $1.2 million from its interests in the
Trust (created in the Securitization). Fees for trust services in
the first six months of 1995 of $512,000 were 3% above the $496,000
earned in the same period of 1994. At June 30, 1995, the trust
department had assets under management of approximately $285 million.
Fees for trust services increased as a result of the generation of new
trust business and additional assets under management, partially
offset by delays in the introduction of new products and the
recognition of income from new business booked.
Mortgage banking income includes origination fees, gains
from the sale of loans and servicing fees. Mortgage banking
income in the first six months of 1995 decreased 15% to $892,000,
as compared to $1.0 million in the first six months of 1994.
This decrease is attributable to lower origination fees resulting
from a slowdown in mortgage loan refinancings and a decline in
servicing fees net of related amortization of purchased mortgage
servicing rights. Origination fees totaled $447,000 in the first
six months of 1995, compared to $573,000 in the first six months
of 1994. The decline in origination fees is attributable to
lower internally originated loan volume and lower average
origination fees per loan. Mortgage loans totaling approximately
$26 million and $23 million were sold in the first half of 1995
and 1994, respectively. Income from this activity totaled
$201,000 in the first six months of 1995 and $48,000 in the first
six months of 1994.
CF Mortgage's mortgage servicing operations consist of
servicing loans that are owned by Carolina First Bank and
subservicing loans, to which the right to service is owned by
Carolina First Bank and other non-affiliated financial
institutions. At June 30, 1995, CF Mortgage was servicing or
subservicing 9,003 loans having an aggregate principal balance
of approximately $697 million. Effective March 31, 1995, the
Company sold servicing rights for 5,257 loans having a principal
balance of approximately $435 million to an unrelated third party.
This sale resulted in a gain for the Company of approximately $2
million and was effected because the Company believed that the
terms were favorable. CF Mortgage continued servicing the loans
sold until June 1995. The June 30, 1995 servicing totals include
approximately $300 million of the servicing which was sold.
Accordingly, the servicing portfolio declined to 5,444 loans with
an aggregate principal balance of approximately $395 million at
July 31, 1995. On June 6, 1995, Carolina First Bank entered into
an agreement with HomeBanc Mortgage Corporation ("HomeBanc") to
purchase mortgage servicing rights for 9,995 loans having an
aggregate principal balance of approximately $933 million. See
"General." Following the completion of the purchase of servicing
rights from HomeBanc, CF Mortgage expects to service over 15,000
loans with an aggregate principal balance of approximately $1.3
billion.
Servicing income from non-affiliated companies, net of the
related amortization, was a loss of $64,000 for the first six
months of 1995. The amortization for the mortgage
servicing rights purchased from HomeBanc and the subservicing
payments to HomeBanc, which will continue until August 1995, more
than offset the servicing income earned. The servicing income
does not include the benefit of interest-free escrow balances
related to mortgage loan servicing activities. For the first six
months of 1994, servicing income from non-affiliated companies,
net of related amortization, was $429,000.
The Company recognized gains on the sale of securities of
$197,000 and $135,000 in the first six
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<PAGE>
months of 1995 and 1994, respectively. Sundry income was $500,000
higher for the first six months of 1995 than the same period of
1994, primarily because of higher customer service fees, insurance
commissions, and appraisal fee income which were primarily related to
increased lending and deposit activities.
On August 18, 1993, Carolina First Bank entered into an
investor services agreement with Edgar M. Norris & Co., Inc.
("Norris & Co."), a broker-dealer registered with the National
Association of Securities Dealers, Inc., to offer certain
brokerage services to Carolina First Bank's customers. Under
this affiliate arrangement, Carolina First Bank offers certain
brokerage services to its customers through dual employees (a
Carolina First Bank employee who is also employed by Norris &
Co.). The commissions or mark-up charges on transactions will be
shared between Carolina First Bank and Norris & Co. as set forth
in the investor services agreement. Brokerage services activity
for the first six months of 1995 has been limited.
Noninterest Expenses
Noninterest expenses increased $3.7 million, or 20%, to
$22.4 million in the first six months of 1995 from $18.6 million
in the first six months of 1994. The increased expenditures
primarily reflect the costs of additional personnel to support
the Company's current and anticipated growth. In addition, 1995
noninterest expenses include $493,000 in non-recurring
acquisition costs related to the acquisitions of ACNB and MNB,
both of which closed during the second quarter of 1995. The
acquisition costs included legal fees, shareholder
communications, severance pay and accounting.
Salaries and wages and employee benefits increased $1.5
million, or 16%, to $10.6 million in the first six months of
1995 from $9.1 million in the first six months of 1994.
Full-time equivalent employees rose to 565 as of June 30, 1995
from 554 as of June 30, 1994. The staffing cost increases were
principally attributable to acquisitions (primarily the
acquisition of the 6 Republic Branches in May 1994 and Citadel
Federal in April 1994), the opening of de novo branches
(including Lexington and Myrtle Beach main offices), and
additional personnel hired to support the internal growth in
loans and deposits.
Occupancy and furniture and equipment expenses increased
$802,000, or 28%, to $3.7 million for the six months ended June
30, 1995 from $2.9 million for the six months ended June 30,
1994. This increase resulted principally from the addition of
new banking offices, including new Myrtle Beach and Lexington
main offices.
Sundry noninterest expenses increased $935,000 to $7.6
million in the first six months of 1995 from $6.7 million in the
first six months of 1994. Intangible amortization increased
$956,000, principally as a result of the acquisition of the 6
Republic Branches in May 1994 and the reclassification of loan
premiums as intangible assets. Federal Deposit Insurance
Corporation ("FDIC") insurance premiums also increased, up
$385,000 from 1994, due to higher deposit levels. As discussed
below, the Company anticipates a reduction in the FDIC insurance
premium assessment rate. These expense increases were partially
offset by a $222,000 reduction in credit card service charges
resulting from the Securitization in January 1995.
At its August 1995 meeting, the FDIC approved a reduction in
the insurance assessments for Bank Insurance Fund ("BIF")
deposits. This reduction will decrease Carolina First Bank's
insurance assessment for BIF deposits from 0.26% to 0.04% of the
average assessment base. The implementation date for the
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<PAGE>
reduction has not been set, but is expected to be retroactive to
the second quarter of 1995. The FDIC insurance assessment
reduction applies only to BIF-insured deposits and does not
include deposits insured by the Savings Association Insurance
Fund ("SAIF"). In connection with the merger of CF Savings Bank
into Carolina First Bank and Carolina First Bank's assumption of
other SAIF-insured deposits in connection with various
acquisitions, approximately 23%, or $223 million as of March 31,
1995, of Carolina First Bank's total deposits are subject to SAIF
insurance assessments imposed by the FDIC. The SAIF is
underfunded and various proposals, including a one-time charge
assessed on all SAIF-insured deposits, are being considered by
regulators and lawmakers to recapitalize the SAIF. No final
decision on the future of SAIF has been made at this time. The
Company is not in a position to assess this issue, however, it is
possible that, as a result of regulatory actions, the Company,
like all other SAIF members, could incur material charges with
respect to its SAIF-insured deposits.
BALANCE SHEET REVIEW
Loans
The Company's loan portfolio consists of commercial mortgage
loans, commercial loans, consumer loans and one-to-four family
residential mortgage loans. A substantial portion of these
borrowers are located in South Carolina and are concentrated in
the Company's market areas. The Company has no foreign loans or
loans for highly leveraged transactions. The loan portfolio does
not contain any industry concentrations of credit risk exceeding
10% of the portfolio. At June 30, 1995, the Company had total
loans outstanding of $971.4 million which equaled approximately
95% of the Company's total deposits and approximately 76% of the
Company's total assets. The composition of the Company's loan
portfolio at June 30, 1995 follows: commercial and commercial
mortgage 54%, residential mortgage 29%, consumer 11%, credit card
3% and construction 3%.
The Company's loans increased $166.9 million, or 21%, to
$971.4 million at June 30, 1995 from $804.5 million at June 30,
1994. This increase resulted from internal growth. This
increase was net of $59 million of mortgage loans sold, which
were predominantly current production, fixed rate mortgage loans,
and the credit card Securitization.
The Company has experienced significant growth in its
commercial and commercial mortgage loans over the past several
years. Furthermore, these loans constitute approximately 54% of
the Company's total loans. There are certain risks inherent in
making all loans, including risks resulting from uncertainties as
to the future value of collateral, risks resulting from changes
in economic and industry conditions and risks inherent in dealing
with individual borrowers. However, commercial, multi-family
mortgage and commercial mortgage loans are generally more risky
than one-to-four family or consumer loans because they are unique
in character, are generally larger in amount and are dependent
upon the business' generating cash to service the loan.
The Company had loans to 39 borrowers having principal
amounts ranging from $2 million to $5 million, which loans
accounted for $112.5 million, or 13%, of the Company's loan
portfolio in the first quarter of 1995. The Company had loans to
ten borrowers having principal amounts in excess of $5 million,
which loans accounted for $65.8 million, or 7%, of the Company s
loan portfolio in the first quarter of 1995. Any material
deterioration in the quality of any of these larger loans could
have a significant impact on the Company's earnings.
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<PAGE>
For the first six months of 1995, the Company's loans
averaged $913.9 million with a yield of 9.58%, compared with
$689.4 million and a yield of 8.76% for the same period of 1994.
The interest rates charged on loans vary with the degree of risk
and the maturity and amount of the loan. Competitive pressures,
money market rates, availability of funds, and government
regulations also influence interest rates. The increase in loan
yield was offset by the upward repricing of interest-bearing
deposits.
In June 1995, Carolina First Bank received an "outstanding"
rating, the highest level attainable, for its Community
Reinvestment Act ("CRA") performance from the FDIC. The CRA
examination was conducted in December 1994.
Allowance for Loan Losses
Management maintains an allowance for loan losses which it
believes is adequate to cover possible losses in the loan
portfolio. However, management's judgment is based upon a number
of assumptions about future events which are believed to be
reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional increases
in the allowance for loan losses will not be required.
The allowance for loan losses is established through charges
in the form of a provision for loan losses loan. Loan losses and
recoveries are charged or credited directly to the allowance. The
amount charged to the provision for loan losses by the Company is
based on management's judgment as to the amount required to maintain
an allowance adequate to provide for potential losses in the
Company's loan portfolio. The level of this allowance is dependent
upon the total amount of past due loans, general economic conditions
and management's assessment of potential losses.
In addition, various regulatory agencies, as a part of their
examination process, periodically review Carolina First Bank's
allowance for loan losses and real estate owned. Such agencies
may require Carolina First Bank to recognize changes to the
allowance based on their judgments about information available to
them at the time of their examination.
The Company attempts to deal with repayment risks through
the establishment of, and adherence to, internal credit policies.
These policies include officer and customer limits, periodic
documentation examination and follow-up procedures for any
exceptions to credit policies. A summary of the Company's
approach to managing credit risk is provided below in the "Asset
Quality" section.
At June 30, 1995, the Company had $318,000 in non-accruing
and restructured loans and $2.7 million in loans greater than
ninety days past due on which interest was still being accrued.
This compares with $2.7 million and $1.6 million, respectively,
at June 30, 1994. Nonperforming assets as a percentage of loans
and other real estate owned were 0.27% and 0.52% at June 30, 1995
and 1994, respectively. Charge-offs as a percentage of average
loans during the first six months of 1995 were 0.46%, compared
with 0.29% for the first six months of 1994. The increase
resulted principally from charge-offs associated with credit card
receivables. These asset quality measures compare favorably to
the Company's peer group.
The allowance for loan losses totaled $8.3 million, or 0.85%
of total loans, at the end of June 1995, compared with $6.9
million, or 0.86% of total loans, at the end of June 1994. The
allowance for loan losses as a percentage of non-performing loans
was 2,602% and 257% as of June 30, 1995 and 1994,
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<PAGE>
respectively. The following table presents changes in the allowance
for loan losses:
($ in thousands)
Balance at 12/31/94 $6,002
Provision for loan losses 4,390
Charge-offs (2,263)
Recoveries 146
Balance at 6/30/95 $8,275
Effective January 1, 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards
("SFAS") 114, Accounting by Creditors for Impairment of a Loan .
Under the new standard, the Company must value all specifically-
reviewed loans for which it is probable that the Company will be
unable to collect all amounts due (principal and interest)
according to the terms of the loan agreement on the loan's
discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain collateral
dependent loans.
At June 30, 1995, the recorded investment in loans that were
considered to be impaired under SFAS 114 was $318,000. The
related allowance for these impaired loans was $129,000. The
average recorded investment and foregone interest on impaired
loans during the six months ended June 30, 1995 was approximately
$423,000 and $26,000, respectively. For the six months ended
June 30, 1995, the Company recognized interest income on impaired
loans of $40,000, none of which was recognized using the cash
method of income recognition.
Securities
Debt securities held as assets are classified as investment
securities, securities available for sale or trading securities.
Effective January 1, 1994, the Company adopted SFAS 115,
"Accounting for Certain Investments in Debt and Equity
Securities." Securities classified as investments are carried at
cost, adjusted for the amortization of premiums and the accretion
of discounts. In order to qualify as an investment asset, the
Company must have the ability and a positive intention to hold
them to maturity. Securities available for sale are carried at
market value with unrealized gains or losses reported in
shareholders' equity. These securities may be disposed of if
management believes that the sale would provide the Company and
its subsidiaries with increased liquidity or, based upon
prevailing or projected economic conditions, that such sales
would be a safe and sound banking practice and in the best
interest of the stockholders. Trading securities are carried at
market value with adjustments for unrealized gains or losses
reported in noninterest income. The Company's policy is to
acquire trading securities only to facilitate their sale to
customers.
The Company's subsidiaries are generally limited to
investments in (i) United States Treasury securities or United
States Government guaranteed securities, (ii) securities of
United States Government agencies, (iii) mortgage-backed
securities, (iv) general obligation municipal bonds and revenue
bonds which are investment grade rated and meet certain other
standards, and (v) money market instruments which are investment
grade rated and meet certain other standards.
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<PAGE>
During the first quarter of 1993, the Company received
approval to establish dealer bank operations to sell United
States Treasury, Federal agency and municipal bonds to
individuals, corporations and municipalities through its
investments division. Income from the Company's dealer activity
is not material.
At June 30, 1995, the Company's total investment portfolio
had a book value of $156.1 million and a market value of $155.0
million for an unrealized net loss of $1.1 million. The
investment portfolio has a weighted average maturity of
approximately 1.9 years. Securities (i.e., investment
securities, securities available for sale and trading securities)
averaged $139.0 million in the first six months of 1995, 8% below
the first six month 1994 average of $151.0 million. The average
portfolio yield increased to 5.77% for the first six months of
1995 from 4.78% for the first six months of 1994. The portfolio
yield increased due to a rising interest rate environment. At
June 30, 1995, securities totaled $155.9 million, up $6.7 million
from the $149.2 million invested as of the second quarter end
1994.
Other Assets
At June 30, 1995, other assets included other real estate
owned of $2.3 million and intangible assets of $31.9 million.
The intangible assets balance is attributable to goodwill of $8.5
million, core deposit balance premiums of $10.5 million, excess
and purchased mortgage servicing rights of $12.5 million and
purchased credit card premiums of $311,000.
Deposits
Carolina First Banks' primary source of funds for loans and
investments is its deposits which are gathered through Carolina
First Bank's branch network. Competition for deposit accounts is
primarily based on the interest rates paid thereon and the
convenience of and the services offered by the branch locations.
The Company's pricing policy with respect to deposits takes into
account the liquidity needs of the Company, the direction and
levels of interest rates, and local market conditions.
Certificates of deposit in amounts in excess of $100,000 are held
primarily by customers in the Company's market areas. The
Company does not believe that it has any brokered deposits.
During the first six months of 1995, interest-bearing
liabilities averaged $981.4 million, compared with $800.2 million
for the comparable period of 1994. This increase resulted
principally from branch acquisitions. The average interest rates
were 4.65% and 3.58% for the first six months of 1995 and 1994,
respectively. At June 30, 1995, interest-bearing deposits
comprised approximately 87% of total deposits and 85% of
interest-bearing liabilities. Starting in 1994, the Company
modified its funding strategy to rely more on advances from the
Federal Home Loan Bank (the "FHLB") because management determined
that, due to increased competition for deposits, the marginal
cost of borrowing from the FHLB is lower that the marginal cost
of raising deposits. At June 30, 1995, FHLB advances totaled $65
million, compared with $18 million at June 30, 1994.
The Company uses its deposit base as its primary source of
funds. Deposits grew 8% to $1.02 billion at June 30, 1995 from
$945.2 million at June 30, 1994. Internal growth generated the
$73.1 million in new deposits. During the first six months of
1995, total interest-bearing deposits averaged $867.1 million
with a rate of 4.42%, compared with $762.8 million with a rate of
3.57% in 1994. As the level of interest rates continued to rise
in 1994, the Company repriced deposits more slowly than the
increases in
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<PAGE>
the yields on earning assets. During the first half
of 1995, deposit pricing was very competitive in Carolina First
Bank's market areas, resulting in upward pressure on deposit
interest rates.
Average noninterest-bearing deposits, which increased 40%
during the year, increased to 12.1% of average total deposits in
the first six months of 1995 from 11.2% in the first six months
of 1994. This increase was attributable to new accounts from
commercial loan customers and escrow balances related to mortgage
servicing operations.
The Company's core deposit base consists of consumer time
deposits, savings, NOW accounts, money market accounts and
checking accounts. Although such core deposits are becoming
increasingly interest sensitive for both the Company and the
industry as a whole, such core deposits continue to provide the
Company with a large and stable source of funds. Core deposits
as a percentage of average total deposits averaged approximately
87% for the first six months of 1995. The Company closely
monitors its reliance on certificates of deposit greater than
$100,000, which are generally considered less stable and less
reliable than core deposits.
Capital Resources and Dividends
The Company's capital needs have been met principally
through public offerings of common stock, preferred stock and
subordinated notes and through the retention of earnings. In
addition, the Company issued capital stock in connection with the
acquisitions of CF Savings Bank, CF Mortgage, ACNB and MNB.
The Company's initial public offering in 1986 raised $15.3
million in common equity and, to date, represents the largest
amount of initial equity raised in connection with the startup of
a financial institution in South Carolina. Other public
offerings of capital stock include the offering of the 8.32%
Cumulative Convertible Preferred Stock ("Series 1992 Preferred
Stock") in May 1992, which raised $10.3 million, the offering of
the 7.50% Noncumulative Convertible Preferred Stock Series
("Series 1993 Preferred Stock") in March 1993, which raised $14.5
million, and the offering of the 7.32% Noncumulative Convertible
Preferred Stock Series 1994 ("Series 1994 Preferred Stock") in
April 1994, which raised $21.4 million. In December 1993, the
Company redeemed the Series 1992 Preferred Stock. In connection
with such redemption, substantially all of the outstanding shares
of Series 1992 Preferred Stock were converted into 1,089,674
shares of Common Stock.
On April 10, 1995, the Company completed its acquisition of
ACNB. In connection with this acquisition, ACNB was merged into
Carolina First Bank, and the Company issued 452,658 shares of the
Company's Common Stock to the ACNB shareholders. On June 30,
1995, the Company completed its acquisition of MNB. In
connection with this acquisition, MNB was merged into Carolina
First Bank, and the Company issued 584,968 shares of the
Company's Common Stock to the MNB shareholders.
On May 18, 1995, the Company completed a $26.5 million
public offering of its Notes. The Notes, which are due on
September 1, 2005, pay interest quarterly at an annual rate of
9.00%. The Notes qualify as Tier 2 capital. A substantial
portion of the proceeds from the sale of the Notes was
contributed to Carolina First Bank to provide additional capital
to support internal growth and acquisitions and for working
capital purposes.
Risk-based capital guidelines for financial institutions
adopted by the regulatory authorities went
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<PAGE>
into effect after December 31, 1991. The risk-based capital rules
are designed to make regulatory capital requirements more sensitive
to differences in asset risk profile among financial institutions,
to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. However, the guidelines
require that intangible assets be deducted when computing risk-
based capital ratios. Acquisitions accounted for using the
purchase method of accounting generally create intangible assets.
Consequently, the Company's ability to make cash acquisitions in
the future using the purchase method of accounting may be
adversely affected. Intangible assets created as a result of the
purchase method of accounting also reduce the Company's tangible
book value. The ability of the Company to make acquisitions
using the pooling of interests method of accounting will not be
affected by the guidelines. Acquisitions using the pooling of
interests method of accounting involve the issuance of equity
securities in exchange for the securities of the acquired
company.
Total shareholders' equity decreased $3.5 million, or 4%, to
$90.1 million at June 30, 1995 from $93.6 million at June 30,
1994. This change primarily reflects the fourth quarter 1994
one-time after-tax restructuring charge of $9.4 million and the
payment of dividends, both of which were partially offset by the
retention of earnings.
Book value per share at June 30, 1995 and 1994 was $8.61 and
$9.23, respectively. The decline in book value was attributable
to the one-time 1994 restructuring charges. Tangible book value
per share at June 30, 1995 and 1994 was $5.51 and $6.39,
respectively. Tangible book value was significantly below book
value as a result of the purchase premiums associated with branch
acquisitions and the purchase of CF Mortgage. Tangible book
value declined during 1994 as a result of the addition of
intangible assets related to the branch acquisitions and
reclassification of loan premiums as intangible assets.
Under the capital guidelines of the Board of Governors of
the Federal Reserve (the "Federal Reserve Board") and the Federal
Deposit Insurance Corporation ("FDIC"), the Company and Carolina
First Bank are currently required to maintain a minimum risk-
based total capital ratio of 8%, with at least 4% being Tier 1
capital. Tier 1 capital consists of common stockholders equity,
qualifying perpetual preferred stock and minority interest in
equity accounts of consolidated subsidiaries, less goodwill.
Banks and bank holding companies must maintain a minimum Tier 1
leverage ratio (Tier 1 capital to total assets less goodwill and
other intangibles) of at least 3%, but this minimum ratio is
increased by 100 to 200 basis points for other than the highest-
rated institutions.
Effective January 1, 1993, the FDIC replaced the uniform
insurance assessment rate with a transitional risk-based
assessment schedule (which is required by FDICIA to be fully
effective by January 1994), having assessments ranging from 0.23%
to 0.31% of an institution's average assessment base. The actual
assessment to be paid is based on the institution's assessment
risk classification, which will be determined based on (i)
whether the institution is considered "well capitalized,"
"adequately capitalized" or "undercapitalized," as such terms
have been defined in applicable federal regulations adopted to
implement prompt corrective action provisions of FDICIA, and (ii)
whether such institution is considered by its supervisory agency
to be financially sound or to have supervisory concerns. See
Earnings Review - Noninterest Expenses for a discussion of a
reduction in the FDIC insurance assessment for BIF-insured
deposits.
At June 30, 1995, the Company and Carolina First Bank were
in compliance with each of the applicable regulatory capital
requirements and exceeded the "well capitalized" regulatory
guidelines. Carolina First Bank's risk-based insurance
assessment has been set at 0.26% of its average assessment
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<PAGE>
base for BIF-insured deposits, with a reduction to 0.04% approved by
the FDIC, and 0.23% of its average assessment base for SAIF-
insured deposits. Approximately 23% of Carolina First Bank s
deposits are insured through the SAIF. See Earnings Review -
Noninterest Expenses. The following table sets forth various
capital ratios for the Company and Carolina First Bank.
<TABLE>
<CAPTION>
Capital Ratios
As of Well Capitalized Adequately Capitalized
6/30/95 Requirement Requirement
<S> <C> <C> <C>
Company:
Total Risk-based Capital 10.53% 10.0% 8.0%
Tier 1 Risk-based Capital 7.19 6.0 4.0
Leverage Ratio 5.67 5.0 4.0
Carolina First Bank:
Total Risk-based Capital 10.08 10.0 8.0
Tier 1 Risk-based Capital 9.24 6.0 4.0
Leverage Ratio 7.25 5.0 4.0
</TABLE>
The Company and Carolina First Bank remain parties to that
certain Capital Maintenance Commitment and Guaranty Agreement
discussed in the Company's previous filings with the Commission.
The Company and Carolina First Bank are in compliance with the
terms of the agreement.
The Company and its subsidiaries are subject to certain
regulatory restrictions on the amount of dividends they are
permitted to pay.
In each year from 1989 through 1994, the Company issued 5%
common stock dividends to common stockholders. At its June 1995
meeting, the Board of Directors of the Company declared the
issuance of a 5% common stock dividend on August 15, 1995 to
common shareholders of record as of August 1, 1995. The Company
has paid all scheduled cash dividends on the Series 1993
Preferred Stock, Series 1993B Preferred Stock and Series 1994
Preferred Stock since their respective issuances.
In November 1993, the Board of Directors initiated a regular
quarterly cash dividend of $0.05 per share payable on the Common
Stock, the first of which was paid on February 1, 1994. Cash
dividends have been paid on a quarterly basis since the
initiation of the cash dividend. The Board of Directors
increased the quarterly cash dividend to $0.06 beginning in the
first quarter of 1995. The Company presently intends to continue
to pay this quarterly cash dividend on the Common Stock; however,
future dividends will depend upon the Company's financial
performance and capital requirements.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the
Company monitors and controls the mix and maturities of its
assets and liabilities. The essential purposes of
asset/liability management are to ensure adequate liquidity and
to maintain an appropriate balance between interest sensitive
assets and liabilities. Liquidity management involves meeting
the cash flow requirements of the Company. These
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<PAGE>
cash flow requirements primarily involve withdrawals of deposits,
extensions of credit, payment of operating expenses and repayment
of purchased funds. The Company's principal sources of funds for
liquidity purposes are customer deposits, principal and interest
payments on loans, maturities and sales of debt securities,
temporary investments and earnings. Temporary investments
averaged 0.74% and 2.00% of earning assets in the first six
months of 1995 and 1994, respectively. Management believes that
the Company maintains an adequate level of liquidity by retaining
liquid assets and other assets that can easily be converted into
cash, and by maintaining access to alternate sources of funds,
including federal funds purchased from correspondent banks and
borrowing from the FHLB. The Company is considering a
sale/leaseback transaction for a portion of its owned properties,
which would provide approximately $12 million in liquidity. This
transaction is merely under consideration and may or may not
occur.
The liquidity ratio is an indication of a company's ability
to meet its short-term funding obligations. FDIC examiners
suggest that a commercial bank maintain a liquidity ratio of
between 20% and 25%. At June 30, 1995, Carolina First Bank's
liquidity ratio was approximately 15%. At June 30, 1995,
Carolina First Bank had unused short-term lines of credit
totaling approximately $19.7 million. All of these lenders have
reserved the right to withdraw these lines of credit at their
option. In addition, Carolina First Bank has access to borrowing
from the FHLB. At June 30, 1995, unused borrowing capacity from
the FHLB totaled $70 million. Management believes that these
sources are adequate to meet its liquidity needs.
In 1994, the Company modified its funding strategy to rely
more on advances from the FHLB because management determined
that, due to increased competition for deposits, the marginal
cost of borrowing from the FHLB is lower than the marginal cost
of raising deposits. At June 30, 1995, FHLB advances totaled $65
million, compared with $18 million at June 30, 1994.
The Company has certain cash needs, including general
operating expenses and the payment of dividends and interest on
borrowings. The Company generates cash to meet these needs
primarily through management fees and dividends paid to it by its
subsidiaries and secondarily from existing cash reserves, sales
of available for sale securities, interest income on its
investment assets and certain other vehicles.
The interest sensitivity gap is the difference between total
interest sensitive assets and liabilities in a given time period.
The objective of interest sensitivity management is to maintain
reasonably stable growth in net interest income despite changes
in market interest rates by maintaining the proper mix of
interest sensitive assets and liabilities. Over the past several
years, the environment in which financial institutions operate
has been characterized by volatile interest rates and greater
reliance on market-sensitive deposits, increasing both the
importance and the difficulty of interest sensitivity management.
Management seeks to maintain a general equilibrium between
interest sensitive assets and liabilities in order to insulate
net interest income from significant adverse changes in market
rates.
The Company's Asset/Liability Management Committee uses an
asset/liability simulation model which quantifies balance sheet
and earnings variations under different interest rate
environments to measure and manage interest rate risk.
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<PAGE>
ASSET QUALITY
Prudent risk management involves assessing risk and managing
it effectively. Certain credit risks are inherent in making
loans, particularly commercial, real estate and consumer loans.
The Company attempts to manage credit risks by adhering to
internal credit policies and procedures. These policies and
procedures include a multi-layered loan approval process, officer
and customer limits, periodic documentation examination and
follow-up procedures for any exceptions to credit policies.
Loans are assigned a grade and those that are determined to
involve more than normal credit risk are placed in a special
review status. Loans that are placed in special review status
are required to have a plan under which they will be either
repaid or restructured in a way that reduces credit risk. Loans
in this special review status are reviewed monthly by the loan
committee of the Board of Directors.
As demonstrated by the following analytical measures of
asset quality, management believes the Company has effectively
managed its credit risk. Net loan charge-offs, including credit
card receivables, totaled $2.1 million in the first six months of
1995 and $1.0 million in the first six months of 1994, or 0.46%
and 0.29%, respectively, as a percentage of average loans.
Nonperforming assets as a percentage of loans and other real
estate owned were 0.27% and 0.52% as of June 30, 1995 and 1994,
respectively.
INDUSTRY DEVELOPMENTS
Certain recently-enacted and proposed legislation could have
an effect on both the costs of doing business and the competitive
factors facing the financial institutions industry. The Company
is unable at this time to assess the impact of this legislation
on its financial condition or operations. See "Capital Resources
and Dividends."
At its August 1995 meeting, the FDIC approved a reduction in
the insurance assessments for BIF deposits. This reduction will
decrease Carolina First Bank's insurance assessment for BIF
deposits from 0.26% to 0.04% of the average assessment base. The
implementation date for the reduction has not been set, but is
expected to be retroactive to the second quarter of 1995. The
FDIC insurance assessment reduction applies only to BIF-insured
deposits and does not include deposits insured by the SAIF. In
connection with the merger of CF Savings Bank into Carolina First
Bank and Carolina First Bank's assumption of other SAIF-insured
deposits in connection with various acquisitions, approximately
23%, or $223 million as of March 31, 1995, of Carolina First
Bank's total deposits are subject to SAIF insurance assessments
imposed by the FDIC. The SAIF is underfunded and various
proposals, including a one-time charge assessed on all SAIF-
insured deposits, are being considered by regulators and
lawmakers to recapitalize the SAIF. No final decision on the
future of SAIF has been made at this time. The Company is not in
a position to assess this issue, however, it is possible that, as
a result of regulatory actions, the Company, like all other SAIF
members, could incur material charges with respect to its SAIF-
insured deposits.
20
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
On October 31, 1994, J.W. Charles Clearing Corp. filed
a lawsuit against Carolina First Bank in the Court of
Common Pleas in Lexington County, South Carolina. Such
action, in general, claims that Carolina First Bank
improperly paid approximately $600,000 in checks to
Harold McCarley and/or McCarley and Associates, Inc.
The complaint seeks actual and punitive damages in an
amount to be determined by a jury, plus interest on the
damages and other costs. Carolina First Bank has
answered the complaint and is vigorously defending such
complaint. Carolina First Bank believes that there are
valid defenses available to it. In connection with the
litigation, Carolina First bank also expects to make a
claim under insurance policies for any losses it may
suffer which, if determined to cover the loss, could
pay for substantially all of the actual damages, if
any, determined to be appropriate by a jury. However,
no assurance can be given at this time regarding
whether it will be determined that any losses suffered
in this litigation will be covered by the insurance
policy. Furthermore, the Company is not in a position
at this time to assess the likely outcome of the
litigation or any damages for which it may become
liable.
ITEM 2 CHANGE IN SECURITIES
On May 18, 1995, the Company completed a $26.5 million
public offering of its Notes. The Notes, which are due
on September 1, 2005, pay interest quarterly at an
annual rate of 9.00%. The Notes qualify as Tier 2
capital. The terms of the Notes provide that upon an
"event of default" as defined in the indenture entered
into by Carolina First Bank and First American National
Bank, as Trustee, no dividends may be paid on any
outstanding equity securities of the Company until such
"event of default" is remedied. An "event of default"
includes, among other things, the failure to pay
interest and principal on the Notes when due.
Accordingly, the Notes are senior to all outstanding
equity securities of the Company, including with
respect to payment of dividends or interest (as the
case may be) and upon liquidation. References made to
the form of Note and Indenture filed with the
Commission as Exhibits 4.1 and 4.2 to the Company's
Form 10-Q for the quarterly period ended March 31,
1995, the terms of which are incorporated herein by
reference.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
21
<PAGE>
PART II
(Continued)
ITEM 5 OTHER INFORMATION
Completed Acquisitions
On April 10, 1995, the Company completed its
acquisition of ACNB. At March 31, 1995, ACNB had two
locations and approximately $39 million in assets, $35
million in deposits and $30 million in loans. In
connection with this acquisition, ACNB was merged into
Carolina First Bank, and the Company issued 452,658
shares of the Company's $1 par value common stock
( Common Stock ) to the ACNB shareholders. The
transaction was accounted for as a pooling of
interests. All financial information contained in this
filing includes the results of ACNB for all periods
presented.
On June 30, 1995, the Company completed its acquisition
of MNB. At June 30, 1995, MNB had three locations and
approximately $44 million in assets, $40 million in
deposits and $26 million in loans. In connection with
this acquisition, MNB was merged into Carolina First
Bank, and the Company issued 584,968 shares of the
Company's $1 par value common stock ( Common Stock )
and cash in lieu of fractional shares to the MNB
shareholders. The transaction was accounted for as a
pooling of interests. All financial information
contained in this filing includes the results of MNB
for all periods presented.
Purchase of Mortgage Servicing Rights
On June 6, 1995, Carolina First Bank entered into an
agreement with HomeBanc to purchase mortgage servicing
rights for 9,995 loans having an aggregate principal
balance of approximately $933 million. The purchase
price for the servicing was approximately $13 million.
In connection with the transaction, Carolina First Bank
received a letter of credit equal to 5% of the purchase
price, which can be drawn upon by Carolina First Bank
in certain instances, including for breaches of
warranties by HomeBanc. HomeBanc is subservicing these
loans until August 1995.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Mortgage Servicing Purchase and Sale agreement dated June 6,
1995.
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
27.1 Financial Data Schedules.
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K dated April
10, 1995 and June 30, 1995.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Carolina First Corporation
/S/ William S. Hummers, III
William S. Hummers, III
Executive Vice President,
Secretary
(Principal Financial and
Accounting Officer)
23
<PAGE>
MORTGAGE SERVICING
PURCHASE AND SALE AGREEMENT
HOMEBANC MORTGAGE CORPORATION
AND
CAROLINA FIRST BANK
June 6, 1995
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . 1
1.2 Singular/Plural; Gender; Captions . . . . . . . . 7
ARTICLE 2
PURCHASE AND SALE OF SERVICING
2.1 Purchase and Sale . . . . . . . . . . . . . . . . 8
2.2 Assumption . . . . . . . . . . . . . . . . . . . 8
2.3 Purchase Price . . . . . . . . . . . . . . . . . 9
2.4 Payment . . . . . . . . . . . . . . . . . . . . . 9
2.5 Adjustments . . . . . . . . . . . . . . . . . . . 10
2.6 Default Interest . . . . . . . . . . . . . . . . 11
ARTICLE 3
COVENANTS
3.1 Cooperation . . . . . . . . . . . . . . . . . . . 11
3.2 Access . . . . . . . . . . . . . . . . . . . . . 12
3.3 Confidentiality . . . . . . . . . . . . . . . . . 12
3.4 Consents . . . . . . . . . . . . . . . . . . . . 12
3.5 Solicitation . . . . . . . . . . . . . . . . . . 13
3.6 Mortgage Payments Received Before the Transfer
Date . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Notice to Mortgagors, Insurers, Etc. . . . . . . 14
3.8 Interest on Escrow Accounts . . . . . . . . . . . 15
3.9 Assignments . . . . . . . . . . . . . . . . . . . 15
3.10 Advances . . . . . . . . . . . . . . . . . . . . 16
3.11 Escrow Account Balances . . . . . . . . . . . . . 17
3.12 Delivery of Loan Documents and Servicing
Records . . . . . . . . . . . . . . . . . . . . . 18
3.13 Document Custodian . . . . . . . . . . . . . . . 18
3.14 Investor Reporting . . . . . . . . . . . . . . . 18
3.15 Mortgage Payments and Correspondence Received
After
Transfer Date . . . . . . . . . . . . . . . . . . 18
3.16 Costs and Expenses . . . . . . . . . . . . . . . 19
-i-
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 Organization . . . . . . . . . . . . . . . . . . 20
4.2 Authority . . . . . . . . . . . . . . . . . . . . 20
4.3 Enforceability . . . . . . . . . . . . . . . . . 21
4.4 No Conflicts . . . . . . . . . . . . . . . . . . 21
4.5 Title . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Compliance . . . . . . . . . . . . . . . . . . . 22
4.7 Mortgages . . . . . . . . . . . . . . . . . . . . 22
4.8 Accounts Receivable . . . . . . . . . . . . . . . 24
4.9 Broker . . . . . . . . . . . . . . . . . . . . . 24
4.10 Bulk Transfer . . . . . . . . . . . . . . . . . . 25
4.11 No Litigation Pending . . . . . . . . . . . . . . 25
4.12 No Consent or Notice Required . . . . . . . . . . 25
4.13 No Inquiries . . . . . . . . . . . . . . . . . . 26
4.14 Notice of Relief Requested Pursuant to the
Soldiers
and Sailors Relief Act of 1940 . . . . . . . . . 26
4.15 Disclosure . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Organization . . . . . . . . . . . . . . . . . . 27
5.2 Authority . . . . . . . . . . . . . . . . . . . . 27
5.3 Enforceability . . . . . . . . . . . . . . . . . 27
5.4 No Conflicts . . . . . . . . . . . . . . . . . . 28
5.5 Compliance . . . . . . . . . . . . . . . . . . . 28
5.6 Servicing . . . . . . . . . . . . . . . . . . . . 28
5.7 Broker . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification by Seller . . . . . . . . . . . . 29
6.2 Indemnification by Purchaser . . . . . . . . . . 30
6.3 Loss . . . . . . . . . . . . . . . . . . . . . . 31
6.4 Mitigation . . . . . . . . . . . . . . . . . . . 31
6.5 Notice . . . . . . . . . . . . . . . . . . . . . 32
6.6 Inspection . . . . . . . . . . . . . . . . . . . 32
6.7 Defense . . . . . . . . . . . . . . . . . . . . . 33
6.8 Opportunity to Cure . . . . . . . . . . . . . . . 34
6.9 Recoupment . . . . . . . . . . . . . . . . . . . 34
6.10 Survival . . . . . . . . . . . . . . . . . . . . 34
6.11 Escrow; Sole Remedy . . . . . . . . . . . . . . . 35
ii
<PAGE>
ARTICLE 7
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
7.1 Accuracy of Representations and Warranties . . . 36
7.2 Compliance with Conditions . . . . . . . . . . . 36
7.3 No Actions . . . . . . . . . . . . . . . . . . . 36
7.4 Interim Servicing Agreement . . . . . . . . . . . 37
7.5 Consents and Approvals . . . . . . . . . . . . . 37
7.6 Sale Documents . . . . . . . . . . . . . . . . . 37
7.7. Transfer Documents . . . . . . . . . . . . . . . 38
ARTICLE 8
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
8.1 Accuracy of Representations and Warranties . . . 39
8.2 Compliance with Conditions . . . . . . . . . . . 39
8.3 No Actions . . . . . . . . . . . . . . . . . . . 39
8.4 Interim Servicing Agreement . . . . . . . . . . . 40
8.5 Consents and Approvals . . . . . . . . . . . . . 40
8.6 Sale Documents . . . . . . . . . . . . . . . . . 40
8.7 Transfer Documents . . . . . . . . . . . . . . . 41
ARTICLE 9
TERMINATION
9.1 Events of Termination . . . . . . . . . . . . . . 42
9.2 Requirements and Effect of Termination . . . . . 43
ARTICLE 10
MISCELLANEOUS
10.1 Notices . . . . . . . . . . . . . . . . . . . . . 44
10.2 Arbitration . . . . . . . . . . . . . . . . . . . 46
10.3 Entire Agreement; Amendment . . . . . . . . . . . 47
10.4 Binding Effect; Assignment . . . . . . . . . . . 47
10.5 Counterparts . . . . . . . . . . . . . . . . . . 48
10.6 Governing Law . . . . . . . . . . . . . . . . . . 48
-iii-
<PAGE>
MORTGAGE SERVICING PURCHASE AND SALE AGREEMENT
This Mortgage Servicing Purchase and Sale Agreement is
entered into this 6th day of June 1995, by and between HomeBanc
Mortgage Corporation, a Georgia corporation ("Seller") and
Carolina First Bank, a South Carolina banking corporation
("Purchaser").
W I T N E S S E T H :
WHEREAS, Seller owns the right to service the Mortgages; and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, all right, title and interest in
and to the Servicing in accordance with the terms and conditions
of this Agreement;
NOW, THEREFORE, in consideration of the mutual benefits to
be derived from this Agreement and of the representations,
warranties, conditions and promises hereinafter contained, Seller
and Purchaser hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. For the purposes of this Agreement and
any amendments hereto, the following terms shall have the
following meanings:
<PAGE>
"Accrual Rate": A simple interest rate per annum, adjusted
weekly, equal to the Federal Funds Rate.
"Advances": Payments of principal, interest, taxes,
insurance premiums, ground rents, assessments, condominium
charges and similar charges advanced by Seller, with respect to
the Mortgages as required by the Servicing Agreements.
"Agency": FHLMC or FNMA, as applicable.
"Agreement": This Mortgage Servicing Purchase and Sale
Agreement and all exhibits and schedules attached hereto or
delivered pursuant hereto.
"Business Day": Any day other than a Saturday, Sunday, or
any other day on which banking institutions in the State of
Georgia or South Carolina are authorized or obligated by law or
by executive order to be closed.
"Confidentiality Agreement": That certain Confidentiality
Agreement between Purchaser and Seller dated May 2, 1995.
"Cut Off Date": May 31, 1995.
2
<PAGE>
"Delinquency Rate": A simple interest rate per annum,
adjusted weekly, equal to the lesser of (i) the Federal Funds
Rate, plus six percent (6%) or (ii) the maximum rate allowed by
law.
"Delinquent Mortgage": A Mortgage (i) with respect to which
the payments by the mortgagor are ninety (90) days or more past
due as of the Cut Off Date, (ii) with respect to which
foreclosure proceedings have been instituted and are pending or
have been completed, or a deed in lieu of foreclosure has been
accepted or is pending, or (iii) with respect to which any
action, suit or processing before a court, governmental agency or
arbitrator has been instituted and is pending (other than (A) any
action, suit or proceeding seeking to recover ad valorem taxes,
and (B) any action, suit or proceeding under any bankruptcy,
reorganization, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction), all of (i), (ii) and (iii)
as of the Cut Off Date. For purposes of this definition,
payments by a mortgagor are considered ninety (90) days past due
on the Cut Off Date when the payments due for three months have
not been received by Seller in full on or before the Cut Off Date
(e.g., a Mortgage is 90 days past due on the Cut Off Date if each
of the payments due on the immediately preceding March 1, April 1
and May 1 has not been received by Seller in full on the Cut Off
Date).
"Earnest Money Deposit": The Three Million Two Hundred
Twenty Five Thousand Two Hundred Fifty Dollar ($3,225,250)
deposit made by Purchaser in Trust Company Bank together with any
interest earned thereon.
3
<PAGE>
"Escrow Accounts": All escrow, impound and custodial
accounts maintained under the Servicing Agreements or otherwise
relating to the Mortgages including, without limitation, all
accounts established for purposes of receiving funds for the
payment of principal and interest, or taxes, insurance premiums,
ground rents, assessments, condominium charges, buy-down funds,
optional insurance funds and other charges relating to the
Mortgages.
"Escrow Agent": Trust Company Bank.
"Escrow Agreement": As defined in Section 6.11.
"Escrowed Funds": As defined in Section 6.11.
"Federal Funds Rate": For each calendar week, the rate of
interest per annum (rounded to the nearest 1/100 of 1%) which is
the weighted average of the rates on overnight federal funds
transactions arranged the first Business Day of each week by
federal funds brokers computed and released by the Federal
Reserve Bank of New York (or any successor) in substantially the
same manner as such Federal Reserve Bank currently computes and
releases the weighted average it refers to as the "Federal Funds
Effective Rate" at the date of this Agreement.
"FHLMC": The Federal Home Loan Mortgage Corporation.
4
<PAGE>
"FNMA: The Federal National Mortgage Association.
"Interim Servicing Agreement": As defined in Section 2.1
hereof.
"Investor": Any Person who owns Mortgages or interests
therein subject to Servicing Agreements and for whom Seller
services the Mortgages.
"Loss": As defined in Section 6.3 hereof.
"Mortgages": Each of those loans secured by a first
priority lien on a 1-4 family residence, the Servicing for which
is to be sold and transferred pursuant to this Agreement and
described generally on EXHIBIT A hereto.
"Person": An individual, corporation, joint venture,
partnership, trust, limited liability company, unincorporated
association, government or any department or agency thereof, or
any other entity.
"PMI": The default insurance provided by private insurance
companies on certain Mortgages.
"Private Investor": Any Investor other than FHLMC or FNMA.
5
<PAGE>
"Purchase Price": As defined in Section 2.3 hereof, subject
to adjustment as provided by Section 2.5 hereof.
"Purchase Price Percentage": As defined in Section 2.3
hereof.
"Purchaser": As defined in the recitals hereof.
"Records": All loan files, insurance files, tax records,
collector records, documents, ledgers, computer printouts and
other records, data or information relating to the Mortgages, the
Escrow Accounts or the Servicing.
"Purchaser Indemnitees": As defined in Section 6.1 hereof.
"Sale Date": June 6, 1995.
"Seller": As defined in the recitals hereof.
"Seller Indemnitee": As defined in Section 6.2 hereof.
"Seller's knowledge" or "best of Seller's knowledge" or
"Purchaser's knowledge" or "best of Purchaser's knowledge": The
actual knowledge of the executive officers of Seller or
Purchaser, as the case may be, or that knowledge any such person
would have obtained upon
6
<PAGE>
a reasonable examination of the records
of Seller in the ordinary course of his or her duties for Seller.
"Servicing": The rights and responsibilities of the Seller
with respect to servicing the Mortgages under the Servicing
Agreements, including, without limitation: (i) the right to
receive servicing fees, management fees, late charges,
insufficient funds fees and other ancillary income; (ii) all
right, title and interest of Seller in the Mortgages; (iii) the
right to hold and administer the Escrow Accounts; and (iv) all
obligations of Seller under the Servicing Agreements.
"Servicing Agreements": The agreements relating to the
rights and obligations of Seller as servicer of the Mortgages and
all other agreements otherwise pertaining to the rights and
obligations of Seller relating to the Mortgages and the
Servicing, including, without limitation, servicing agreements,
guaranty agreements, custodial agreements, indemnity agreements,
repurchase agreements, loan sale agreements, loan participation
agreements and others.
"Transfer Date": August 16, 1995, as to Mortgages serviced
for FHLMC and August 31, 1995, for all other Mortgages.
1.2 Singular/Plural; Gender; Captions. Where the context
so requires or permits, the use of the singular form includes the
plural, and the use of the plural form includes the singular, and
the use of any gender includes any and all genders. The captions
used in this
7
<PAGE>
Agreement are inserted for convenience only and are
in no way intended to describe, interpret, define or limit the
scope or content of this Agreement or any provision hereof.
ARTICLE 2
PURCHASE AND SALE OF SERVICING
2.1 Purchase and Sale. Subject to the terms and conditions
of this Agreement, on the Sale Date Seller shall sell, transfer,
assign and convey to Purchaser, and Purchaser shall acquire from
Seller, all beneficial right, title and interest in and to the
Servicing, free and clear of all liens, charges and encumbrances,
except for customary liens and encumbrances imposed by Investors
pursuant to the Servicing Agreements. On the Sale Date,
Purchaser and Seller shall execute and deliver the Interim
Servicing Agreement substantially in the form of EXHIBIT B hereto
(the "Interim Servicing Agreement") evidencing the sale of such
beneficial right, title and interest and providing for the
servicing of the Mortgages between the Sale Date and the Transfer
Date and the compensation of Seller in connection therewith.
2.2 Assumption. From and after the Sale Date, Purchaser
shall assume the responsibility to service the Mortgages for
which Servicing is transferred hereunder in accordance with the
terms and conditions of the Servicing Agreements. Purchaser
shall not be responsible for any obligations or liabilities of
Seller except those obligations or liabilities specifically set
forth in the Servicing Agreements with respect to the Mortgages
and arising after the Sale Date.
8
<PAGE>
2.3 Purchase Price. The purchase price (the "Purchase
Price") for the Servicing shall be an amount equal to 1.33% (the
"Purchase Price Percentage") of the aggregate unpaid principal
balance on the Cut Off Date of the Mortgages for which Servicing
is sold, excluding the aggregate unpaid principal balance of any
such Mortgages which on the Cut Off Date are Delinquent
Mortgages.
2.4 Payment. The Purchase Price shall be paid by Purchaser
to Seller, as follows:
(a) On the Sale Date, (i) Purchaser shall pay to
Seller by wire transfer of immediately available funds as
instructed by Seller an amount equal to sixty percent (60%) of
the Purchase Price, as determined on the Sale Date based on
Seller's good faith examination of its records pertaining to the
Servicing and the Mortgages, (ii) Purchaser shall cause the
Earnest Money Deposit, excluding any interest earned thereon, to
be released to Seller, and (iii) interest earned on the Earnest
Money Deposit shall be released to Purchaser;
(b) On the second Transfer Date, Purchaser shall pay
to Seller by wire transfer of immediately available funds as
instructed by Seller an amount equal to fifteen percent (15%) of
the Purchase Price, plus interest on that amount from the Sale
Date to the Transfer Date at the Accrual Rate; and
(c) On the other dates specified in Section 2.5
hereof, Seller or Purchaser, as the case may be, shall pay to the
other party the amount of the Purchase Price and interest
9
<PAGE>
adjustments required to be paid thereunder by wire transfer of
immediately available funds as instructed by the receiving party.
2.5 Adjustments.
(a) If at any time within ninety (90) days after the
Transfer Date, the unpaid principal balance of any of the
Mortgages at the Cut Off Date, the status of Mortgages as
Delinquent Mortgages or any other information used in computing
the amount of the Purchase Price shall be found after calculation
of such amount to be incorrect, then the Purchase Price shall be
upwardly or downwardly adjusted, as appropriate, on the basis of
the appropriate information, and Purchaser shall promptly pay to
Seller the remainder of the Purchase Price due and owing plus
interest on such amount from the Sale Date to the date of payment
calculated at the Accrual Rate, or Seller shall promptly
reimburse Purchaser for overpayments of the Purchase Price plus
interest on such amount from the Sale Date to the date of payment
calculated at the Accrual Rate; and
(b) If at any time within twelve (12) months after the
Sale Date, a Private Investor cancels a Servicing Agreement
solely because of the failure of Seller to obtain such Private
Investor's consent (as required by the applicable Servicing
Agreement) to the transfer of Servicing to Purchaser hereunder or
because of Seller's failure to properly service the Mortgages
under the Interim Servicing Agreement, then Seller shall pay to
Purchaser an amount equal to the Purchase Price Percentage (or if
such termination occurs between the Sale Date and the second
Transfer Date, 85% of the Purchase Price Percentage) multiplied
10
<PAGE>
by the unpaid principal balance, as of the date of cancellation
of the Servicing Agreement, of the Mortgage Loans serviced under
the canceled Servicing Agreement (other than Mortgage Loans that
on the Cut Off Date were Delinquent Mortgages). Purchaser shall
promptly pay to Seller any termination fees payable by or on
behalf of the Private Investor upon termination of the Servicing
Agreement to the extent received by Purchaser. Any adjustment
that occurs before the second Transfer Date will be settled at
the second Transfer Date.
2.6 Default Interest. Any payment due to Seller or
Purchaser under this Article 2 that is not made on the due date
thereof shall bear interest from the due date to the date paid at
the Delinquency Rate, and Seller or Purchaser, as the case may
be, shall be entitled to receive such interest in addition to the
payment otherwise due.
ARTICLE 3
COVENANTS
3.1 Cooperation. Seller and Purchaser shall cooperate
fully with each other and their respective counsel and other
representatives and advisors in connection with the steps
required to be taken as part of their respective obligations
under this Agreement.
3.2 Access. Seller shall allow Purchaser and its
attorneys, accountants, consultants and other authorized
representatives full access during normal business hours to
11
<PAGE>
all of the properties, books, contracts, commitments, files, records
and other materials of Seller relating to the Servicing as may
reasonably be requested by Purchaser.
3.3 Confidentiality. Each party understands that certain
information which has been furnished and will be furnished in
connection with this transaction is confidential and proprietary,
and each party agrees that it will maintain the confidentiality
of such information and will not disclose it to others or use it
except in connection with the acquisition contemplated by this
Agreement, without the consent of the party furnishing such
information. Information that is generally known in the industry
concerning a party or among such party's creditors generally or
which has been disclosed to the other party by third parties who
have a right to do so shall not be deemed confidential or
proprietary information for these purposes. If the proposed
acquisition is not consummated, each party agrees to promptly
return to the other all confidential materials, and all copies
thereof, which have been furnished to it in connection with the
transactions contemplated hereby. Purchaser and Seller
acknowledge and agree that the provisions of this Section 3.3 are
in addition to and do not supersede the Confidentiality
Agreement, which shall survive the execution and termination of
this Agreement.
3.4 Consents. Seller and Purchaser shall use their
respective best efforts to obtain, prior to the Transfer Date,
the consents and approvals of Investors and other Persons
required by law or pursuant to contract to consummate the
transfer of Servicing contemplated hereby on the Transfer Date.
All such consents will be obtained without any cost or expense to
Purchaser and will be obtained without any adverse modification
in the terms of any of the
12
<PAGE>
Servicing Agreements or the imposition
of any burdensome provisions or conditions on Purchaser (other
than such provisions or conditions as are customarily imposed by
Investors or other Persons in transactions of this nature).
3.5 Solicitation. From and after the date of this
Agreement, Seller shall not directly solicit mortgagors under the
Mortgages for purposes of refinancing any of the Mortgages. From
the date of this Agreement through the Transfer Date, Purchaser
shall not directly solicit mortgagors under the Mortgages for
purposes of refinancing any of the Mortgages. Nothing in this
Agreement shall prohibit Seller or Purchaser from taking
applications from mortgagors who initiate refinancing action on
their own or from making mass mailings (based on commercially
acquired mailing lists) and newspaper, radio and television
advertisements. If Seller breaches this covenant, Purchaser's
remedy shall be the right to reimbursement of the value of the
Servicing relating to the relevant Mortgages, which will be
deemed to be an amount equal to the Purchase Price Percentage of
the outstanding principal balance of the relevant Mortgages
immediately before refinancing; provided, however, that Purchaser
shall have no right to such reimbursement if the relevant
Mortgage was excluded from the calculation of the Purchase Price
for the Servicing (e.g., by being a Delinquent Mortgage on the
Cut Off Date).
3.6 Mortgage Payments Received Before the Transfer Date.
Prior to the Transfer Date, all payments received by Seller with
respect to each Mortgage shall be properly applied by Seller to
the account of the particular mortgagor. If Purchaser receives
any
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payment on a Mortgage prior to the Transfer Date, Purchaser
shall forward such payment promptly to Seller by overnight mail.
3.7 Notice to Mortgagors, Insurers, Etc.
(a) Seller shall, at Seller's expense, mail to the
mortgagor of each Mortgage, no later than fifteen (15) days
before the Transfer Date, a letter advising the mortgagor of the
transfer of Servicing to Purchaser as required by the Servicing
Agreements and applicable law, the form and content of which
shall have been approved by Purchaser in the exercise of its
reasonable judgment. Purchaser shall, at Purchaser's expense,
mail to the mortgagor of each Mortgage, no sooner than the date
of Seller's notice pursuant to this Section 3.7 and no later than
fifteen (15) days before the Transfer Date, a letter advising the
mortgagor of the transfer of the Servicing to Purchaser as
required by the Servicing Agreements and applicable law, the form
and content of which shall have been approved by Seller in the
exercise of its reasonable judgment; and
(b) Seller shall, at Seller's expense, transmit to the
applicable taxing authorities, tax servicers, and insurance
companies and/or agents, no later than fifteen (15) days before
the Transfer Date, notification of the assignment of the
Servicing to Purchaser and instructions to deliver all notices,
tax bills and insurance statements, as the case may be, to
Purchaser from and after the Transfer Date. Such notification
shall request that any applicable insurance companies and/or
agents make any notations necessary to indicate the changed mortgagee.
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3.8 Interest on Escrow Accounts. Seller shall pay interest
on the Escrow Accounts accrued through the Transfer Date to the
extent interest with respect to such accounts is required to be
paid by law or contract for the benefit of mortgagors under the
Mortgages, and Purchaser shall pay such interest on the Escrow
Accounts accruing from and after the Transfer Date in accordance
with the terms of the Interim Servicing Agreement. Seller shall
deposit the interest earned in the appropriate Escrow Accounts
prior to the Sale Date. Seller shall be responsible for
reporting all interest paid by Seller for the account of
mortgagors under the Mortgages, and Purchaser shall be
responsible for reporting all interest paid by Purchaser for the
account of such mortgagors, to the Internal Revenue Service and
the mortgagors as required by the Internal Revenue Code.
3.9 Assignments.
(a) On or before the Transfer Date, Seller shall
assign to Purchaser, by appropriate endorsements and assignments,
all of Seller's right, title and interest in and to the Servicing
Agreements and the Mortgages, including all related notes,
mortgages, deeds of trust, deeds to secure debt and other
instruments related to the Mortgages as required by the
applicable Investor, and Seller shall also prepare assignments of
the mortgages, deeds of trust and security deeds relating to the
Mortgages from Purchaser to the applicable Investor as required
by the applicable Investor;
(b) On or before the Transfer Date, Seller shall
forward the assignments of mortgages, deeds of trust and deeds to
secure debt from Seller to Purchaser required by
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Section 3.9(a) hereof to appropriate state or local recording
offices, shall cause them to be properly recorded, and shall
provide to Purchaser copies of such executed assignments with a
certification that each assignment has been submitted for
recording;
(c) On the Transfer Date Seller shall deliver to
Purchaser such other appropriately executed and authenticated
instruments of sale, assignment, transfer and conveyance,
including limited powers of attorney, reasonably necessary in
order to accomplish the transfer to Purchaser of all of Seller's
rights related to the Servicing; and
(d) All assignments, endorsements and other
instruments executed by Seller hereunder shall be reasonably
satisfactory in form and substance to Purchaser, and shall be
prepared, executed, filed and recorded (as applicable) at
Seller's sole cost and expense.
3.10 Advances. Purchaser shall provide Seller, on the
Transfer Date, with immediately available funds in an amount
equal to the unreimbursed Advances made by Seller with respect to
the Mortgages prior to the Transfer Date, which were made in the
ordinary course of business in accordance with generally accepted
standards of the mortgage banking business. The amount of such
Advance reimbursement shall be based on Seller's reasonable
estimate of such Advances as of the Transfer Date. Within five
(5) Business Days after the Transfer Date, Seller shall provide
Purchaser with an itemization of all such unreimbursed Advances
made by Seller with respect to the Mortgages prior to the
Transfer Date. Within fifteen (15) Business Days after receipt
of such documentation, Purchaser shall review the accuracy of
Seller's calculations, and if necessary, the amount of such
Advance
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reimbursements shall be adjusted and Purchaser shall pay
to Seller the remainder of such Advance reimbursement due and
owing, if any, or Seller shall reimburse Purchaser for any
overpayments of such Advance reimbursements, as applicable, in
immediately available funds. All Advances to be made after the
Transfer Date with respect to the Mortgages for which Servicing
is transferred to Purchaser shall be the sole responsibility of
the Purchaser, subject to indemnification and reimbursement as
provided elsewhere in this Agreement.
3.11 Escrow Account Balances. Seller shall provide
Purchaser on the Business Day next following the Transfer Date
with immediately available funds in the amount of the Escrow
Account balances associated with the Mortgages for which the
Servicing is transferred to Purchaser, such amount to be based on
Seller's reasonable estimate as of the Transfer Date. Within
five (5) Business Days after the Transfer Date, Seller shall
provide Purchaser with an accounting statement of the actual
Escrow Account balances as of the Transfer Date sufficient to
enable Purchaser to reconcile the amount of such payment with the
accounts of the related Mortgages. Within fifteen (15) Business
Days after receipt of such documentation, Purchaser shall review
the accuracy of Seller's accounting statement of the Escrow
Account balances and, if necessary, the amount of Escrow Account
balances transferred shall be adjusted and Seller shall pay to
Purchaser any additional amounts of Escrow Account balances or
Purchaser shall reimburse Seller for any overpayments of Escrow
Account balances, as applicable, in immediately available funds.
3.12 Delivery of Loan Documents and Servicing Records.
Seller shall deliver to Purchaser, at Seller's expense, on or
before the Transfer Date all Servicing Records in
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Seller's possession relating to each Mortgage, including without
limitation the information set forth in EXHIBIT C hereto. The
information to be transferred by "tape to tape" transmission
shall be delivered to Purchaser by means of a computer tape which
shall be formatted in a manner approved by Purchaser, but
Purchaser shall pay directly, or at Seller's option shall
reimburse Seller, for the cost of any necessary reformatting.
3.13 Document Custodian. Seller shall cooperate with
Purchaser in delivering to Purchaser's document custodian a
complete custodial file for each Mortgage. Each such custodial
file shall contain all documents required by applicable Investor
requirements.
3.14 Investor Reporting. Seller shall make the first
payment following the Transfer Date of principal and interest due
Investors relating to the Mortgages and will pay all related
guaranty fees for that month. Purchaser shall provide Seller the
funds necessary to pay these amounts by wiring immediately
available funds to Seller no later than twenty-four (24) hours
prior to the required remittance date. Seller shall provide a
certified statement verifying the funds to be furnished by
Purchaser pursuant to this Section 3.14 prior to the wire of such
funds by Purchaser.
3.15 Mortgage Payments and Correspondence Received After
Transfer Date. The amount of any Mortgage payments and any
correspondence relating to any of the Mortgages received by
Seller after the Transfer Date shall, if received within 60 days
after the Transfer Date, forthwith be mailed to Purchaser, in the
form received, by U.S. mail and, if received more than 60 days
after the Transfer Date, shall be returned to sender.
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3.16 Costs and Expenses. Costs and expenses incurred in
connection with the transactions contemplated hereby shall be
paid as follows:
(a) Subject to the express provisions of this
Agreement, Seller shall pay all fees and expenses of its brokers
(including Hamilton, Carter, Smith & Co., Incorporated), agents,
representatives, counsel and accountants and shall pay all costs
associated with the transfer of the Servicing to Purchaser,
including, without limitation, transfer fees of Investors,
charges of Seller's custodian(s), costs associated with physical
file transfer to Purchaser and/or Purchaser's document
custodian(s), and all other costs associated with the preparation
and filing of Mortgage assignments or any other transfer
documents, if the transactions contemplated hereby are
consummated; and
(b) Subject to the express provisions of this
Agreement, Purchaser shall pay the expenses incurred by it in
connection with the transactions contemplated hereby, including,
without limitation, the fees and expenses of its brokers, agents,
representatives, counsel and accountants, data conversion
charges, and any charges imposed by Purchaser's custodian for
receipt, retention and other actions relating to Mortgage Records
transferred hereunder. If the transactions contemplated hereby
are consummated, Purchaser shall pay all expenses incurred by it
in connection with its servicing of the Mortgages after the
Transfer Date.
ARTICLE 4
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REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants as follows:
4.1 Organization. Seller is a corporation organized and
validly existing under the laws of Georgia. Seller is properly
licensed and qualified to transact business in all appropriate
jurisdictions with respect to the conduct of all activities
performed with respect to the origination, sale and servicing of
the Mortgages, except where the failure to be so licensed or
qualified would not have a material adverse effect on the
Servicing to be sold hereunder.
4.2 Authority. Seller has all requisite corporate power,
authority and capacity to enter into this Agreement and the
Interim Servicing Agreement and to perform the obligations
required hereunder, thereunder and under the other documents,
instruments and agreements required to be executed by Seller
pursuant hereto and thereto. The execution and delivery of this
Agreement, the Interim Servicing Agreement and all documents,
instruments and agreements required to be executed and delivered
by Seller pursuant hereto and thereto, and the consummation of
the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action of
Seller.
4.3 Enforceability. This Agreement, the Interim Servicing
Agreement and all documents, instruments and agreements required
to be executed and delivered by Seller pursuant hereto and
thereto constitute valid and legally binding obligations of
Seller,
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enforceable in accordance with their respective terms,
except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally and by general
principles of equity.
4.4 No Conflicts. The execution, delivery and performance
by Seller of this Agreement, the Interim Servicing Agreement and
the other agreements and instruments required to be executed,
delivered and performed by Seller pursuant hereto and thereto do
not and will not result in a breach of the terms and conditions
of, or constitute or result in a default under, the articles of
incorporation or bylaws of Seller, or any law, rule, regulation,
judgment, order, writ, injunction, decree, agreement or
instrument or any other restriction or obligation to which Seller
is a party or by which it may be bound or the Servicing
materially affected.
4.5 Title. Seller is the lawful owner of the Servicing,
has the sole right and authority to transfer the Servicing as
contemplated hereby, and is not contractually obligated to sell,
deliver or transfer any rights to the Servicing to any other
Person. The transfer, assignment and delivery of the Servicing
in accordance with the terms and conditions of this Agreement
shall vest in Purchaser all rights as servicer free and clear of
any and all claims, charges, defenses, offsets and encumbrances
of any kind or nature whatsoever, except those customarily
imposed by Investors under the Servicing Agreements.
4.6 Compliance. To the best of Seller's knowledge, Seller
has complied in all material respects with (i) all obligations
under all contracts to which it was or is a party
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relating to the origination, sale and servicing of the Mortgages
and the issuance and sale of the securities for which the Mortgages
serve as collateral, including the Servicing Agreements, all
requirements of Investors, issuers of PMI, and tax servicers,
and (ii) with all applicable laws, rules, regulations, ordinances,
orders, injunctions and decrees, with respect to and which might
affect any of the Mortgages or the Servicing.
4.7 Mortgages. To the best of Seller's knowledge, as to
each Mortgage:
(a) The note, mortgage, deed of trust, deed to secure
debt and other loan documents are genuine, enforceable, duly
executed by a borrower of legal capacity, conform to all
applicable laws and regulations, and properly completed, and all
material documents, including documents pertaining to
underwriting, with respect to such Mortgage required by the
applicable Investor or any issuer of PMI to be in the loan files
related to such Mortgage are contained therein and have been
properly completed and are accurate in all material respects and,
where applicable, executed, attested and notarized;
(b) The security interest granted by the borrower is a
valid first lien on the property described in the note, mortgage,
deed of trust, deed to secure debt and other relevant loan
documents and is enforceable in accordance with its terms and the
laws of the jurisdiction in which the property securing the
Mortgage is located;
(c) No payment of principal of or interest on the
Mortgage has been forgiven, suspended or rescheduled and no
waiver, alteration or modification has been made
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to the terms or provisions of the Mortgage, except with Investor
approval where required and otherwise in accordance with prudent
and customary practices of the mortgage banking industry;
(d) Each Mortgage is covered by a policy of PMI if so
required by the terms of any agreement or any law, rule or
regulation applicable to such Mortgage; Seller has complied in
all material respects with all applicable provisions of the PMI
insurance contract or policy and all laws and regulations related
thereto; and any such insurance contract is in full force and
effect with respect to each such Mortgage required to be so
insured;
(e) All hazard, flood and other insurance policies
required by an Investor or an issuer of PMI to be maintained have
been issued and are in full force and effect; and
(f) All applicable taxes, special assessments, ground
rents, and insurance premiums have been paid when due by Seller.
(g) Escrow Accounts have been established for the
Mortgages as required by an applicable Investor or an issuer of
PMI and such Escrow Accounts have been maintained and
administrated in accordance with those requirements consistent
with prescribed and customary practices of the mortgage banking
industry.
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(h) Seller has not advanced funds (other than in
strict accordance with applicable Investor requirements), or
induced, solicited or knowingly received any advance of funds by
a party other than the mortgagor, directly or indirectly, for the
payment of any amount required under the Mortgage, except for
interest accruing from the date of the Mortgage note or date of
disbursement of the Mortgage loan proceeds, whichever is greater,
to the day which precedes by one month the due date of the first
installment of principal and interest.
(i) In the event the Mortgage constitutes a deed of
trust, a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in the Mortgage, and no fees or expenses are or will become
payable by the Purchaser, or the related Investor, or their
respective successors and assigns to the trustee under the deed
of trust, except in connection with a trustee's sale after
default by the mortgagor.
4.8 Accounts Receivable. To the best of Seller's
knowledge, Seller's Advances are valid and subsisting accounts
receivable owing to Seller and are not subject to any set off or
charges of the account debtors arising from acts or omissions of
Seller.
4.9 Broker. Except for Hamilton, Carter, Smith & Co.,
Incorporated (whose fees shall be paid by Seller), no broker or
finder has acted on behalf of Seller in connection with this
Agreement or the transactions contemplated hereby, and Seller has
not made any agreement to pay any agent, finder, broker or any
other representative any fee or
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commission in the nature of a finder's or originator's fee
arising out of or in connection with the subject matter of this
Agreement.
4.10 Bulk Transfer. The transfer, assignment and conveyance
of the Servicing by Seller pursuant to this Agreement is not
subject to the Uniform Commercial Code - Bulk Transfers as
enacted in Georgia and codified at Article 6 of Title 11 of the
Official Code of Georgia Annotated.
4.11 No Litigation Pending. There is no action, suit
proceeding or investigation (including, but not limited to, any
regulatory enforcement actions, letters of consent or takeover
actions) pending or, to Seller's knowledge, threatened against
Seller which, either in one instance or in the aggregate, may
result in any material adverse change in the business,
operations, financial condition, properties or assets of Seller,
or in any material impairment of the right or ability of Seller
to carry on its business substantially as now conducted, or in
any material liability on the part of Seller, or which would draw
into question the validity of this Agreement or of any action
taken or to be taken in connection with the obligations of Seller
contemplated herein, or which would be likely to materially
impair the value of the Servicing or the ability of Seller to
perform under the terms of this Agreement.
4.12 No Consent or Notice Required. No notice, consent,
approval, authorization or order of any court or governmental
agency or body is required for the execution, delivery and
performance by Seller of or compliance by Seller with this
Agreement or, if required,
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Seller will use its best efforts to
obtain such consent, approval, authorization or order or give
such notice prior to the applicable Transfer Date.
4.13 No Inquiries. Seller has not been the subject of an
audit by an Agency or any other agency of a state or the federal
government or any provider of a PMI policy, which audit
(i) included material allegations of failure to comply with
applicable loan origination, servicing or claims procedures which
were not responded to and resolved with such Agency or other
agency of a state or federal government or any provider of a PMI
policy, or (ii) resulted in a request for repurchase of Mortgages
or indemnification in connection with the Mortgages, except as
set forth on Schedule 4.13 attached hereto.
4.14 Notice of Relief Requested Pursuant to the Soldiers and
Sailors Relief Act of 1940. To Seller's knowledge, Seller has
not received any currently effective notice from any Mortgagor or
other party with respect to any Mortgage of a request for relief
pursuant to or invoking any other provisions of the Soldiers and
Sailors Relief Act of 1940.
4.15 Disclosure. All information provided by Hamilton,
Carter, Smith & Co., Incorporated in the Offering Number EC-4200
in connection with the transaction contemplated by this Agreement
describing the Servicing, presented the Servicing information
fairly and accurately, in all material respects, in accordance
with the Seller's regularly prepared books and records.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants as follows:
5.1 Organization. Purchaser is a banking corporation
organized and validly existing under the laws of South Carolina.
Purchaser is qualified to transact business in each jurisdiction
in which such qualification is necessary to perform its
obligations following the purchase and assumption of the
Servicing hereunder.
5.2 Authority. Purchaser has all requisite corporate
power, authority and capacity to enter into this Agreement and
the Interim Servicing Agreement and to perform the obligations
required of it hereunder, thereunder and under the other
documents, instruments and agreements required to be executed by
Purchaser pursuant hereto and thereto. The execution and
delivery of this Agreement and the Interim Servicing Agreement
and all documents, instruments and agreements required to be
executed and delivered by Purchaser pursuant hereto and thereto,
and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary
corporate action of Purchaser.
5.3 Enforceability. This Agreement, the Interim Servicing
Agreement and all documents, instruments and agreements required
to be executed and delivered by Purchaser pursuant hereto and
thereto constitute valid and legally binding obligations of
Purchaser,
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enforceable in accordance with their respective terms,
except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally and by general
principles of equity.
5.4 No Conflicts. The execution, delivery and performance
of this Agreement, the Interim Servicing Agreement and the other
agreements and instruments required to be executed, delivered and
performed by Purchaser pursuant hereto and thereto do not and
will not result in a breach of the terms and conditions, or
constitute or result in a default under, the articles of
incorporation or bylaws of Purchaser, or any law, rule,
regulation, judgment, order, writ, injunction, decree, agreement
or instrument or other restriction or obligation to which
Purchaser is a party or by which it or any of its properties or
assets may be bound or affected, the breach of which or default
under which would have a material adverse effect on the business
or assets of Purchaser taken as a whole or the ability of
Purchaser to consummate the transactions contemplated hereby and
perform its obligations hereunder.
5.5 Compliance. Purchaser is an approved FHLMC and FNMA
seller/servicer in good standing.
5.6 Servicing. After the Transfer Date for the period of
time that Purchaser owns the Servicing, Purchaser shall service
the Mortgages in accordance with the terms of the Servicing
Agreements, all requirements of Investors, issuers of PMI, all
applicable laws, rules, regulations, ordinances, orders,
injunctions and decrees with respect to and which
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might affect any of the Mortgages or the Servicing, and prudent
standards and practices generally accepted in the mortgage banking
industry.
5.7 Broker. No broker or finder has acted on behalf of
Purchaser in connection with this Agreement or the transactions
contemplated hereby, and Purchaser has made no agreement to pay
any agent, finder, broker or any other representative any fee or
commission in the nature of a finder's or originator's fee
arising out of or in connection with the subject matter of this
Agreement.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification by Seller. Seller shall indemnify and
hold harmless Purchaser and, as applicable, any of the officers,
directors, employees and agents of Purchaser (collectively,
"Purchaser Indemnitees") against and in respect of, and shall
reimburse Purchaser Indemnitees for, any Loss suffered or
incurred by Purchaser Indemnitees after the Sale Date which
result from:
(a) A breach of any representation or warranty of
Seller contained in this Agreement or the Interim Servicing
Agreement (which, for these purposes, shall be deemed made
without any qualification otherwise contained therein regarding
"Seller's knowledge");
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(b) A breach by Seller of any covenant or agreement of
Seller contained in this Agreement or the Interim Servicing
Agreement;
(c) Any errors or omissions of Seller or its
predecessors in originating, selling, or servicing any of the
Mortgages prior to the Transfer Date; and
(d) All amounts paid by Purchaser pursuant to Section
5.4 of the Escrow Agreement, which amounts were properly payable
by Seller.
6.2 Indemnification by Purchaser. Purchaser shall
indemnify and hold harmless Seller and, as applicable, any of the
officers, directors, employees and agents of Seller
(collectively, "Seller Indemnitees") against and in respect of,
and shall reimburse Seller Indemnitees for, any Loss suffered or
incurred by Seller Indemnitees after the Sale Date which results
from:
(a) A breach of any representation or warranty of
Purchaser contained in this Agreement or the Interim Servicing
Agreement;
(b) A breach by Purchaser of any covenant or agreement
of Purchaser contained in this Agreement or the Interim Servicing
Agreement;
(c) Any errors or omissions of Purchaser or its
successors in servicing any of the Mortgages on or after the
Transfer Date; and
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(d) All amounts paid by Seller pursuant to Section 5.4
of the Escrow Agreement, which amounts were properly payable by
Purchaser.
6.3 Loss. For purposes of this Agreement, "Loss" shall
mean any unreimbursed out-of-pocket cost, including reasonable
attorneys' fees and disbursements, incurred by the Person seeking
indemnification, but excluding all costs associated with such
Person's overhead (including, without limitation, the salaries
and benefits of its employees and the use and occupancy of its
facilities and equipment). Notwithstanding anything herein to
the contrary, Seller shall have no obligation to indemnify and
hold Purchaser Indemnitees harmless (i) for any Loss with respect
to any separate claim for indemnification (which, based on the
facts and circumstances of the particular claim, may be limited
to a Loss suffered with respect to a particular Mortgage and in
other cases may not be so limited) which is less than $1,000, and
(ii) unless the aggregate amount of covered Losses exceeds
$50,000, in which case only the amount of covered Losses in
excess of $50,000 shall be indemnifiable.
6.4 Mitigation. As a condition precedent to Seller's
obligations of indemnification hereunder, Purchaser shall
mitigate the amount of the Loss, including, without limitation,
the taking of such actions and the exercising of the degree of
care that Purchaser exercises with respect to the servicing of
other loans for its own account, and, in any case, not less than
the actions or degree of care which is consistent with prudent
standards and practices in the mortgage banking industry.
Without limiting the foregoing, Seller shall have no
responsibility for any Loss attributable to or increased as a
result of the failure by Purchaser
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to perform and discharge its obligations as servicer of the
Mortgages after the applicable Transfer Date in strict accordance
with applicable law and regulations, applicable Investor
agreements, guidelines, regulations and procedures and applicable
requirements of issuers of PMI.
6.5 Notice. As a condition precedent to Seller's
obligations of indemnification hereunder, Purchaser shall notify
Seller in writing of any event or discovery that may give rise to
Seller's obligations hereunder (including, without limitation,
any breach or alleged breach of Seller's representations,
warranties or covenants, any claim instituted or asserted against
Purchaser, and any notice received from an Investor), in a
reasonably prompt manner after such discoveries or events become
known to Purchaser, but in no event more than thirty (30) days
thereafter (or such shorter period of time as may be necessary to
allow Purchaser to exercise its rights of defense and cure
hereunder). Any such notice shall describe the event or
discovery, describe the basis upon which Purchaser believes that
Seller is obligated hereunder, and include Purchaser's good faith
estimate of the amount of identifiable Loss associated with the
claim. Seller shall not have any obligation to indemnify any
Purchaser Indemnitee with respect to a claim unless Seller
receives notice of the claim in the manner set forth above before
the third (3rd) anniversary of the Sale Date.
6.6 Inspection. Purchaser shall provide Seller with copies
of all such records and data related to any claim for
indemnification hereunder as Seller may from time to time
reasonably request for purposes of verifying the existence or
amount of the claim or for purposes of contesting, defending or
settling the claim. Seller shall also have the right to
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inspect the records of Purchaser during normal business hours and
without imposition of unreasonable burden on Purchaser, for the
foregoing purposes. Seller shall reimburse Purchaser for any
reasonable out-of-pocket costs actually incurred by Purchaser at
Seller's request in connection with such inspections but in no
event shall Seller be liable for any of Purchaser's overhead costs,
if any, associated with such inspections.
6.7 Defense. Subject to the terms and conditions set forth
below, Seller shall have the right to contest, defend or settle
any claim for indemnification based on a request, demand or
action made or asserted by any third party. Seller shall notify
Purchaser of its election to contest or defend the claim with the
third party within fifteen (15) days of the receipt of notice
thereof and of all information reasonably requested by Seller to
evaluate the claim. If Seller elects to contest or defend the
claim, (i) it shall do so at its own expense, and (ii) Purchaser
shall have the right to monitor and participate in the defense of
any such claim and to employ its own counsel, but Seller shall
not be liable to any Purchaser Indemnitee for any of Purchaser
Indemnitee's fees or expenses in connection with such activities,
including, without limitation, the fees and disbursements of its
counsel. If Seller elects not to contest or defend any such
claim, (iii) Purchaser shall have the right to contest or defend
the claim, (iv) the cost of such defense, including reasonable
attorneys' fees and disbursements, shall be paid by Seller if
Seller is responsible for the indemnification of Purchaser
relating to the claim, and (v) Seller shall have the right to
monitor and participate in the defense of such claim and to
employ counsel in connection therewith at its own expense.
Seller shall have no liability for any Loss arising or resulting
from the compromise
33
<PAGE>
or settlement of any claim effected without
its consent, which consent shall not be unreasonably withheld.
6.8 Opportunity to Cure. Seller shall have sixty (60) days
(or such shorter period required by applicable law) from the date
of receipt by Seller of written notice of a claim for
indemnification hereunder within which to cure the condition or
breach giving rise to such claim provided that such cure period
shall not absolve Seller for any liability to Purchaser for
Losses suffered by Purchaser prior to such cure.
6.9 Recoupment. If a Purchaser Indemnitee recoups from any
third party any amount theretofore paid by or on behalf of Seller
to that Purchaser Indemnitee under this Article 6, that Purchaser
Indemnitee shall promptly reimburse Seller the full amount so
recouped.
6.10 Survival. The representations, warranties and
covenants of Seller and Purchaser contained in this Agreement and
the Interim Servicing Agreement (including the provisions of this
Article 6) shall survive for three (3) years after the Sale Date
(unless limited herein or therein to a shorter period of time),
but the sole remedy of Seller and Purchaser for a breach of any
such representation, warranty or covenant (other than as provided
in Articles 7 and 8 hereof) shall be to assert a claim for
indemnification under this Article 6.
34
<PAGE>
6.11 Escrow; Sole Remedy. On the Transfer Date, Seller
shall deposit $645,000 (the "Escrowed Funds") into an escrow
account established with the Escrow Agent to be held,
administered and distributed in accordance with the terms of this
Agreement and an escrow agreement in substantially the form
attached hereto as EXHIBIT F (the "Escrow Agreement") to be
entered into by and among Purchaser, Seller and the Escrow Agent
on the Transfer Date to secure Seller's indemnification
obligations hereunder. Purchaser's sole and exclusive remedy for
satisfaction of a claim for indemnification pursuant to this
Article VI shall be to make a claim against the Escrowed Funds
and regardless of the amount of the Escrowed Funds, Seller shall
have no liability or obligation to Purchaser for any
indemnification obligation hereunder other than as Purchaser may
satisfy from the Escrowed Funds. The Escrow Agreement shall
provide that Purchaser may draw on the Escrowed Funds upon
presentation to the Escrow Agent of either (i) written
instructions executed by both Purchaser and Seller authorizing
the disbursement or (ii) a final unappealable judgment from the
arbitration procedure conducted pursuant to Section 10.2 hereof
finding that Seller has an indemnification obligation to
Purchaser hereunder and directing the disbursement of a specified
amount of funds thereunder. The Escrowed Funds shall be reduced
by, and released to Seller in the amount equal to, one-third of
the original amount on each of the first three anniversaries of
the Sale Date such that as of and after the third anniversary of
the Sale Date, the amount of the Escrowed Funds shall be zero
(such disbursements are hereinafter referred to as the "Periodic
Disbursements"); provided, however, that if on any of the first
three anniversaries of the Sale Date the Purchaser has made a
claim or claims for indemnification which has not been resolved
(the "Unresolved Claims"), or if claims have been made against,
and paid out of, the Escrowed Funds ("Resolved Claims"), then the
35
<PAGE>
Escrowed Funds shall be reduced by, and released to Seller in an
amount equal to, the applicable cumulative Periodic
Disbursements, less the amount of the Unresolved Claims and the
amount of Resolved Claims; provided, further, however, that any
such Periodic Disbursement that would have been distributed to
Seller but for an Unresolved Claim or Claims shall be released to
Seller or Purchaser, as the case may be, as and when such
Unresolved Claims are resolved.
ARTICLE 7
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
Purchaser's obligations under this Agreement are subject to
the fulfillment prior to or on the Sale Date and/or the Transfer
Date, as the case may be, of each of the following conditions,
any one or more of which may be waived in writing by Purchaser:
7.1 Accuracy of Representations and Warranties. Seller's
representations and warranties contained herein shall be true and
correct in all material respects as of the Sale Date and the
Transfer Date, except to the extent such representations and
warranties expressly relate only to an earlier date, and except
for changes contemplated by this Agreement or approved by
Purchaser.
36
<PAGE>
7.2 Compliance with Conditions. Seller shall have
performed and complied in all material respects with all
conditions and agreements required by this Agreement to be
performed or complied with prior to or on the Sale Date and the
Transfer Date.
7.3 No Actions. There shall not have been commenced or, to
the knowledge of Seller, threatened prior to or on the Sale Date
any action, suit or proceeding which would materially and
adversely affect the Servicing (taken as a whole) or Seller's
ability to consummate the transactions contemplated hereby.
7.4 Interim Servicing Agreement. Seller shall have
executed and delivered the Interim Servicing Agreement on the
Sale Date.
7.5 Consents and Approvals. Seller shall have obtained
prior to or on the Transfer Date the consents and approvals
required by Section 3.4 hereof; provided, however, that this
condition shall not require the receipt of consents from Private
Investors.
7.6 Sale Documents. Seller shall have delivered to
Purchaser on the Sale Date:
(a) A certificate executed on behalf of Seller by an
authorized officer of Seller dated as of the Sale Date,
certifying in such detail as Purchaser may reasonably request to
the fulfillment of the conditions specified in Sections 7.1, 7.2
and 7.3 hereof;
37
<PAGE>
(b) A copy of the resolutions of Seller's Board of
Directors approving the execution, delivery and performance of
this Agreement, certified as of the Sale Date by the Secretary or
an Assistant Secretary of Seller;
(c) A certificate of incumbency, dated as of the Sale
Date, as to the officers of the Seller executing this Agreement
and the certificates, instruments and other agreements executed
and delivered hereunder, executed by the Secretary or an
Assistant Secretary and one other officer of Seller; and
(d) An opinion of Nelson Mullins Riley & Scarborough,
L.L.P., dated as of the Sale Date, to the effect of EXHIBIT D
hereto and in form and substance reasonably acceptable to
Purchaser (including, to the extent applicable, the opinions of
other counsel upon which such counsel is relying in form and
substance reasonably acceptable to Purchaser).
7.7. Transfer Documents. Seller shall have delivered to
Purchaser on the Transfer Date:
(a) A certificate executed on behalf of Seller by an
authorized officer of Seller, dated as of the Transfer Date,
certifying in such detail as Purchaser may reasonably request to
the fulfillment of the conditions specified in Sections 7.1, 7.2,
7.3 and 7.5 hereof, including, without limitation, copies of such
notices, evidences of consent and other matters as Purchaser may
reasonably request; and
38
<PAGE>
(b) A certificate of incumbency, dated as of the
Transfer Date, as to the officers of the Seller executing this
Agreement and the certificates, instruments and other agreements
executed and delivered hereunder, executed by the Secretary or an
Assistant Secretary and one other officer of Seller.
ARTICLE 8
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
All of Seller's obligations under this Agreement are subject
to the fulfillment prior to or on the Sale Date and/or the
Transfer Date, as the case may be, of each of the following
conditions, any one or more of which may be waived in writing by
Seller:
8.1 Accuracy of Representations and Warranties. The
representations and warranties of Purchaser contained herein
shall be true and correct in all material respects as of the Sale
Date and the Transfer Date, except to the extent such
representations and warranties expressly relate only to an
earlier date, and except for changes contemplated by this
Agreement or approved by Seller.
8.2 Compliance with Conditions. Purchaser shall have
performed and complied in all material respects with all
conditions and agreements required by this Agreement to be
performed or complied with by it prior to or on the Sale Date and
the Transfer Date.
39
<PAGE>
8.3 No Actions. There shall not have been commenced or, to
the knowledge of Purchaser, threatened prior to or on the Sale
Date any action, suit or proceeding which may materially and
adversely affect the Servicing (taken as a whole) or Purchaser's
ability to consummate the transactions contemplated hereby.
8.4 Interim Servicing Agreement. Purchaser shall have
executed and delivered the Interim Servicing Agreement on the
Sale Date.
8.5 Consents and Approvals. Seller and Purchaser shall
have obtained prior to or on the Transfer Date all consents and
approvals contemplated by Section 3.4 hereof; provided, however,
that this condition shall not require the receipt of consents
from Private Investors.
8.6 Sale Documents. Purchaser shall have delivered to
Seller on the Sale Date:
(a) A certificate executed on behalf of Purchaser by
an authorized officer of Purchaser, dated as of the Sale Date,
certifying in such detail as Seller may reasonably request to the
fulfillment of the conditions specified in Sections 8.1, 8.2 and
8.3 hereof;
(b) A copy of the resolutions of the board of
directors of Purchaser approving the execution, delivery and
performance of this Agreement, certified as of the Sale Date by
the Secretary or an Assistant Secretary of Purchaser;
40
<PAGE>
(c) A certificate of incumbency, dated as of the Sale
Date, as to the officers of the Purchaser executing this
Agreement and the certificates, instruments and other agreements
executed and delivered hereunder, executed by the Secretary or an
Assistant Secretary and one other officer of Purchaser; and
(d) An opinion of Wyche, Burgess, Freeman and Parham,
counsel to Purchaser, dated as of the Sale Date, to the effect of
EXHIBIT E hereto and in form and substance reasonably acceptable
to Seller (including, to the extent applicable, the opinions of
other counsel upon which such counsel is relying in form and
substance reasonably acceptable to Seller).
8.7 Transfer Documents. Purchaser shall have delivered to
Seller on the Transfer Date:
(a) A certificate executed on behalf of Purchaser by
an authorized officer of Purchaser, dated as of the Transfer
Date, certifying in such detail as Seller may reasonably request
to the fulfillment of the conditions specified in Sections 8.1,
8.2, 8.3 and 8.5 hereof, including, without limitation, copies of
such notices, evidences of consent and other matters as Seller
may reasonably request; and
(b) A certificate of incumbency, dated as of the
Transfer Date, as to the officers of the Purchaser executing this
Agreement and the certificates, instruments and other
41
<PAGE>
agreements executed and delivered hereunder, executed by the
Secretary or an Assistant Secretary and one other officer of
Purchaser.
ARTICLE 9
TERMINATION
9.1 Events of Termination. To the extent and under the
circumstances set forth below, this Agreement may be terminated
at any time by Purchaser or Seller prior to the Transfer Date
upon written notice to the other party:
(a) By Purchaser or Seller, if FNMA or FHLMC
disapproves or fails to timely approve the transfer of Servicing
in accordance with Section 3.4 hereof;
(b) By Purchaser or Seller, if any action, suit or
proceeding of the type the absence of which would be a condition
precedent to either party's obligations described in Sections 7.3
or 8.3, respectively, shall have been commenced, or, to the
knowledge of either party hereto, threatened;
(c) By Purchaser or Seller, if the other shall
materially breach any material term of this Agreement and such
breach shall not have been cured within thirty (30) days
following notice thereof by the other party, but in any event
prior to the Transfer Date; and
42
<PAGE>
(d) By Purchaser or Seller, if the conditions
precedent to its obligation to consummate on the Sale Date or
Transfer Date the transactions contemplated hereby have not been
satisfied or waived on or prior to the Sale Date or Transfer
Date, or such later date as may be mutually agreed upon in
writing by the parties hereto; provided, however, that neither
Purchaser nor Seller shall have any obligation to waive a
condition precedent to its obligation or to extend the date for
satisfaction thereof.
9.2 Requirements and Effect of Termination.
(a) Upon valid and proper termination of this
Agreement pursuant to any provision of Section 9.1, all right,
title and interest in or to the Servicing, the Records, the
Escrow Accounts and the Mortgages shall revert to Seller and no
party hereto shall have any liability or further obligation to
the other party hereunder except as provided in Section 3.3,
Section 3.16, Article 6 and this Section 9.2;
(b) Except as specifically set forth or referred to in
Section 9.2(c) below, if this Agreement is terminated or the
transaction contemplated hereby is not consummated, the amount of
Purchase Price theretofore paid to Seller, net of all amounts
received by Purchaser under the Interim Servicing Agreement,
shall be immediately refunded by Seller to Purchaser, together
with interest on such amount at the Accrual Rate from the date of
payment to Seller to the date of refund to Purchaser;
43
<PAGE>
(c) If the sale of Servicing to Purchaser is not
consummated on or before the Transfer Date because (i) of
financial and/or regulatory constraints on Purchaser or its
affiliates, or (ii) Seller, with Purchaser's assistance, is
unable to obtain the approval of FNMA or FHLMC to transfer the
Servicing to Purchaser or FNMA or FHLMC rescinds its approval
prior to the Transfer Date, and the approval is withheld or
rescinded primarily because Purchaser is not financially eligible
and is not in compliance with FNMA or FHLMC requirements, and
none of the foregoing are attributable to the fault of Seller,
Seller shall be entitled to retain Two Hundred Fifty Thousand and
no/100 Dollars ($250,000) of the Earnest Money Deposit, it being
agreed by Purchaser and Seller that such sum is a reasonable
estimate of the loss Seller would sustain on account of the
decline in the net market value in the Servicing and on account
of costs and expenses incurred by Seller with respect to this
transaction; and
(d) If either Purchaser or Seller fail to consummate
the purchase and sale of the Servicing in breach of their
obligations under this Agreement, the party that so breaches
shall reimburse the other for all reasonable costs and expenses,
including travel, consultation and legal costs incurred in
connection with the transactions that are the subject of this
Agreement and that were incurred prior to the breach. If both
parties so breach the Agreement, or if the transaction is not
consummated for reasons other than the breach by either party,
the provisions of this Section 9.2(d) shall be of no effect.
44
<PAGE>
ARTICLE 10
MISCELLANEOUS
10.1 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 if delivered by hand, by facsimile transmission
or by registered or certified mail, return receipt requested,
postage prepaid:
(a) If to Purchaser, to:
Mr. Joseph C. Reynolds
Chief Mortgage Officer
Carolina First Bank
1420 Lady Street
P.O. Box 12249
Columbia, South Carolina 29211
Fax: (803) 929-5365
With a copy to:
William P. Crawford, Jr., Esq.
Wyche, Burgess, Freeman & Parham
P.O. Box 728
Greenville, South Carolina 29602
Fax: (803) 242-8324
(b) If to Seller to:
HomeBanc Mortgage Corporation
5775 Glenridge Drive
Building E, Suite 500
Atlanta, Georgia 30328
Fax: (404) 303-4017
45
<PAGE>
With a copy to:
Jeffrey A. Allred, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
400 Colony Square, Suite 2200
1201 Peachtree Street, N.E.
Atlanta, Georgia 30316
Fax: (404) 817-6050
or to such other address as Purchaser or Seller shall have
specified in writing to the other. Any notice given by personal
delivery or facsimile transmission shall be deemed to have been
delivered on the date of the receipt of such delivery or
transmission at the address set forth above (or such other
address designated pursuant hereto) and any notice given by
certified mail shall be deemed to have been delivered on the
third Business Day following the date on which it was deposited
in the United States postal system. Notice in writing may be
given by a method other than as described above and such notice
shall be deemed delivered on the date actually received.
10.2 Arbitration. Any controversy or claim between
Purchaser and Seller arising out of or relating to this Agreement
including, but not limited to, a claim based on or arising from
any Unresolved Claim, will, at the request of any party, be
determined by arbitration. The arbitration shall be conducted in
Atlanta, Georgia in accordance with the United States Arbitration
Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of
the American Arbitration Association. The arbitrator(s) shall
give effect to the statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable
shall be determined by the arbitrator(s). The arbitrator(s)
shall set forth in writing the reasons for the award, which shall
be final, and
46
<PAGE>
judgment upon the arbitration award may be entered
in any court having jurisdiction thereof. The institution and
maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests
such action for judicial relief. Absent a different allocation
by the arbitrator(s) based on the relevant merits of the parties'
respective positions, each party shall bear one half of the costs
and expenses of the arbitration (excluding each party's own legal
costs and other expenses which shall be borne by the party as
incurred), including compensation to the arbitrator(s), which
compensation shall be negotiated among the parties and the
arbitrator(s).
10.3 Entire Agreement; Amendment. This Agreement, the
documents, instruments and agreements to be executed and
delivered pursuant to this Agreement, and the Confidentiality
Agreement, constitute the entire agreement between the parties
with respect to the subject of the transactions contemplated
hereby and supersede 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
amendment or waiver is sought to be enforced. The waiver by any
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.
10.4 Binding Effect; Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto. This
Agreement, and any rights or obligations hereunder, may not be
assigned or delegated by Purchaser, provided that nothing in this
Section 10.3 or in this Agreement otherwise shall prevent
Purchaser from transferring,
47
<PAGE>
selling or assigning to any party the Servicing purchased
hereunder. This Agreement, and any rights or obligations hereunder,
may be assigned or delegated by Seller after the Sale Date to any
then current or former holders of capital stock of Seller or their
designees, but such delegation shall not relieve Seller of primary
responsibility for its obligations hereunder.
10.5 Counterparts. This Agreement may be executed in
counterparts, each of which, when so executed and delivered,
shall be deemed to be an original and all of which, taken
together, shall constitute one and the same agreement.
10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South
Carolina.
48
<PAGE>
IN WITNESS WHEREOF, each of the undersigned parties has
caused this Agreement to be duly executed and delivered by one of
its duly authorized officers, all as of the date first above
written.
"SELLER"
HOMEBANC MORTGAGE CORPORATION
By:
Its:
"PURCHASER"
CAROLINA FIRST BANK
By:
Its:
49
<PAGE>
Schedule 4.13
Indemnification Agreements
<TABLE>
<CAPTION>
Investor Loan No. Name Origination Date Agreement Date Expiration Date Loan Balance
<S> <C> <C> <C> <C> <C> <C>
FNMA 1038896 Byron Chapman 8/28/92 11/28/93 11/28/98 $39,765.00
FNMA 1038895 Byron Chapman 8/28/92 11/28/93 11/28/98 $39,765.00
FNMA 1038894 Byron Chapman 8/28/92 11/28/93 11/28/98 $39,765.00
FNMA 1039229 V. Olson & M. Miller 8/28/92 12/1/93 12/1/98 $123,080.00
FNMA 1040481 Toe & Soon Kwak 12/15/92 12/1/93 12/1/98 $73,381.00
$315,758.00
</TABLE>
<TABLE>
<CAPTION>
Investor Loan No. Name Origination Date Agreement Date Expiration Date Loan Balance
<S> <C> <C> <C> <C> <C> <C>
Carrollton 1054197 Dennis Cox 2/18/94 4/27/94 4/27/99 $32,540.00
</TABLE>
<PAGE>
EXHIBIT A
TO MORTGAGE
SERVICING PURCHASE
AND SALE AGREEMENT
LOAN LISTING
[BULK LOAN LISTING RETAINED IN FILE]
<PAGE>
EXHIBIT B
TO MORTGAGE
SERVICING PURCHASE
AND SALE AGREEMENT
INTERIM SERVICING AGREEMENT
This Interim Servicing Agreement (the "Interim
Servicing Agreement") is made and entered into the ___ day of
June, 1995, by and between HomeBanc Mortgage Corporation, a
Georgia corporation ("Seller"), and Carolina First Bank, a South
Carolina banking corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Purchaser and Seller have entered into a
Mortgage Servicing Purchase and Sale Agreement, dated June ___,
1995 (the "Purchase Agreement"), pursuant to which Seller agreed
to sell, transfer and assign to Purchaser Servicing rights
relating to certain Mortgages pursuant to Servicing Agreements
with certain Investors; and
WHEREAS, the parties desire to set forth the general
terms upon which the interim servicing of the Mortgages shall be
accomplished from the Sale Date through the Transfer Date;
NOW, THEREFORE, in consideration of the mutual
promises, covenants and conditions, and upon the terms and
subject to the conditions set forth herein and the terms and
conditions of the Purchase Agreement, Seller and Purchaser hereby
agree as follows:
<PAGE>
1. Performance of Duties by Seller. Seller will
service each Mortgage following the requirements of the Servicing
Agreements as in effect as of the date hereof and as subsequently
amended from time to time, exercising the same degree of care
that Seller exercises with respect to the servicing of other
loans for its own account.
2. Collection. Seller will use its best efforts to
collect all sums due and payable under the terms of each
Mortgage. All payments required to be made by a mortgagor that
are collected by Seller, except late charges and other ancillary
fees, shall be deposited as follows:
(a) All payments of principal and interest and of
Maintenance Charges (as hereinafter defined) shall be deposited
in trust accounts in a financial institution whose deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC").
(b) Trust accounts for principal and interest shall be
in the name of the Seller, in trust for the Investors.
(c) Trust accounts for Maintenance Charges (as
hereinafter defined) shall be in the name of Seller, in trust for
the mortgagors under each of the Mortgages.
3. Remittance of Principal and Interest Collections.
Seller will remit to the Investors all principal and interest
payments on the Mortgages collected during the
2
<PAGE>
preceding month, less the servicing fee in accordance with the
remittance schedule stipulated in the Servicing Agreements.
4. Maintenance Charges The term "Maintenance
Charges," as used herein, means all payments for whatever purpose
except for principal and interest, late charges or other
ancillary fees required by the terms of the applicable Mortgage
or otherwise to be made by a mortgagor to the mortgagee under the
Mortgage. Seller shall apply the amounts received by it
applicable to Maintenance Charges in accordance with the terms of
each Mortgage, the contract of insurance, the Servicing
Agreements and this Interim Servicing Agreement. Seller shall
keep those funds in its possession, but segregated from its
general corporate funds, in a financial institution the deposits
of which are insured by the FDIC. From these funds, Seller shall
pay, when due, the hazard insurance premiums, and shall obtain,
when available, and pay the official statements for taxes and
assessments or other special charges against the mortgaged
premises, but the obligation of Seller to make such payments
shall be limited to the amount received by it from the mortgagor
applicable to such Maintenance Charges or advanced by Seller for
such purposes. Subject to the termination provisions of Article
9 of the Purchase Agreement, Purchaser shall be responsible for
the payment of all interest accruing from and after the Transfer
Date on the related Escrow Accounts that is payable to mortgagors
under the terms of the Mortgages or applicable state law.
Purchaser shall reimburse Seller for any such payments made from
the funds of Seller promptly upon receipt of a certified
statement relating thereto, together with supporting
documentation if requested by Purchaser.
3
<PAGE>
5. Hazard Insurance. Seller shall, at all times
during the term of any Mortgage, take all reasonable and
necessary action to cause all of the buildings upon the mortgaged
premises to be kept insured against loss or damage by fire or
other hazards and for such amounts required by the applicable
Servicing Agreements. Where required by the Investors, issuers
of PMI or any applicable law, rule, regulation, decree or
ordinance, Seller shall retain the originals or microfilm copies
of such insurance policies for the benefit of the Investors.
6. Records of Seller. Seller shall keep detailed and
materially accurate records for each Mortgage and the collections
thereon. Purchaser or its authorized representative may examine
such records at such time or times as it may elect during
Seller's business hours.
7. Reports by Seller. During the term of this
Interim Servicing Agreement, Seller shall provide Purchaser with
the reports listed on SCHEDULE A hereto, at the intervals
specified in SCHEDULE A beginning with Investor cut-off dates on
or after May 31, 1995.
8. Compliance with Regulations. Seller shall comply
with, and shall use its best efforts to cause each mortgagor
under each Mortgage to comply with, all applicable federal and
state statutes and regulations and Investor and PMI company
requirements during its servicing of the Mortgages under this
Interim Servicing Agreement.
4
<PAGE>
9. Default and Foreclosure. If foreclosure
proceedings are instituted, Seller shall foreclose, manage and
protect the mortgaged premises in the manner and to the extent
required by the applicable Servicing Agreements and as customary
in the mortgage banking industry. Subject to the termination
provisions set forth in Article 9 of the Purchase Agreement and
to the indemnification provisions set forth in Article 6 of the
Purchase Agreement, Purchaser shall be responsible for out-of-
pocket costs and expenses incurred with respect to such
activities from and after the Sale Date.
10. Servicing Fees.
(a) Seller shall receive: (i) $6.00 per month for each
Mortgage serviced (the "Sub-Servicing Fee"); (ii) any interest
earned on custodial bank balances; and (iii) all late charges,
NSF fees and such other ancillary fees, if any, collected with
respect to the Mortgages ("Ancillary Income").
(b) Purchaser shall receive for each Mortgage an
amount (the "Servicing Fee") payable from the interest portion of
each monthly installment applicable to principal and interest
collected by Seller, which equals (i) the amount, if any, in
excess of the net yield required to be passed through to the
Investor, less all applicable guaranty fees, computed on the same
principal amount and for the same period as the interest portion
for said installments less (ii) the Sub-Servicing Fee.
5
<PAGE>
(c) Commencing with the first Investor reporting cut-
off date following the Sale Date, Seller shall remit the
Servicing Fee to Purchaser by the tenth (10th) calendar day of
the month following the reporting cut-off date.
11. Termination of Agreement. This Interim Servicing
Agreement shall terminate as to the relevant Mortgages on the
earlier to occur of the Transfer Date or the date of termination
of the Purchase Agreement.
12. Miscellaneous.
(a) This Interim Servicing Agreement shall constitute
and be deemed a separate agreement with respect to each Mortgage
to which it applies.
(b) The term "mortgagor" shall be deemed to include
not only the maker of the note or bond and the mortgagor or
grantor in the security instruments but also any subsequent owner
of the mortgaged premises assuming payment of the Mortgage.
(c) Any notice, demand or request arising under or
required by this Interim Servicing Agreement shall be in writing
and shall be given in accordance with the provisions of the
Purchase Agreement.
6
<PAGE>
(d) This Interim Servicing Agreement may be executed
in counterparts, each of which, when so executed and delivered,
shall be deemed to be an original and all of which, taken
together, shall constitute one and the same agreement.
(e) Unless the context otherwise requires, capitalized
terms used herein shall have the same meanings given thereto in
the Purchase Agreement.
IN WITNESS WHEREOF, each of the undersigned parties have
caused this Interim Servicing Agreement to be duly executed and
delivered by one of its duly authorized officers, all as of the
date first above written.
HOMEBANC MORTGAGE CORPORATION
By:
Its:
CAROLINA FIRST BANK
By:
Its:
7
<PAGE>
SCHEDULE A
to
Interim Servicing Agreement
The following reports as of the Investor cut-off date each
month, in the format produced on Seller's FIServ data processing
system, delivered within ten (10) days following the cut-off
date:
Investor Trial Balance
Security Balance
Cut-Off Transaction Journal
Prepayment Report
Delinquent Report
Curtailment Report
Seller shall use its reasonable best efforts to provide
Purchaser with such of the above information by verbal report
within three (3) business days following the cut-off date so as
to allow Purchaser the opportunity to estimate accounting entries
for its servicing operations for the preceding month.
A-1
<PAGE>
EXHIBIT C
TO MORTGAGE
SERVICING PURCHASE
AND SALE AGREEMENT
SERVICING INFORMATION AND DOCUMENTATION
A. The following information with respect to each Mortgage in a
format sufficient to enable its tape-to-tape transmission to
Purchaser:
1. Property Address 10. Type of Loan
2. Borrower's Name 11. Term of Loan
3. Mailing Address 12. Maturity Date of Loan
4. Loan Number 13. Delinquency Pattern
5. Interest Rate 14. Date and Type of Last
Activity
6. Principal Balance
15. Principal and Interest
7. Original Loan Amount Constant
16. Social Security Number
8. Interest Due of Mortgagor
17. Legal Description of the
9. Next Due Date Mortgaged Property
18. Calendar year-to-date
and most recent twelve
(12) month history, if
required by Purchaser
B. The following information and documents with respect to each
Mortgage:
1. Transaction history file
2. For each Mortgage on which Seller escrows real estate
taxes, tax payments receipt for past twelve (12) months
which Seller has received
3. Collection records and property address listing
4. All flood, hazard insurance and mortgage insurance
policies
5. All available tax records, including prior year receipts
<PAGE>
6. All title policies and title opinions
7. Microfilm of case files to the extent available
8. Copy of letter to appropriate insurance companies/agents
requesting endorsements to reflect Closing to Purchaser
and new address
9. Other documents or information that Purchaser may
reasonably request which are reasonably available to
Seller
10. Copy of note and recorded mortgage or certified copy of
mortgage
11. Copy of letter to the appropriate taxing authorities or tax
servicers notifying them of the transfer of Servicing to
Purchaser
12. Copy of Seller's notice of transfer letters to each borrower
and insurer which shall inform the borrower and insurers to
address all communication and remittances to the Purchaser
13. Copy of credit package
14. Available information concerning all pending items, including
but not limited to partial releases, mortgage life or
mortgage disability claims and litigation
C. On an aggregate basis, a schedule enumerating each Mortgage
which requires special handling with a statement of the
reasons therefor and all relevant documentation attached
D. A certified copy of each Servicing Agreement
2
<PAGE>
EXHIBIT D
TO MORTGAGE
SERVICING PURCHASE
AND SALE AGREEMENT
[LETTERHEAD OF NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.]
June __, 1995
Carolina First Bank
P.O. Box 12249
Columbia, South Carolina 29211
Re: Mortgage Servicing Purchase and Sale Agreement dated June
___, 1995 (the "Agreement") by and between HomeBanc Mortgage
Corporation, a Georgia corporation ("HomeBanc"), and
Carolina First Bank, a South Carolina bank (the "Purchaser")
Ladies and Gentlemen:
We have acted as counsel to HomeBanc in connection with the
preparation of the Agreement and the Interim Servicing Agreement
dated June ___, 1995, between HomeBanc and Purchaser (the
"Interim Servicing Agreement") and have participated in the
closing of the transactions contemplated thereby (the
"Transaction"). This opinion is rendered to you in compliance
with Section 7.6 of the Agreement.
This opinion letter is limited by, and is in accordance
with, the Interpretative Standards attached hereto as Schedule 1
(the "Interpretive Standards") which are incorporated in this
opinion letter by this reference. Capitalized terms used in this
opinion letter and not otherwise defined herein shall have the
meanings assigned to such terms in the Interpretive Standards and
the Agreement. If there is a conflict between definitions of a
term, the definition in the Interpretive Standards shall control
over any conflicting definition.
Our opinions herein are limited solely to the federal laws
of the United States of America and the internal laws of the
State of Georgia, without reference to choice of law provisions
and we express no opinion herein concerning the laws of any other
jurisdiction. In this regard we note that the Agreement contains
a provision to the effect that the law of the State of South
Carolina are intended to be the governing laws. For purposes of
the opinion, we have assumed that the laws of the State of South
Carolina (including all
<PAGE>
Carolina First Bank
June 1, 1995
Page 2
applicable interpretations thereof) are
identical in all relevant respects to the laws to the State of
Georgia.
In the capacity described above, we have considered such
matters of law and fact, including the examination of originals
or copies, certified or otherwise identified to our satisfaction,
of such records and documents of HomeBanc, certificates of
officers and representatives of HomeBanc, certificates of public
officials and such other documents as we have deemed appropriate
as a basis for the opinions hereinafter set forth.
Based on the foregoing, it is our opinion that:
1. HomeBanc is a corporation existing under the laws of
the State of Georgia.
2. HomeBanc has the corporate power to execute and deliver
the Agreement and the Interim Servicing Agreement to
perform its obligations thereunder.
3. HomeBanc has duly authorized its execution and delivery
of the Agreement and the Interim Servicing Agreement
and all performance by it thereunder and has duly
executed and delivered the Agreement and the Interim
Servicing Agreement.
4. The execution and delivery by HomeBanc of the Agreement
and the Interim Servicing Agreement do not, and if
HomeBanc were now to perform its obligations under the
Agreement and the Interim Servicing Agreement such
performance would not, result in any:
(i) violation of HomeBanc's Articles of Incorporation
or bylaws:
(ii) violation of any existing federal or state
constitution, statute, regulation, rule, order or
law to which HomeBanc are subject; or
(iii) violation of any judicial or administrative
decree, writ, judgment or order to which, to our
knowledge, HomeBanc is subject.
5. The Transaction is not subject to the Uniform
Commercial Code - Bulk Transfers law as enacted under
Georgia law and codified by Article 6 of Title 11 of
the Official Code of Georgia Annotated.
6. No consent, approval, authorization or other action by,
or filing with, any governmental authority of the
United States, the State of Georgia or the State of
South Carolina is required for Seller's execution and
delivery of the Agreement
<PAGE>
Carolina First Bank
June 1, 1995
Page 3
and the Interim Servicing Agreement and consummation of
the Transaction other than the approval of the Investors
as contemplated by the Agreement.
7. The Agreement and the Interim Servicing Agreement are
enforceable against HomeBanc.
This opinion letter is for your exclusive use solely in
connection with the Transaction, and may not be relied upon by
any other person or for any other purpose without our prior
written consent.
Very truly yours,
NELSON MULLINS RILEY &
SCARBOROUGH, L.L.P.
By:
<PAGE>
EXHIBIT E
TO MORTGAGE
SERVICING PURCHASE
AND SALE AGREEMENT
[LETTERHEAD OF WYCHE, BURGESS, FREEMAN & PARHAM]
June ___, 1995
HomeBanc Mortgage Corporation
5775 Glenridge Drive
Building E, Suite 500
Atlanta, Georgia 30348-5338
Re: Mortgage Servicing Purchase and Sale Agreement dated June
___, 1995, (the "Agreement") by and between HomeBanc
Mortgage Corporation, a Georgia corporation ("HomeBanc
Mortgage"), and Carolina First Bank, a South Carolina bank
(the "Purchaser")
Ladies and Gentlemen:
We have acted as counsel to Purchaser in connection with the
preparation of the Agreement and that certain Interim Servicing
Agreement dated June ___, 1995 by and between HomeBanc and Pur-
chaser (the "Interim Servicing Agreement") and have participated
in the closing of the transactions contemplated thereby (the
"Transaction"). This opinion is rendered to you in compliance
with Section 8.8 of the Agreement.
This opinion letter is limited by, and is in accordance
with, the Interpretative Standards attached hereto as Schedule 1
(the "Interpretive Standards") which are incorporated in this
opinion letter by this reference. Capitalized terms used in this
opinion letter and not otherwise defined herein shall have the
meanings assigned to such terms in the Interpretive Standards and
the Agreement. In the event of a conflict between definitions of
a term, the definition in the Interpretive Standards shall
control over any conflicting definition.
<PAGE>
HomeBanc Mortgage Corporation
June 1, 1995
Page 2
Our opinions herein are limited solely to the laws of the
United States of America and the internal laws of the State of
South Carolina, without reference to choice of law provisions and
we express no opinion herein concerning the laws of any other
jurisdiction.
In the capacity described above, we have considered such
matters of law and fact, including the examination of originals
or copies, certified or otherwise identified to our satisfaction,
of such records and documents of the Purchaser, certificates of
officers and representatives of the Purchaser, certificates of
public officials and such other documents as we have deemed
appropriate as a basis for the opinions hereinafter set forth.
Based on the foregoing, it is our opinion that:
1. Purchaser was duly organized as a bank under the laws of the
state of South Carolina and is existing in good standing
under the laws of the state of South Carolina.
2. Purchaser has the corporate power to execute and deliver the
Agreement and Interim Servicing Agreement and to perform its
obligations thereunder.
3. Purchaser has duly authorized its execution and delivery of
the Agreement and the Interim Servicing Agreement and all
performance by it thereunder and has duly executed and
delivered the Agreement and the Interim Servicing Agreement.
4. The execution and delivery by Purchaser of the Agreement and
the Interim Servicing Agreement did not, and if Purchaser
were now to perform its obligations under the Agreement and
the Interim Servicing Agreement such performance would not,
result in any:
(i) violation of Purchaser's articles of incorpora-
tion or bylaws:
(ii) violation of any existing federal or state
constitution, statute, regulation, rule, order or law
to which Purchaser is subject;
(iii) violation of any judicial or administrative
decree, writ, judgment or order to which, to our
knowledge, Purchaser is subject.
5. No consent, approval, authorization or other action by, or
filing with, any governmental authority of the United
States, the State of Georgia or the State of South Carolina
is required for Purchaser's execution and delivery of the
Agreement and the Interim Servicing Agreement and consum-
mation of the Transaction other than the approval of the
Investors as contemplated by the Agreement.
<PAGE>
HomeBanc Mortgage Corporation
June 1, 1995
Page 3
6. The Agreement and the Interim Servicing Agreement are
enforceable against Purchaser.
This opinion letter is for your exclusive use solely in
connection with the Transaction, and may not be relied upon by
any other person or for any other purpose without our prior
written consent.
Very truly yours,
Wyche, Burgess, Freeman & Parham
By:
<PAGE>
EXHIBIT F
TO MORTGAGE
SERVICING PURCHASE
AND SALE AGREEMENT
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is entered into as
of the _______ day of August, 1995, by and among Carolina First
Bank, a South Carolina banking corporation ("Purchaser"),
HomeBanc Mortgage Corporation, a Georgia corporation ("HomeBanc")
and Trust Company Bank of Georgia, a Georgia banking corporation
("Escrow Agent").
W I T N E S S E T H :
WHEREAS, Seller and Purchaser are parties to that certain
Mortgage Servicing Purchase and Sale Agreement dated as of
June ___, 1995 (the "Purchase and Sale Agreement"), pursuant to
which Purchaser has acquired from Seller the Seller's Servicing
(as defined in the Purchase and Sale Agreement); and
WHEREAS, pursuant to the provisions of the Purchase and Sale
Agreement, Seller and Purchaser have entered into this Agreement
with the Escrow Agent for the purposes set forth below.
NOW, THEREFORE, in consideration of the premises, the
covenants and agreements made herein, and of other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, the parties hereto
hereby agree as follows:
<PAGE>
ARTICLE 1
PURPOSE OF ESCROW
This Agreement is made pursuant to the provisions of the
Purchase and Sale Agreement for the purpose of protecting and
preserving the rights of indemnity of the Purchaser pursuant to
Section 6.11 of the Purchase and Sale Agreement. Purchaser shall
have no right to any of the Escrowed Property (as defined below)
unless or until all or a portion of the Escrowed Property becomes
distributable to the Purchaser pursuant to the terms hereof.
Possession of the Escrowed Property by the Escrow Agent hereunder
shall be for the benefit of the Seller.
ARTICLE 2
ESCROWED PROPERTY
The escrowed property shall consist of the $645,000
deposited with the Escrow Agent on the date hereof (the "Escrowed
Property")(receipt of which by the Escrow Agent is hereby
acknowledged) pursuant to the provisions of Section 6.11 of the
Purchase and Sale Agreement, and all income and interest earned
thereon while held in escrow. The Escrow Agent shall hold,
invest and distribute the Escrowed Property as provided herein.
ARTICLE 3
INVESTMENT OF ESCROWED PROPERTY
3.1 Investment. At any time, and from time to time,
the Escrow Agent shall invest and reinvest upon written
instructions of Seller the Escrowed Property in Investment
Securities. As used herein Investment Securities means: (i)
United States government securities or securities of agencies of
the United States government which are
2
<PAGE>
guaranteed by the United States government; (ii) securities of
governmental agencies, if the same are covered by a bank repurchase
agreement; and (iii) certificates of deposit or money market
accounts of the Escrow Agent. Any interest or other income received
with respect to, or gains realized upon the sale or redemption of,
such Investment Securities shall be credited to and held as part of
the Escrowed Property, and any costs or expenses incurred in
connection with the purchase or sale of such Investment Securities
and losses realized upon the sale or redemption thereof likewise
shall be charged against the Escrowed Property.
3.2 Losses; Withdrawal. The Escrow Agent shall not
have any liability for any loss sustained as a result of any
investment made pursuant to the Seller's instructions or as a
result of any liquidation of any such investment prior to its
maturity or for the failure of the parties to give the Escrow
Agent any instruction to invest or reinvest the Escrowed
Property, including any earnings thereon. The Escrow Agent
further agrees that all Escrowed Property, including any interest
thereon as provided above shall be available for withdrawal on
not less than five (5) days' prior written notice.
3.3 Tax Identification Number. In connection with any
investment of the Escrowed Property, the Seller shall provide the
Escrow Agent with its taxpayer identification number. Failure to
provide such information may cause the Escrow Agent, to be
required to withhold tax on any interest payable hereunder.
3
<PAGE>
ARTICLE 4
DISTRIBUTION OF ESCROWED PROPERTY
4.1 Claims Distributions. Distributions of the
Escrowed Property shall be made upon resolution of each claim by
Purchaser for indemnification under the Purchase and Sale
Agreement (a "Claim") as follows:
(a) Upon receipt of joint instructions signed by both
Purchaser and Seller certifying their agreement for resolution of
a Claim, the Escrow Agent shall promptly deliver to Purchaser (or
such other person as Purchaser and Seller may instruct) the
amount of Escrowed Property equal to the amount of the resolved
Claim as designated in the joint instructions; and
(b) Upon receipt of a final unappealable order or
judgment of the arbitrator(s) in a proceeding conducted in
accordance with Section 10.2 of the Purchase and Sale Agreement
(a "Final Order") finding that Seller has an obligation to
Purchaser for a Claim, the Escrow Agent shall distribute to the
Purchaser (or such other person as specified in the Final Order)
the amount of Escrowed Property specified to be distributed in
the Final Order.
4.2 Periodic Distributions. Distributions of the
Escrowed Property shall be made periodically as follows:
4
<PAGE>
(a) On each of June ___, 1996, 1997 and 1998, the
Escrow Agent shall distribute to Seller an amount of Escrowed
Property equal to (i) the lesser of (A) $215,000, $430,000 and
$645,000, respectively, or (B) such amount of Escrowed Property
remaining in escrow, plus (ii) all interest and income received
on the Escrowed Property to the date of the distribution (a
"Periodic Distribution"), less (iii) the amounts of all Resolved
Claims (as defined in the Purchase and Sale Agreement), and less
(iv) the amount of any Claims that Purchaser shall in good faith
have asserted in writing to the Escrow Agent which remains
unresolved by agreement or a Final Order on that date (an
"Unresolved Claim"); and
(b) The Escrow Agent shall distribute to Seller or
Purchaser, as the case may be, any such Periodic Distributions
that would have been distributed to Seller but for an Unresolved
Claim or Claims as, when and to the extent such Unresolved Claims
are resolved.
ARTICLE 5
ESCROW AGENT MATTERS
5.1 Appointment of Escrow Agent. The Escrow Agent is
hereby appointed, and the Escrow Agent hereby agrees to serve
under this Agreement, as escrow agent upon the terms expressly
set forth in this Agreement.
5.2 Representations and Warranties of Escrow Agent.
The Escrow Agent makes no representation and has no
responsibility as to the validity or sufficiency of this
Agreement, except that the Escrow Agent represents and warrants
to the Purchaser and the Seller as follows:
5
<PAGE>
(a) The Escrow Agent is a banking corporation duly
organized and validly existing in good standing under the laws of
Georgia.
(b) The compliance by the Escrow Agent with all the
provisions of this Agreement are within its corporate powers and
are legal and will not conflict with, result in any breach of any
of the provisions of, or constitute a default under any
agreement, charter instrument, bylaw or other instrument to which
the Escrow Agent is a party or by which it may be bound.
(c) No consent, approval or authorization of, or
filing, registration or qualification with, any governmental
authority on the part of the Escrow Agent is required as a
condition to the execution, delivery and performance of this
Agreement by the Escrow Agent.
(d) The execution, delivery and performance of this
Agreement has been approved by all necessary corporate action on
behalf of the Escrow Agent; this Agreement has been executed and
delivered by the duly authorized officer or agent of the Escrow
Agent; and this Agreement, when duly executed and delivered by
the other parties hereto, will be a legal, valid and binding
obligation of the Escrow Agent, enforceable in accordance with
its terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally and subject to the
application of general principles of equity.
6
<PAGE>
5.3 Compensation, Expenses, Etc. of Escrow Agent. The
Escrow Agent shall be paid the fees and reimbursements in the
amount and manner specified on SCHEDULE A attached hereto, and
each of Purchaser and Seller shall pay the Escrow Agent one-half
of such fees and reimbursements. All fees shall be paid in
United States currency at the office of the Escrow Agent set
forth in this Agreement. The Escrow Agent shall have a first
lien on the escrow funds held by it for compensation,
reimbursement and indemnification.
5.4 Indemnification. Purchaser and Seller jointly and
severally agree to indemnify, defend and hold the Escrow Agent
harmless from and against any and all loss, damage, tax,
liability and expense, including the legal costs and expenses of
defending itself against any claim or liability in connection
with its performance hereunder, that may be incurred by the
Escrow Agent arising out of or in connection with its duties,
obligations or performance as Escrow Agent hereunder, except (i)
as caused by its gross negligence or willful misconduct and (ii)
for taxes on, based on or measured by any fees or compensation
received by the Escrow Agent for services rendered under this
Agreement. The terms of this Section 5.4 shall survive the
termination of this Agreement and, with respect to claims arising
in connection with the Escrow Agent's duties while acting as
such, the resignation or removal of the Escrow Agent. The Escrow
Agent shall give prompt written notice to Purchaser and Seller of
any claim against the Escrow Agent with respect to any such
expenses, and shall take such actions as the Purchaser and Seller
may reasonably request, at the cost and expense of Purchaser and
Seller, to permit Purchaser and Seller to contest any such
claims, whether in the name of the Escrow Agent, the Purchaser or
the Seller.
7
<PAGE>
Purchaser and Seller agree to contribute equally to
the satisfaction of claims and the payment of expenses relating
to their obligations under this Section, and each agrees that if
the other shall satisfy or pay more than one half of any such
cost or expense that it shall have a right of contribution
against the other for the amount of the other's obligation so
paid or satisfied.
5.5 Obligations of the Escrow Agent.
(a) The duties and obligations of the Escrow Agent are
those herein specifically provided and no other. The Escrow
Agent shall not have any liability under, nor duty to inquire
into, the terms and provisions of any agreement or instrument,
other than this Agreement. Its duties are ministerial in nature
and the Escrow Agent shall not incur any liability whatsoever
other than for its own willful misconduct or gross negligence.
Without limiting the generality of the foregoing, it is expressly
understood and agreed by the parties hereto that all references
in this Agreement to the Purchase and Sale Agreement are for the
convenience of the parties hereto other than the Escrow Agent and
the Escrow Agent shall have no obligations or duties with respect
thereto.
(b) The Escrow Agent shall not incur any liability for
following the instructions herein contained or expressly provided
for, or written instructions given by the parties hereto.
(c) The Escrow Agent shall not have any responsibility
for the genuineness or validity of any document or other material
presented to or deposited with it nor any
8
<PAGE>
liability for any action taken, suffered or omitted in accordance
with any written instructions or certificates given to it hereunder
and believed by it to be signed by the proper party or parties.
(d) The Escrow Agent may consult with counsel of its
choice, including in-house counsel, and shall not be liable for
any action taken, suffered or omitted by it in accordance with
the advice of such counsel.
(e) In the event that the Escrow Agent shall be
uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands from any party hereto which, in
its opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action
and its sole obligation shall be to keep safely all property held
in escrow until it shall be directed otherwise in writing by all
of the other parties hereto or by a final order or judgment of a
court of competent jurisdiction.
(f) The Escrow Agent shall not be required to
institute legal proceedings of any kind and shall not be required
to initiate or defend any legal proceedings which may be
instituted against it in respect of the subject matter of this
Agreement. If the Escrow Agent elects to act it will do so only
to the extent that it is indemnified to its satisfaction against
the cost and expense of such defense or initiation.
(g) The Escrow Agent shall not be bound by any
modifications, amendment, termination, cancellation, rescission
or supersession of this Agreement unless the
9
<PAGE>
same shall be in writing and signed by all of the other parties
hereto and, if its rights, duties, immunities or indemnities as
Escrow Agent are affected thereby, unless it shall have given its
prior written consent thereto.
5.6 Resignation, Removal and Replacement of Escrow Agent.
(a) The Escrow Agent may at any time resign by giving
written notice of its resignation to the parties hereto at their
respective addresses set forth in this Agreement, at least ten
(10) days prior to the date specified for such resignation to
take effect, and, upon the effective date of such resignation,
all property then held by the Escrow Agent shall be delivered by
it to such person as may be designated in joint written
instructions executed by the Purchaser and Seller, whereupon all
of the Escrow Agent's duties and obligations hereunder shall
cease and terminate. If no such person shall have been
designated by such time, all duties and obligations of the Escrow
Agent shall nevertheless cease and terminate. The Escrow Agent's
sole responsibility thereafter shall be to keep safely all
property then held by it pursuant to this Agreement and to
deliver the same to a person or persons designated by joint
written instructions executed by Purchaser and Seller or in
accordance with the directions of a final order of judgment of a
court of competent jurisdiction.
(b) The Purchaser and Seller may at any time remove
the Escrow Agent for or without cause by an instrument or
instruments in writing signed by both and delivered to the Escrow
Agent, such removal to be effective upon the acceptance of
appointment by a successor pursuant to this Section 5.6.
10
<PAGE>
(c) In case the office of the Escrow Agent shall
become vacant for any reason, the Seller and the Purchaser may
appoint a successor Escrow Agent (eligible as provided in Section
5.7), to fill such vacancy by an instrument or instruments in
writing delivered to such successor Escrow Agent and the retiring
Escrow Agent, and absent such action by Seller and Purchaser, the
vacancy may be filled by action of a court of competent
jurisdiction. Upon the appointment of any successor Escrow Agent
pursuant to this Section 5.6, the successor Escrow Agent shall
immediately and without further act succeed to all the rights and
obligations of the retiring Escrow Agent under this Agreement as
if originally named herein, and the retiring Escrow Agent at the
expense of the Purchaser and Seller shall duly sign, transfer and
deliver to such successor Escrow Agent all the rights and monies
at the time held by the retiring Escrow Agent under this
Agreement and shall execute and deliver such proper instruments
as may be reasonably requested to evidence such assignment,
transfer and delivery.
5.7 Eligibility of Escrow Agent. The Escrow Agent
shall always be a state or national bank or trust company in good
standing, organized under the laws of the United States of
America or one of the states thereof, authorized under such laws
to exercise corporate trust powers, and having a capital and
surplus (as shown by its latest financial statement published to
its shareholders) aggregating at least $50,000,000, and having
its principal corporate trust office in a jurisdiction acceptable
to Purchaser and Seller. In case at any time the Escrow Agent
shall cease to be eligible in accordance with the provisions of
this Section 5.7, the Escrow Agent shall resign immediately in
the manner and with the effect specified in Section 5.6.
11
<PAGE>
ARTICLE 6
AMENDMENT, REVOCATION AND TERMINATION
This Agreement may be amended only by an instrument in
writing executed by or on behalf of each of the parties hereto.
This Agreement and the escrow created hereunder is irrevocable.
Upon distribution of all the Escrowed Property in accordance with
the terms of this Agreement to Purchaser and Seller, in
accordance with their respective interests determined pursuant to
the provisions hereof, this Agreement shall terminate and the
Escrow Agent, at the request and expense of the Purchaser and
Seller, will execute and deliver to the Purchaser and Seller a
proper instrument or instruments acknowledging the satisfaction
and termination of this Agreement.
ARTICLE 7
MISCELLANEOUS
7.1 Notices. Any notice, permitted or required to be
given pursuant to this Agreement, shall be sufficiently given if
sent by registered or certified mail return receipt requested or
by hand delivery (including overnight delivery service) to each
of the other parties at the addresses given below or to such
other address as a party may designate by notice to each of the
other parties. Any notice called for by this Agreement shall be
deemed given if (i) delivered by hand, when delivered, or (ii)
sent by certified mail, when mailed.
(a) To Purchaser:
Mr. Joseph C. Reynolds
Chief Mortgage Officer
Carolina First Bank
1420 Lady Street
P.O. Box 12249
Columbia, South Carolina 29211
Fax: (803) 929-5365
12
<PAGE>
With a copy to:
William P. Crawford, Jr., Esq.
Wyche, Burgess, Freeman & Parham
P.O. Box 728
Greenville, South Carolina 29602
Fax: (803) 242-8324
(b) To Seller:
HomeBanc Mortgage Corporation
5775 Glenridge Drive
Building E, Suite 500
Atlanta, Georgia 30328
Fax: (404) 303-4017
With a copy to:
Jeffrey A. Allred, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
400 Colony Square, Suite 2200
1201 Peachtree Street, N.E.
Atlanta, Georgia 30316
Fax: (404) 817-6050
(c) To Escrow Agent:
Trust Company Bank of Georgia
7.2 Entire Agreement. This Agreement, the Purchase
and Sale Agreement, and the Interim Servicing Agreement between
Purchaser and Seller (and the agreements and instruments
referenced therein) supersede all prior discussions and
agreements between and among the parties with respect to the
matters contained herein and contain the sole and entire
agreement between the parties hereto with respect to the matters
contained herein and therein.
13
<PAGE>
7.3 Counterparts; Headings. This Agreement may be
executed in any number of counterparts, each of which will be
deemed an original, but all of which will constitute one and the
same instrument. The headings in this Agreement are for the
purpose of reference only and shall not limit or define the
meaning hereof.
7.4 Binding Effect. This Agreement will be binding
upon and will inure to the benefit of the parties hereto and
their respective successors, executors, administrators and
assigns.
7.5 Assignment. This Agreement may not be assigned by
any party without the consent of the others provided, however,
that this Agreement, and any rights or obligations hereunder, may
be assigned or delegated by Seller without the prior consent of
Purchaser or Escrow Agent after the Sale Date (as defined in the
Purchase and Sale Agreement) to any then current or former
holders of capital stock of Seller or their designees, but such
delegation shall not relieve Seller of primary responsibility for
its obligations hereunder.
7.6 Governing Law. The rights, duties and obligations
of the Escrow Agent under this Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia,
and any action brought in respect thereof shall be brought in the
courts of the State of Georgia, located in the County of Fulton,
the jurisdiction of such courts being irrevocably consented to by
the parties hereto.
14
<PAGE>
7.7 Further Assurances. Purchaser, Seller and Escrow
Agent each will, at any time and from time to time after the date
hereof, upon the request of one of the other, do, execute,
acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney,
receipts, acknowledgments, acceptances and assurances as may be
reasonably required to satisfy and perform the obligations of
such party hereunder.
7.8 Singular/Plural; Gender. Where the context
requires or permits, the use of the singular form includes the
plural, and the use of the plural form includes the singular, and
the use of any gender includes any and all genders.
15
<PAGE>
IN WITNESS WHEREOF, the parties have, or have caused this
Agreement to be, duly executed, delivered and sealed as of the
day first above written.
CAROLINA FIRST BANK
By:
Title:
HOMEBANC MORTGAGE CORPORATION
By:
Title:
TRUST COMPANY BANK OF GEORGIA
By:
Title:
16
<PAGE>
SCHEDULE A
SCHEDULE OF FEES AND EXPENSES
[To be provided by Escrow Agent.]
<PAGE>
CAROLINA FIRST CORPORATION EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1st Qtr 1995 2nd Qtr 1995 YTD 2nd Qtr 1995
<S> <C> <C> <C>
A.Net income............................................. $2,183,000 $2,153,000 $4,336,000
Less: Dividends on preferred stock.................... 727,000 685,000 1,412,000
B.Net income applicable to common shareholders........... $1,456,000 $1,468,000 $2,924,000
PRIMARY EARNINGS PER SHARE
Average shares outstanding............................. 5,923,317 6,099,239 6,011,278
Dilutive average shares outstanding
under options....................................... 251,742 261,723 256,733
Exercise prices........................................ $6.06 to $12.38 $6.06 to $12.38 $6.06 to $12.38
Assumed proceeds on exercise........................... $1,683,560 $1,807,092 $1,745,326
Average market value per share......................... 14.29 13.94 14.11
Less: Treasury stock purchased with the assumed
proceeds from exercise of options.................... 117,832 129,625 123,656
C.Adjusted average shares -- Primary..................... 6,057,227 6,231,337 6,144,354
Primary Earnings Per Share (B/C)....................... $0.24 $0.24 $0.48
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding............................. 5,923,317 6,099,239 6,011,278
Dilutive average shares outstanding under options...... 251,742 261,723 256,733
Exercise prices........................................ $6.06 to $12.38 $6.06 to $12.38 $6.06 to $12.38
Assumed proceeds on exercise........................... $1,683,560 $1,807,092 $1,745,326
Market value per share................................. 14.29 15.00 14.64
Less: Treasury stock purchased with the assumed
proceeds from exercise of options................... 117,832 120,473 119,185
Adjusted average shares................................ 6,057,227 6,240,489 6,148,826
Common shares from the assumed conversion
of Convertible Preferred Stock...................... 3,079,962 2,920,391 3,000,176
D.Adjusted average shares -- Fully diluted............... 9,137,189 9,160,880 9,149,002
Fully Diluted Earnings Per Share (A/D)................. $0.23 $0.24 $0.47
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 55,351
<INT-BEARING-DEPOSITS> 1,000
<FED-FUNDS-SOLD> 530
<TRADING-ASSETS> 1,004
<INVESTMENTS-HELD-FOR-SALE> 74,947
<INVESTMENTS-CARRYING> 79,907
<INVESTMENTS-MARKET> 79,041
<LOANS> 971,383
<ALLOWANCE> 8,275
<TOTAL-ASSETS> 1,278,502
<DEPOSITS> 1,018,373
<SHORT-TERM> 134,216
<LIABILITIES-OTHER> 9,522
<LONG-TERM> 26,334
<COMMON> 5,832
0
34,821
<OTHER-SE> 49,404
<TOTAL-LIABILITIES-AND-EQUITY> 1,278,502
<INTEREST-LOAN> 22,177
<INTEREST-INVEST> 1,922
<INTEREST-OTHER> 105
<INTEREST-TOTAL> 24,204
<INTEREST-DEPOSIT> 9,927
<INTEREST-EXPENSE> 12,143
<INTEREST-INCOME-NET> 12,061
<LOAN-LOSSES> 990
<SECURITIES-GAINS> 92
<EXPENSE-OTHER> 11,322
<INCOME-PRETAX> 3,316
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,153
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 8.99
<LOANS-NON> 318
<LOANS-PAST> 2,726
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,295
<CHARGE-OFFS> 1,099
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 8,275
<ALLOWANCE-DOMESTIC> 8,275
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
