-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pcl3yMCtwqLicizJLa8OJr2W4pX397wRddJFMd6jqLgSEhHVjXcv82apM22o7sAd AXZdIZg9ltWzkkHsZYAwfA== 0000798941-97-000008.txt : 19971117 0000798941-97-000008.hdr.sgml : 19971117 ACCESSION NUMBER: 0000798941-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CITIZENS BANCSHARES INC /DE/ CENTRAL INDEX KEY: 0000798941 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 561528994 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16471 FILM NUMBER: 97718921 BUSINESS ADDRESS: STREET 1: 239 FAYETTEVILLE STREET MALL CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9197557000 MAIL ADDRESS: STREET 1: PO BOX 27131 STREET 2: CTWO7 CITY: RALEIGH STATE: NC ZIP: 27611-7131 10-Q 1 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the period ended September 30, 1997 Commission File Number: 0-16471 First Citizens BancShares, Inc (Exact name of Registrant as specified in its charter) Delaware 56-1528994 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 239 Fayetteville Street, Raleigh, North Carolina 27601 (Address of principal executive offices) (zip code) (919) 716-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 ninety days. Yes X No _____ Class A Common Stock--$1 Par Value-- 9,631,599 shares Class B Common Stock--$1 Par Value-- 1,753,854 shares (Number of shares outstanding, by class, as of November 13, 1997) INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at September 30, 1997, December 31, 1996, and September 30, 1996 Consolidated Statements of Income for the three-month and nine-month periods ended September 30, 1997, and September 30, 1996 Consolidated Statements of Changes in Shareholders' Equity for the three-month and nine-month periods ended September 30, 1997, and September 30, 1996 Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 1997, and September 30, 1996 Note to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule 3.(ii) Amended Bylaws of Registrant (b) Reports on Form 8-K. During the quarter ended September 30, 1997, Registrant filed no Current Reports on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST CITIZENS BANCSHARES, INC. (Registrant) Dated: November 13, 1997 By:/s/Kenneth A. Black Kenneth A. Black Vice President, Treasurer, and Chief Financial Officer First Citizens BancShares, Inc and Subsidiaries Third Quarter 1997 Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries September 30* December 31# September 30* (thousands, except share data) 1997 1996 1996 Assets Cash and due from banks $451,772 $437,029 $422,343 Investment securities 2,432,424 2,138,831 1,912,448 Federal funds sold 70,000 156,000 203,600 Loans 5,208,195 4,930,508 4,914,748 Less reserve for loan losses 83,385 81,439 81,192 Net loans 5,124,810 4,849,069 4,833,556 Premises and equipment 264,066 229,496 222,118 Income earned not collected 63,268 60,175 56,942 Other assets 189,251 184,972 175,111 Total assets $8,595,591 $8,055,572 $7,826,118 Liabilities Deposits: Noninterest-bearing $1,104,615 $1,087,474 $1,084,166 Interest-bearing 6,193,269 5,866,554 5,724,199 Total deposits 7,297,884 6,954,028 6,808,365 Short-term borrowings 539,382 392,006 332,448 Long-term obligations 11,482 6,922 6,715 Other liabilities 84,353 87,109 85,626 Total liabilities 7,933,101 7,440,065 7,233,154 Shareholders' Equity Common stock: Class A - $1 par value (9,633,699; 9,651,900; and 9,668,576 shares issued, respectively) 9,634 9,652 9,669 Class B - $1 par value (1,756,229; 1,758,980; and 1,759,404 shares issued, respectively) 1,756 1,759 1,759 Surplus 143,760 143,760 143,753 Retained earnings 496,673 453,640 437,783 Unrealized gains on marketable equity securities, net of taxes 10,667 6,696 - Total shareholders' equity 662,490 615,507 592,964 Total liabilities and shareholders' equity $8,595,591 $8,055,572 $7,826,118 * Unaudited # Derived from the Consolidated Balance Sheets included in the 1996 Annual Report on Form 10-K. See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries Third Quarter 1997 Consolidated Statements of Income First Citizens BancShares, Inc. and Subsidiaries
Three Months Nine Months Ended September 30 Ended September 30 (thousands, except per share data, unaudited) 1997 1996 1997 1996 Interest income Loans $107,892 $104,013 $317,748 $306,779 Investment securities: U. S. Government 34,732 27,902 96,461 84,184 State, county and municipal 53 78 203 252 Other 25 43 84 131 Total investment securities interest income 34,810 28,023 96,748 84,567 Federal funds sold 2,792 2,234 7,555 5,194 Total interest income 145,494 134,270 422,051 396,540 Interest expense Deposits 62,063 57,090 178,778 172,712 Short-term borrowings 6,651 4,130 15,806 11,761 Long-term obligations 233 158 611 813 Total interest expense 68,947 61,378 195,195 185,286 Net interest income 76,547 72,892 226,856 211,254 Provision for loan losses 1,309 1,787 4,973 5,586 Net interest income after provision for loan losses 75,238 71,105 221,883 205,668 Noninterest income Trust income 2,808 2,269 8,361 6,792 Service charges on deposit accounts 10,615 10,072 30,865 30,497 Credit card income 5,574 4,505 14,190 11,652 Other service charges and fees 7,306 6,120 20,093 17,728 Other 4,784 3,111 9,886 8,553 Total noninterest income 31,087 26,077 83,395 75,222 106,325 97,182 305,278 280,890 Noninterest expense Salaries and wages 31,944 29,203 93,796 86,186 Employee benefits 5,967 5,239 17,883 15,181 Occupancy expense 6,066 5,600 17,571 16,411 Equipment expense 8,337 6,881 23,571 19,699 Other 24,247 31,174 69,141 72,168 Total noninterest expense 76,561 78,097 221,962 209,645 Income before income taxes 29,764 19,085 83,316 71,245 Income taxes 10,746 6,647 30,122 25,596 Net income $19,018 $12,438 $53,194 $45,649 Per Share Net income $1.67 $1.08 $4.67 $4.03 Cash dividends 0.250 0.225 0.750 0.675 See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Consolidated Statements of Changes in Shareholders' Equity First Citizens BancShares, Inc. and Subsidiaries
Class A Class B Unrealized Gain Common Common Retained on Marketable Total (thousands, except share data, unaudited) Stock Stock Surplus Earnings Equity Securit Equity Balance at December 31, 1995 $8,950 $1,766 $106,954 $403,167 $520,837 Issuance of 87,992 shares of Class A common stock pursuant to the Employee Stock Purchase Plan 87 3,951 4,038 Issuance of 8,736 shares of Class A common stock pursuant to the Dividend Reinvestment Plan 9 114 123 Issuance of 668,654 shares of Class A common stock in connection with various acquisitions 669 32,734 33,403 Redemption of 46,520 shares of Class A common stock and 7,060 shares Class B common stock (46) (7) (3,321) (3,374) Net income 45,649 45,649 Cash dividends (7,712) (7,712) Balance at September 30, 1996 $9,669 $1,759 $143,753 $437,783 $592,964 Balance at December 31, 1996 $9,652 $1,759 $143,760 $453,640 $6,696 $615,507 Redemption of 18,201 shares of Class A common stock and 2,751 shares of Class B common stock (18) (3) (1,627) (1,648) Net income 53,194 53,194 Unrealized gain on marketable equity securities, net of taxes 3,971 3,971 Cash dividends (8,534) (8,534) Balance at September 30, 1997 $9,634 $1,756 $143,760 $496,673 $10,667 $662,490 See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Consolidated Statements of Cash Flows First Citizens BancShares, Inc. and Subsidiaries
Nine Months Ended September 30 (thousands, unaudited) 1997 1996 Operating Activities Net income $53,194 $45,649 Adjustments: Amortization of intangibles 6,665 6,032 Provision for loan losses 4,973 5,586 Deferred tax benefit (760) (1,966) Change in current taxes payable (1,326) 874 Depreciation 14,009 12,700 Change in accrued interest payable (1,849) (3,815) Change in income earned not collected (3,210) 2,371 Origination of loans held for sale (312,429) (124,649) Proceeds from sale of loans 321,909 77,465 (Gain) loss on mortgage loans 300 69 Net amortization of premiums and discounts 5,491 9,705 Net change in other assets 10,093 (3,442) Net change in other liabilities (3,563) 6,556 Net cash provided by operating activities 93,497 33,135 Investing Activities Net increase in loans outstanding (253,192) (86,055) Purchases of investment securities (651,725) (624,374) Proceeds from maturities of investment securities 363,770 703,613 Net change in federal funds sold 86,000 (163,155) Dispositions of premises and equipment 1,305 4,263 Additions to premises and equipment (48,594) (28,854) Purchase of institutions, net of cash acquired 105,535 7,584 Net cash used by investing activities (396,901) (186,978) Financing Activities Net change in time deposits 185,438 44,550 Net change in demand and other interest-bearing dep (9,045) 167,339 Net change in short-term borrowings 151,936 (77,408) Repurchases of common stock (1,648) (3,374) Proceeds from issuance of stock - 4,161 Cash dividends paid (8,534) (7,712) Net cash provided by financing activities 318,147 127,556 Change in cash and due from banks 14,743 (26,287) Cash and due from banks at beginning of period 437,029 448,630 Cash and due from banks at end of period $451,772 $422,343 Cash payments for: Interest $197,558 $189,101 Income taxes 27,476 27,569 Supplemental disclosure of noncash investing and financing activities: Common stock issued for acquisitions - $33,403 Long-term obligations issued for acquisitions - 1,468 Unrealized gain on marketable equity securities $6,575 - See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Financial Summary
1997 1996 Nine Months Ended Third Second First Fourth Third September 30 (thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter 1997 1996 S> Summary of Operations Interest Income $145,494 $140,118 $136,439 $137,655 $134,270 $422,051 $396,540 Interest income - taxable equivalent 145,999 140,634 136,961 138,222 134,837 423,594 398,279 Interest expense 68,947 64,542 61,706 62,964 61,378 195,195 185,286 Net interest income-taxable equivalent 77,052 76,092 75,255 75,258 73,459 228,399 212,993 Taxable equivalent adjustment 505 516 522 567 567 1,543 1,739 Net interest income 76,547 75,576 74,733 74,691 72,892 226,856 211,254 Provision for loan losses 1,309 2,097 1,567 3,321 1,787 4,973 5,586 Net interest income after provision for loan los 75,238 73,479 73,166 71,370 71,105 221,883 205,668 Noninterest income 31,087 28,894 23,414 28,082 26,077 83,395 75,222 Noninterest expense 76,561 74,817 70,584 69,023 78,097 221,962 209,645 Income before income taxes 29,764 27,556 25,996 30,429 19,085 83,316 71,245 Income taxes 10,746 9,972 9,404 10,611 6,647 30,122 25,596 Net income 19,018 $17,584 $16,592 $19,818 $12,438 $53,194 $45,649 Selected Average Balances Total assets 8,411,774 $8,099,236 $7,903,566 $7,935,197 $7,670,538 $8,140,047 $7,595,760 Investment securities 2,359,115 2,166,362 2,094,376 2,097,690 1,919,935 2,207,587 1,964,606 Loans 5,073,404 5,023,409 4,921,346 4,895,815 4,907,435 5,006,665 4,824,286 Interest-earning assets 7,632,755 7,368,645 7,196,138 7,209,982 6,989,109 7,400,834 6,913,094 Deposits 7,144,502 6,952,848 6,823,697 6,831,926 6,641,427 6,974,860 6,593,327 Interest-bearing liabilities 6,608,892 6,341,125 6,203,598 6,185,161 6,017,476 6,386,022 5,997,428 Long-term obligations 12,017 11,545 6,809 6,866 7,762 10,142 15,705 Shareholders' equity 651,923 $635,680 $619,956 $599,953 $589,618 $635,667 $569,400 Shares outstanding 11,389,472 11,394,965 11,398,246 11,415,943 11,441,007 11,394,195 11,315,813 Profitability Ratios (averages) Rate of return (annualized) on: Total assets 0.90% 0.87% 0.85% 0.99% 0.65% 0.87% 0.80% Shareholders' equity 11.57 11.10 10.85 13.14 8.39 11.19 10.71 Dividend payout ratio 14.97 16.23 17.12 14.37 19.57 16.06 16.75 Liquidity and Capital Ratios (averages) Loans to deposits 71.01% 72.25% 72.12% 71.66% 73.89% 71.78% 73.17% Shareholders' equity to total assets 7.75 7.85 7.84 7.56 7.69 7.81 7.50 Time certificates of $100,000 or more to total deposits 9.68 9.36 9.30 8.79 8.61 9.47 9.03 Per Share of Stock Net income $1.67 $1.54 $1.46 $1.74 $1.08 $4.67 $4.03 Cash dividends 0.250 0.250 0.250 0.250 0.225 0.75 0.675 Book Value at period end 58.16 56.55 55.22 53.94 51.89 58.16 51.89 Tangible book value at period end 49.27 48.10 46.89 45.42 43.03 49.27 43.03
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Outstanding Loans by Type
Table 2 1997 1996 Third Second First Fourth Third (thousands) Quarter Quarter Quarter Quarter Quarter Real estate: Construction and land development $108,363 $109,125 $103,361 $109,806 $107,651 Mortgage: 1-4 family residential 1,411,922 1,383,250 1,529,972 1,542,836 1,587,352 Commercial 970,553 942,637 906,408 882,067 850,358 Equity Line 548,959 510,067 430,924 411,856 411,893 Other 133,661 134,793 134,852 132,954 135,241 Commercial and industrial 588,158 569,327 533,812 514,535 516,857 Consumer 1,355,783 1,258,330 1,230,501 1,251,704 1,218,605 Lease financing 75,922 73,861 69,496 68,694 69,984 Other 14,874 15,380 15,809 16,056 16,807 Total loans 5,208,195 4,996,770 4,955,135 4,930,508 4,914,748 Less reserve for loan losses 83,385 81,902 81,459 81,439 81,192 Net loans $5,124,810 $4,914,868 $4,873,676 $4,849,069 $4,833,556
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Investment Securities
Table 3 September 30, 1997 September 30, 1996 Average Taxable Average Taxable Book Fair Maturity Equivalent Book Fair Maturity Equivalent (thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield U. S. Government: Within one year $1,054,982 $1,055,159 0/6 5.77% $749,731 $750,814 0/6 5.97 One to five years 1,363,244 1,365,991 1/10 5.97 1,142,458 1,133,318 1/9 5.78 Five to ten years 2,906 2,961 6/0 5.52 3,251 2,175 6/10 5.76 Over ten years 4,855 4,976 19/10 7.50 7,733 7,752 18/7 7.43 Total 2,425,987 2,429,087 1/3 5.88 1,903,173 1,894,059 1/4 5.85 State, county and municipal: Within one year 910 1,119 0/7 6.23 777 781 0/9 6.32 One to five years 3,425 3,491 2/11 6.89 4,067 4,332 2/11 6.95 Five to ten years 509 544 5/2 8.16 1,271 1,293 5/1 6.29 Over ten years 175 175 19/11 9.14 185 185 20/11 9.14 Total 5,019 5,329 3/3 6.98 6,300 6,591 3/9 6.99 Other Within one year 853 852 0/4 14.20 1,553 1,552 0/6 6.48 One to five years 555 552 1/5 5.42 1,377 1,631 1/10 11.08 Five to ten years 10 10 5/4 5.63 45 45 5/8 5.43 Total 1,418 1,414 0/9 12.37 2,975 2,958 11/9 8.62 Total investment securities $2,432,424 $2,435,830 1/3 5.89% $1,912,448 $1,903,608 1/4 5.87% /Table> First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Third Quarter
Table 4 1997 1996 Increase (decrease) due to: Interest Interest Average Income Yield Average Income Yield Yield (thousands) Balance Expense /Rate Balance Expense /Rate Volume /Rate Total Assets Loans: Secured by real estate $3,092,757 $64,611 8.33 % $3,089,270 $63,442 8.17 % ($3) $1,172 $1,169 Commercial and industrial 583,231 13,079 8.68 513,849 11,616 8.56 1,402 61 1,463 Consumer 1,305,113 28,731 8.80 1,218,164 27,734 9.00 1,781 (784) 997 Lease financing 77,472 1,621 8.85 69,089 1,393 8.07 131 97 228 Other 14,831 327 7.71 17,063 352 8.19 (25 0 (25) Total loans 5,073,404 108,369 8.52 4,907,435 104,537 8.43 3,286 546 3,832 Investment securities: U. S. Government 2,352,277 34,732 5.86 1,910,705 27,902 5.81 6,528 302 6,830 State, county and municipal 5,213 81 6.16 6,253 121 7.70 (18 (22) (40) Other 1,625 25 6.10 2,977 43 5.75 (20 2 (18) Total investment securities 2,359,115 34,838 5.86 1,919,935 28,066 5.82 6,490 282 6,772 Federal funds sold 200,237 2,792 5.53 161,739 2,234 5.49 537 21 558 Total interest-earning assets $7,632,756 $145,999 7.62 % $6,989,109 $134,837 7.64 % $10,313 $849 $11,162 Liabilities Deposits: Checking With Interest $923,049 $2,478 1.07 % $867,218 $2,549 1.17 % $156 ($227) ($71) Savings 707,477 3,588 2.01 724,255 3,769 2.07 (80 (101) (181) Money market accounts 933,002 8,806 3.74 821,078 7,371 3.57 1,045 390 1,435 Time deposits 3,516,673 47,191 5.32 3,246,938 43,401 5.32 3,703 87 3,790 Total interest-bearing deposits 6,080,201 62,063 4.05 5,659,489 57,090 4.01 4,824 149 4,973 Federal funds purchased 20,386 284 5.53 14,534 273 7.47 96 (85) 11 Repurchase agreements 36,894 407 4.38 20,933 227 4.31 175 5 180 Master notes 313,366 3,689 4.67 280,947 3,142 4.45 377 170 547 U. S. Treasury tax and loan accounts 13,365 260 7.72 17,117 219 5.09 (60 101 41 Other short-term borrowings 132,663 2,011 6.01 16,694 269 6.41 1,816 (74) 1,742 Long-term obligations 12,017 233 7.69 7,762 158 8.10 85 (10) 75 Total interest-bearing liabilities $6,608,892 $68,947 4.14 % $6,017,476 $61,378 4.06 % $7,313 $256 $7,569 Interest rate spread 3.48 % 3.58 % Net interest income and net yield on interest-earning assets $77,052 4.01 % $73,459 4.18 % $3,000 $593 $3,593
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Nine Months
Table 5 1997 1996 Increase (decrease) due to Interest Interest Average Income/ Yield/ Average Income/ Yield/ Yield/ Total (thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change Assets Loans: Secured by real estate $3,100,969 $191,645 8.23% $3,032,058 $187,243 8.17 $3,626 $776 $4,402 Commercial and industrial 553,339 36,767 8.48 496,365 33,706 8.56 3,503 (442) 3,061 Consumer 1,265,298 85,276 8.92 1,213,816 82,514 9.00 3,483 (721) 2,762 Lease financing 71,834 4,616 8.57 65,337 3,906 8.07 429 281 710 Other 15,225 878 7.71 16,710 1,013 8.19 (83) (52) (135) Total loans 5,006,665 319,182 8.51 4,824,286 308,382 8.53 10,958 (158) 10,800 Investment securities: U. S. Government 2,199,958 96,461 5.86 1,954,881 84,184 5.75 10,604 1,673 12,277 State, county and municipal 5,775 312 7.22 6,748 388 7.68 (54) (22) (76) Other 1,854 84 6.06 2,977 131 5.88 (50) 3 (47) Total investment securities 2,207,587 96,857 5.87 1,964,606 84,703 5.76 10,500 1,654 12,154 Federal funds sold 186,582 7,555 5.41 124,202 5,194 5.59 2,568 (207) 2,361 Total interest-earning assets $7,400,834 $423,594 7.65 $6,913,094 $398,279 7.69 $24,026 $1,289 $25,315 Liabilities Deposits: Checking With Interest $914,580 $7,323 1.07 $865,771 $8,207 1.27 $437 ($1,321) ($884) Savings 709,681 10,875 2.05 719,184 11,309 2.10 (157) (277) (434) Money market accounts 900,416 24,875 3.69 814,794 21,524 3.53 2,318 1,033 3,351 Time deposits 3,419,691 135,705 5.31 3,247,178 131,672 5.42 6,849 (2,816) 4,033 Total interest-bearing deposits 5,944,368 178,778 4.02 5,646,927 172,712 4.09 9,447 (3,381) 6,066 Federal funds purchased 24,916 955 5.12 28,015 1,357 6.47 (135) (267) (402) Repurchase agreements 28,337 915 4.32 21,424 697 4.35 224 (6) 218 Master notes 295,600 10,103 4.57 257,752 8,547 4.43 1,270 286 1,556 U. S. Treasury tax and loan accou 11,965 702 7.84 14,814 574 5.18 (139) 267 128 Other short-term borrowings 70,694 3,131 5.92 12,791 586 6.12 2,607 (62) 2,545 Long-term obligations 10,142 611 8.05 15,705 813 6.91 (312) 110 (202) Total interest-bearing liabilitie $6,386,022 $195,195 4.09 $5,997,428 $185,286 4.13 $12,962 ($3,053) $9,909 Interest rate spread 3.56 3.56 Net interest income and net yield on interest-earning assets $228,399 4.13% $212,993 4.12% $11,064 $4,342 $15,406
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 Summary of Loan Loss Experience and Risk Elements
Table 6 1997 1996 Nine Months Ended Third Second First Fourth Third September 30 (thousands, except ratios) Quarter Quarter Quarter Quarter Quarter 1997 1996 Reserve balance at beginning of period $81,902 $81,459 $81,439 $81,192 $81,026 $81,439 $78,495 Reserve of acquired loans 358 123 481 1,387 Provision for loan losses 1,309 2,107 1,557 3,321 1,787 4,973 5,586 Net charge-offs: Charge-offs (3,162) (3,774) (3,538) (3,860) (2,697) (10,474) (7,793) Recoveries 2,978 1,987 2,001 786 1,076 6,966 3,517 Net (charge-offs) recoveries (184) (1,787) (1,537) (3,074) (1,621) (3,508) (4,276) Reserve balance at end of period $83,385 $81,902 $81,459 $81,439 $81,192 $83,385 $81,192 Historical Statistics Balances Average total loans $5,073,404 $5,023,409 $4,921,346 $4,895,815 $4,907,435 $5,006,665 $,824,286 Total loans at period-end 5,208,195 4,996,770 4,955,135 4,930,508 4,914,748 5,208,195 ,914,748 Risk Elements Nonaccrual loans $11,983 $14,589 $14,628 $12,810 $14,213 11,983 14,213 Other real estate acquired through foreclosure 1,450 1,152 1,337 1,160 1,634 1,450 1,634 Total nonperforming assets $13,433 $15,741 $15,965 $13,970 $15,847 $13,433 $15,847 Accruing loans 90 days or more past due $4,157 $4,503 $5,748 $4,983 $5,601 $4,157 $5,601 Ratios Net charge-offs (annualized) to average tota 0.01 % 0.14 % 0.13 % 0.25 % 0.13 % 0.09 % 0.12 Reserve for loan losses to total loans at pe 1.60 1.64 1.64 1.65 1.65 1.60 1.65 Nonperforming assets to total loans plus foreclosed real estate at period-end 0.26 0.31 0.32 0.28 0.32 0.26 0.32
First Citizens BancShares, Inc. and Subsidiaries Third Quarter 1997 INTRODUCTION Management's discussion and analysis of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and Subsidiaries ("BancShares"). It should be read in conjunction with the unaudited Consolidated Financial Statements and related notes presented within this report. The focus of this discussion concerns BancShares' three banking subsidiaries. First-Citizens Bank & Trust Company ("FCB") operates branches in North Carolina and Virginia; First-Citizens Bank & Trust Company of West Virginia ("FCBWV") operates in West Virginia; and Atlantic States Bank operates offices in Georgia and North Carolina. SUMMARY BancShares realized an increase in earnings of 52.9 percent during the third quarter of 1997 compared to the third quarter of 1996. Consolidated net income during the third quarter of 1997 was $19 million, compared to $12.4 million earned during the corresponding period of 1996. The increase was primarily due to the negative impact of the 1996 third quarter FDIC SAIF deposit assessment. Net income during 1997 also benefitted from improved net interest income and growth in noninterest income. Net income per share during the third quarter of 1997 totaled $1.67, compared to $1.08 during the third quarter of 1996. Return on average assets was 0.90 percent for the third quarter of 1997 compared to 0.65 percent during the same period of 1996. For the first nine months of 1997, BancShares recorded net income of $53.2 million, compared to $45.6 million earned during the first nine months of 1996. The 16.5 percent increase was the net result of beneficial increases in net interest income and noninterest income that were partially offset by higher noninterest expenses. Net income per share for the first nine months of 1997 was $4.67, compared to $4.03 during the same period of 1996. BancShares returned 0.87 percent on average assets during the first nine months of 1997 compared to 0.80 percent during the corresponding period of 1996. During 1997, BancShares has purchased a total of seven branch offices from other banks. BancShares also purchased First Savings Financial Corp., the parent of First Savings Bank in Reidsville, North Carolina. These acquisitions contributed a total of $167.5 million in deposits and $37.8 million in loans. All other increases result from the existing banking network. Other profitability, liquidity and capital ratios are presented in Table 1. To understand the changes and trends in interest-earning assets and interest-bearing liabilities, refer to the average balance sheets presented in Table 4 for the third quarter and Table 5 for the first nine months of 1997 and 1996. INTEREST-EARNING ASSETS Average interest-earning assets for the third quarter of 1997 totaled $7.63 billion, an increase of $643.6 million or 9.2 percent from the third quarter of 1996. For the first nine months of 1997, earning assets averaged $7.40 billion, an increase of $487.7 million over the same period of 1996. These increases result from growth in the investment and loan portfolios. Loans. At September 30, 1997 and 1996, gross loans totaled $5.21 billion and $4.91 billion, respectively. As of December 31, 1996, gross loans were $4.93 billion. The $293.4 million growth in loans from September 30, 1996 to September 30, 1997 results from growth within BancShares' commercial loan products and retail growth within home equity and sales finance products during 1997. Acquisitions during 1997 contributed $37.8 million in loans outstanding at September 30, 1997. Table 2 details outstanding loans by type for the past five quarters. During the third quarter of 1997, average loans totaled $5.07 billion, an increase of $166 million or 3.4 percent from the comparable period of 1996. Consumer loans averaged $1.31 billion during the third quarter of 1997, compared to $1.22 billion during the same period of 1996, an increase of $87 million or 7.1 percent. Much of that growth results from indirect automobile financing. Average commercial and industrial loans increased $69.4 million between the two periods, a 13.5 percent increase. Loans secured by real estate averaged $3.09 billion during the third quarter of both years. This component of the loan portfolio remained essentially unchanged as sales of residential mortgage loans offset the increases in retail home equity loans. For the year-to-date, loans have averaged $5.01 billion for 1997 compared to $4.82 billion for the same period of 1996. This $182.4 million or 3.8 percent increase is likewise due to growth among small business and retail customers. The 2.3 percent increase in loans secured by real estate includes the impact of the sale of the residential mortgage loans, partially offsetting the robust growth in home equity loans during 1997. As of September 30, 1997, $17.9 million in fixed-rate residential mortgage loans are classified as held for sale. All loans held for sale are carried at the lower of cost or market. During the first nine months of 1997, BancShares sold $250.7 million in residential mortgage loans, compared to sales of $77.5 million during the same period of 1996. The sales during 1997 have resulted in a net loss of $300,000, compared to a net loss of $67,000 from loan sales during 1996. Mortgage loan sale activity during the first nine months of 1997 has resulted from two primary goals. First, as in the past, management seeks to lessen the exposure to changes in interest rates by selling portions of its long-term fixed-rate loan portfolio. Second, management has focused on strengthening BancShares' capacity to meet the loan demand that has been growing among commercial borrowers during recent quarters. The sales of residential mortgage loans has supported both objectives. Management anticipates modest growth among commercial and indirect installment loans for the rest of 1997. Direct installment loans and real-estate loans will likely see sluggish loan growth. All growth projections, however, remain dependent on interest rates, as any upward pressure on interest rates will likely deter retail borrowers and may also impair commercial loan growth. Investment securities. At September 30, 1997 and 1996, the investment portfolio totaled $2.43 billion and $1.91 billion, respectively. At December 31, 1996, the investment portfolio was $2.14 billion. The 27.2 percent increase in the investment portfolio since September 30, 1996 resulted from deposit growth that has exceeded loan demand. All securities are classified as held-to-maturity, as BancShares has the ability and the positive intent to hold its investment portfolio until maturity. Table 3 presents detailed information relating to the investment portfolio. Included in other assets are marketable equity securities with a current fair value of $29.2 million. These securities are reported at their fair values, with the adjustment to historical cost recorded, net of deferred taxes, as an adjustment to shareholders' equity. Income on Interest-Earning Assets. Interest income amounted to $145.5 million during the third quarter of 1997, an 8.4 percent increase over the third quarter of 1996. Balance sheet growth contributed to higher interest income in the third quarter of 1997 when compared to the same period of 1996. The average yield on total interest-earning assets for the third quarter of 1997 was 7.62 percent, compared to 7.64 percent for the corresponding period of 1996. Loan interest income for the third quarter of 1997 was $107.9 million, an increase of $3.9 million or 3.7 percent from the third quarter of 1996, due to volume growth. The taxable-equivalent yield on the loan portfolio was 8.52 percent during the third quarter of 1997, compared to 8.43 percent during the same period of 1996. The improved loan yield reflects the sale of lower-yielding residential mortgage loans during 1997. For the nine months ending September 30, 1997, loan interest income was $317.7 million, an increase of $11 million or 3.6 percent over the same period of 1996. The increase in interest income reflects the growth in the loan portfolio. Income earned on the investment securities portfolio amounted to $34.8 million during the third quarter of 1997 and $28 million during the same period of 1996, an increase of $6.8 million or 24.2 percent. This increase is the result of a $439.2 million increase in the average securities portfolio. The securities portfolio taxable-equivalent yield increased from 5.82 percent for the quarter ended September 30, 1996, to 5.86 percent for the quarter ended September 30, 1997. For the nine months ending September 30, 1997, interest income from investment securities was $96.7 million, compared to $84.6 million during the same period of 1996, an increase of 14.4 percent. This increase is the direct result of growth in the securities portfolio. INTEREST-BEARING LIABILITIES At September 30, 1997 and 1996, interest-bearing liabilities totaled $6.74 billion and $6.06 billion, respectively, compared to $6.27 billion as of December 31, 1996. During the third quarter of 1997, interest-bearing liabilities averaged $6.61 billion, an increase of 9.8 percent from the third quarter of 1996. Growth in interest-bearing deposit accounts caused much of the increase, resulting from acquired branches as well as new deposits from existing customers. Deposits. At September 30, 1997, total deposits were $7.30 billion, an increase of $489.5 million or 7.2 percent over September 30, 1996. Compared to the December 31, 1996 balance of $6.95 billion, total deposits have increased $343.9 million. Acquisitions during 1997 have contributed a total of $167.5 million in deposits. Average interest-bearing deposits were $6.08 billion during the third quarter of 1997 compared to $5.66 billion during the third quarter of 1996, an increase of 7.4 percent. Much of the increase is attributed to average time deposits, which increased $269.7 million from the third quarter of 1996 to the third quarter of 1997. Much of the growth in time deposits has resulted from the in-store network that has expanded significantly during 1997. Average money market accounts increased $111.9 million from the third quarter of 1996 to the third quarter of 1997, while average Checking With Interest accounts increased $55.8 million between the two periods. Time deposits of $100,000 or more averaged 9.68 percent of total average deposits during the third quarter of 1997, compared to 8.61 percent during the same period of 1996. Management does not consider the current level of high dollar deposits to be excessive. Borrowed Funds. At September 30, 1997, short-term borrowings totaled $539.4 million compared to $392 million at December 31, 1996 and $332.4 million at September 30, 1996. For the quarters ended September 30, 1997 and 1996, short-term borrowings averaged $516.7 million and $350.2 million, respectively. This increase resulted from short-term borrowings relating to the formation of First Citizens Bank, A Virginia Corporation during the second quarter of 1997. This company, a wholly-owned subsidiary of FCB, was created to own the retail credit cards originated through FCB. The debt associated with the new subsidiary is expected to remain outstanding until early 1998. Long-term obligations averaged $12 million during the third quarter of 1997, compared to $7.8 million during the third quarter of 1996. The increase in long-term obligations results from the modification of outstanding debt during the second quarter that extended the repayment of a note payable by another subsidiary of FCB. Expense on Interest-Bearing Liabilities. BancShares' interest expense amounted to $68.9 million during the third quarter of 1997, a $7.6 million or 12.3 percent increase from the third quarter of 1996. The higher interest expense was the result of the $591.4 million increase in average interest-bearing liabilities. The rate on these liabilities was 4.14 percent during the third quarter of 1997, compared to 4.06 percent during the third quarter of 1996. For the year-to-date, interest expense was $195.2 million, compared to $185.3 million for the same period of 1996. The 5.3 percent increase is largely due to the growth in time deposits. NET INTEREST INCOME Net interest income totaled $76.5 million during the third quarter of 1997, an increase of 5 percent from the third quarter of 1996. The taxable-equivalent net yield on interest-earning assets was 4.01 percent for the third quarter of 1997, down 17 basis points from the 4.18 percent achieved for the third quarter of 1996. The taxable equivalent interest rate spread for the third quarter of 1997 was 3.48 percent compared to 3.58 percent for the same period of 1996. A principal objective of BancShares' asset/liability management function is to manage interest rate risk or the exposure to changes in interest rates. Management maintains portfolios of interest-earning assets and interest-bearing liabilities with maturities or repricing opportunities that will protect against wide interest rate fluctuations, thereby limiting, to the extent possible, the ultimate interest rate exposure. Management is aware of the potential negative impact that movements in market interest rates may have on net interest income. ASSET QUALITY Reserve for loan losses. Management continuously analyzes the growth and risk characteristics of the total loan portfolio under current and projected economic conditions in order to evaluate the adequacy of the reserve for loan losses. Such factors as the financial condition of the borrower, fair market value of collateral and other considerations are recognized in estimating possible credit losses. At September 30, 1997, the reserve for loan losses amounted to $83.4 million or 1.60 percent of loans outstanding. This compares to $81.4 million or 1.65 percent at December 31, 1996, and $81.2 million or 1.65 percent at September 30, 1996. Management considers the established reserve adequate to absorb losses that relate to loans outstanding at September 30, 1997. While management uses available information to establish provisions for loan losses, future additions to the reserve may be necessary based on changes in economic conditions or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the reserve for loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examination. The provision for loan losses charged to operations during the third quarter of 1997 was $1.3 million, compared to $1.8 million during the third quarter of 1996. Net charge-offs for the nine months ended September 30, 1997 totaled $3.5 million, compared to net charge-offs of $4.3 million during the same period of 1996. The lower level of net charge-offs during 1997 have resulted from an increase in commercial loan recoveries, which have more than offset the increase in revolving credit charge-offs as well as higher retail installment loan charge-offs. Management attributes the increase in revolving loan charge-offs and retail installment loan charge-offs to an increase in personal bankruptcies. The annualized net charge-offs represent only 0.09 percent of loans outstanding for the nine months ending September 30, 1997. Management remains committed to maintaining high levels of credit quality. Table 6 provides details concerning the reserve and provision for loan losses ov past five quarters and for the year-to-date for 1997 and 1996. Nonperforming assets. At September 30, 1997, BancShares' nonperforming assets amounted to $13.4 million or 0.26 percent of gross loans plus foreclosed properties, compared to $14 million at December 31, 1996, and $15.8 million at September 30, 1996. Management continues to closely monitor nonperforming assets, taking necessary actions to minimize potential exposure. NONINTEREST INCOME During the first nine months of 1997, noninterest income was $83.4 million, compared to $75.2 million during the same period of 1996. The 10.9 percent increase was due to growth in the credit card operation, higher other service charge and fee income, and improved trust income. Fee income from the credit card operation has improved as a result of the relocation of the credit card accounts to the Virginia bank. Continued growth in merchant income and the number of cardholders has also contributed to a 21.8 percent increase in credit card fee income from the first nine months of 1996 to the same period of 1997. Income earned by the trust department increased 23.1 percent from the first nine months of 1997, the result of growth in assets under management. Other service charges and fees includes fees earned by First Citizens Investor Services, which, during the first nine months of 1997, were $3.9 million compared to $2.5 million during the same period of 1996. The 53.7 percent increase in fees resulted from growth in the subsidiary's sales of mutual fund and annuity products. Fee income also benefitted from a 12.1 percent increase in income generated from processing services provided to affiliate banks. These fees contributed $7.7 million during the first nine months of 1997, compared to $7.2 million during the same period of 1996. Results from the sale of residential mortgage loans is included in other income; these sale resulted in net losses of $300,000 for the first nine months of 1997, compared to net losses of $67,000 during the same period of 1996. NONINTEREST EXPENSE Noninterest expense was $222 million for the first nine months of 1997, a 5.9 percent increase over the $209.6 million recorded during the same period of 1996. The comparison of operating expenses between 1996 and 1997 is significantly affected by the 1996 SAIF assessment. Ignoring the impact of the 1996 SAIF assessment, the increase in noninterest expense would have been $22.6 million or 11.4 percent. Much of the increase in noninterest expense resulted from higher personnel-related expenses. Salaries and wages were $93.8 million during the first nine months of 1997, an increase of 8.8 percent or $7.6 million over the same period of 1996. This increase is the result of new associates hired for Atlantic States Bank, First Citizens Direct, and the bank's "in-store" Financial Service Centers. Employee benefits expense increased 17.8 percent from 1996 to 1997, the result of growth in health insurance expense. Equipment expense increased 19.7 percent during the first nine months of 1997, compared to the corresponding period of 1996 due to higher technology related expenditures. Equipment expenses increased $3.9 million during 1997. In addition to equipment purchases and leases, maintenance costs continue to grow, the result of investments in processing and delivery systems. Occupancy expense increased 7.1 percent during the first nine months of 1997, the result of higher rent and depreciation expense. The $1.2 million increase reflects the expanding branch franchise and the renovations of existing facilities and construction of new offices. The $3.0 million decrease in other expenses resulted from the absence of the FDIC insurance assessment which adversely affected other expenses during 1996. Without that single expense during the third quarter of 1996, other expenses would have increased $7.3 million or 11.8 percent. The significant increases in other expense include costs relating to technological issues related to the year 2000. During 1997, BancShares anticipates incurring $2 million in expense related to Year 2000 remediation, with an additional $2 million to $3 million incurred during 1998. Additional expense variances in other expenses during the first nine months of 1997 when compared to the same period of 1996 include a $1.4 million increase in advertising expense and a $1.2 million increase in costs associated with a cardholder award program. INCOME TAXES Income tax expense amounted to $30.1 million during the first nine months of 1997, compared to $25.6 million during the same period of 1996, a 17.7 percent increase resulting from higher pre-tax income. The effective tax rates for these periods were 36.2 percent and 36 percent, respectively. The slight increase in the effective tax rate from 1996 to 1997 results from an increase in state income taxes. LIQUIDITY Management relies on the investment portfolio as a source of liquidity, with maturities designed to provide needed cash flows. Further, retail deposits generated throughout the branch network have enabled management to fund asset growth and maintain liquidity. In the event additional liquidity is needed, BancShares maintains readily available sources to borrow funds through its correspondent network. SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY BancShares maintains an adequate capital position and exceeds all minimum regulatory capital requirements. At September 30, 1997 and 1996, the leverage capital ratio of BancShares was 6.6 percent and 6.4 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares' core capital ratio was 10.1 percent at September 30, 1997, and 9.9 percent as of September 30, 1996. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.4 percent at September 30, 1997 and 11.1 percent as of September 30, 1996. The minimum total capital ratio is 8 percent. BancShares and its subsidiary banks exceed the capital standards established by their respective regulatory agencies. CURRENT ACCOUNTING AND REGULATORY ISSUES The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information about Capital Structure," (collectively, the "Pronouncements"). The Pronouncements are effective for 1997 and require disclosures regarding the matters included in the respective titles. Adoption of each of the Pronouncements is not expected to have a material impact on BancShares' consolidated financial statements. FASB has also issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." SFAS. No. 130 and SFAS No. 131 will alter the disclosure requirements, but will have no impact on BancShares' consolidated financial statements. Management is not aware of any current recommendations by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations. NOTE A ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, the consolidated statements contain all material adjustments necessary to present fairly the financial position of First Citizens BancShares, Inc. as of and for each of the periods presented, and all such adjustments are of a normal recurring nature. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements should be read in conjunction with the financial statements and notes included in the 1996 First Citizens BancShares Annual Report, which is incorporated by reference on Form 10-K. Certain amounts for prior years have been reclassified to conform with statement presentations for 1997. However, the reclassifications have no effect on shareholders' equity or net income as previously reported. EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1997 SEP-30-1997 451,772 6,193,269 70,000 0 29,164 2,432,424 2,435,830 5,208,195 83,385 8,595,591 7,297,884 539,382 84,353 11,482 0 0 11,390 651,100 8,595,591 317,748 96,748 7,555 422,051 178,778 16,417 226,856 4,973 0 221,962 83,316 53,194 0 0 53,194 4.67 4.67 7.65 11,983 4,157 0 0 81,439 10,474 6,966 83,385 83,385 0 0 EX-3.(II) 3 BY-LAWS BYLAWS OF FIRST CITIZENS BANCSHARES, INC. (As last amended April 28, 1997) Index ARTICLE I Offices Section 1. Principal Office Section 2. Registered Offices Section 3. Other Offices ARTICLE II Meetings of Shareholders Section 1. Place of Meetings Section 2. Annual Meetings Section 3. Special Meetings Section 4. Notice of Meetings Section 5. Voting Lists Section 6. Quorum Section 7. Proxies Section 8. Voting of Shares Section 9. Informal Action By Shareholders Section 10. Presiding Officer ARTICLE III Directors Section 1. General Powers Section 2. Number, Term and Qualifications Section 3. Election of Directors Section 4. Removal Section 5. Vacancies Section 6. Chairman of the Board Section 7. Compensation Section 8. Committees of the Board ARTICLE IV Meetings of Directors Section 1. Regular Meetings Section 2. Special Meetings Section 3. Notice of Meetings Section 4. Quorum Section 5. Manner of Acting Section 6. Informal Action by Directors ARTICLE V Executive Committee Section 1. Membership and General Powers Section 2. Vacancies Section 3. Removal Section 4. Minutes Section 5. Responsibility of Directors Section 6. Ex Officio Members Section 7. Chairman of the Executive Committee ARTICLE VI Executive Management Group Section 1. Membership and Duties ARTICLE VII Officers Section 1. Number Section 2. Election and Term Section 3. Removal Section 4. Compensation Section 5. Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, and Preside Section 6. Vice Chairman Section 7. President Section 8. Executive Vice Presidents, Senior Vice Presidents and Other Vice Presidents Section 9. Secretary Section 10. Assistant Secretaries Section 11. Treasurer Section 12. Assistant Treasurers Section 13. Other Officers Section 14. Bonds ARTICLE VIII Contracts, Loans, Checks and Deposits Section 1. Contracts Section 2. Loans Section 3. Checks and Drafts Section 4. Deposits ARTICLE IX Certificates of Stock and Their Transfer Section 1. Certificates of Stock Section 2. Transfer of Stock Section 3. Fixing Record Date Section 4. Lost Certificates Section 5. Registered Shareholders Section 6. Treasury Shares ARTICLE X General Provisions Section 1. Dividends Section 2. Seal Section 3. Annual Statement Section 4. Notice and Waiver of Notice Section 5. Amendments Section 6. Fiscal Year Section 7. Indemnification Section 8. Disallowance of Deductions BYLAWS OF FIRST CITIZENS BANCSHARES, INC. (As last amended April 28, 1997) ARTICLE I Offices Section 1. Principal Office: The principal office of the corporation shall be located in Raleigh, Wake County, North Carolina. Section 2. Registered Offices: The registered office of the corporation required by law to be maintained in the State of Delaware shall be located in Wilmington, New Castle County, Delaware. The registered office of the corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office. Section 3. Other Offices: The corporation may have offices at such other places, either within or without the State of Delaware, as the Board of Directors from time to time may determine, or as the affairs of the corporation may require. ARTICLE II Meetings of Shareholders Section 1. Place of Meetings: All meetings of shareholders shall be held at the principal office of the corporation or at such other place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or agreed upon by a majority of the shareholders entitled to vote thereat. Section 2. Annual Meetings: The annual meeting of shareholders shall be held at the designated location on such date during the first six months of each year as shall be determined by the Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, the President or the Board of Directors. The purpose of such annual meeting shall be to elect directors of the corporation and for the transaction of such other business as may properly be brought before the meeting. Section 3. Special Meetings: Special meetings of the shareholders may be called at any time by the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President or Secretary, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors. Such written request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of shareholders shall be limited to the purpose stated in the notice. Section 4. Notice of Meetings: Written or printed notice stating the place, day and hour of the meeting shall be delivered not less than ten nor more than sixty days before the date thereof, either personally or by mail, by or at the direction of the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, Secretary, or other person calling the meeting, to each shareholder of record entitled to vote at such meeting. In the case of an annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless such a statement is expressly required by the provisions of the General Corporation Law of the State of Delaware. In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called. In the case of a special meeting called by the written request of a majority of the members of the Board of Directors or the written request of the holders of a majority in amount of the entire capital stock of the corporation issued, outstanding and entitled to vote, the notice also shall state that the meeting is being called upon such written request. When a meeting is adjourned for thirty (30) days or more, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. When a meeting is adjourned for less than thirty (30) days in any one adjournment, it is not necessary to give any notice of the adjourned meeting other than by announcement of the time and place thereof at the meeting at which the adjournment is taken. Section 5. Voting Lists: The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be opened to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section 6. Quorum: The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by the General Corporation Law of the State of Delaware or by the Certificate of Incorporation of the corporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 7. Proxies: Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may vote in person or may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 8. Voting of Shares: Unless otherwise provided in the Certificate of Incorporation and subject to the provisions of the General Corporation Law of the State of Delaware, each shareholder shall at every meeting of shareholders be entitled to one vote for each share of issued and outstanding capital stock held by such shareholder. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, any reference in these Bylaws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Voting on all matters except the election of directors shall be by voice vote or by a show of hands unless the holders of a majority of the shares represented at the meeting shall, prior to the voting on any matter, demand a ballot vote on that particular matter. Section 9. Informal Action by Shareholders: Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. Section 10. Presiding Officer: The succession order for purposes of these Bylaws shall be: the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, Executive Vice President in order of seniority, Vice President in order of seniority, and Secretary. In the event neither the Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, nor the President is present, the shareholders may elect a Chairman of the meeting. ARTICLE III Directors Section 1. General Powers: The business and affairs of the corporation shall be managed by the Board of Directors or by such Committees of the Board as the Board may establish pursuant to these Bylaws. The directors shall have and exercise full power in the management and conduct of the business and affairs of the corporation and do all such lawful acts and things as are not by statute, or by Certificate of Incorporation, or by these Bylaws directed or required to be exercised or done by the shareholders. Section 2. Number, Term and Qualifications: The number of directors of the corporation shall be not less than five nor more than thirty. The directors, by a majority vote of the remaining directors, though less than a quorum, or by the sole remaining director, shall determine the exact number of directors which shall be not less than five nor more than thirty without a Bylaw modification. Each director shall hold office until his death, resignation, retirement, removal, disqualification, or until his successor is elected and qualified. Directors need not be residents of the State of Delaware nor shareholders of the corporation; provided, however, that not less than three-fourths (3/4) of the directors shall be residents of the State of North Carolina and stock ownership for qualification shall be subject to North Carolina law. Section 3. Election of Directors: Except as provided in Section 5 of this Article, the directors shall be elected by written ballot at the annual meeting of the shareholders and those persons who receive the highest number of votes shall be deemed to have been elected. Section 4. Removal: Any director may be removed from office, with or without cause, by a vote of shareholders holding a majority of the shares entitled to vote at an election of directors. If any directors are so removed, new directors may be elected at the same meeting. Section 5. Vacancies: Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority vote of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any shareholder or shareholders owning at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 6. Chairman of the Board: There may be a Chairman of the Board of Directors elected by the directors from their number at any meeting of the Board. The Chairman shall preside at all meetings of the Board of Directors and perform such other duties as may be directed by the Board. Section 7. Compensation: The Board of Directors may compensate directors for their services as such and may provide for the payment of all expenses incurred by directors in attending regular and special meetings of the Board. Members of special or standing committees of the Board of Directors may be allowed like compensation for attending such committee meetings. Section 8. Committees of the Board: The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees of the Board, each committee to consist of two or more directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution and these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it, except as limited by the provisions of the General Corporation Law of the State of Delaware; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors or as set forth in these Bylaws. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. ARTICLE IV Meetings of Directors Section 1. Regular Meetings: A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings, one of which shall be held in each calendar quarter. Section 2. Special Meetings: Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President or any two directors. Such meetings may be held either within or without the State of Delaware. Section 3. Notice of Meetings: Regular meetings of the Board of Directors may be held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least one day before the meeting, give notice thereof by any usual means of communication. Such notice need not specify the purpose for which the meeting is called, unless a statement of the specific purpose is otherwise required by these Bylaws. Section 4. Quorum: A majority of the Board of Directors as established by the Bylaws and fixed by the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 5. Manner of Acting: Except as otherwise provided in these Bylaws, or as specifically provided by statute or by the Certificate of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Informal Action by Directors: Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of a committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or the committee, whether done before or after the action so taken. ARTICLE V Executive Committee Section 1. Members and General Powers: A majority of the qualified members of the Board of Directors then in office may, by proper resolution, appoint an Executive Committee which shall be composed of not less than three nor more than seven directors who shall have and exercise the powers of the Board of Directors in the management of the business affairs of the corporation, except at such time as the Board of Directors is in session. However, the Board of Directors shall have the power to direct, limit or control said Executive Committee by resolution at any special or regular meeting or by general rules adopted for its guidance. The Executive Committee shall not have any authority to take any action prohibited by the General Corporation Law of the State of Delaware; provided, however, that such Executive Committee shall have the power to declare dividends and to authorize the issuance of stock. A majority of the members of the Executive Committee shall constitute a quorum. Further, the Executive Committee shall have authority to take informal action by written consent as provided in Article IV, Section 6 for the Board of Directors. Section 2. Vacancies: Any vacancy occurring on the Executive Committee shall be filled by the vote of a majority of the number of qualified directors at a regular or special meeting of the Board of Directors. Section 3. Removal: Any member of the Executive Committee may be removed at any time with or without cause by a majority of the number of qualified directors then in office. Section 4. Minutes: The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required. Section 5. Responsibility of Directors: The designation of an Executive Committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility or liability imposed upon it or him by law. If such action taken by the Executive Committee is not thereafter formally considered by the full Board, a director may dissent from such action by filing his written objection with the Secretary with reasonable promptness after learning of such action. Section 6. Ex Officio Members: A majority of the qualified members of the Board of Directors then in office may, by proper resolution, appoint one or more ex officio members of the Executive Committee; provided, however, that such ex officio members shall not be included or counted in the regular membership of the Executive Committee nor included in the requirements for a quorum as set forth in Section 1 above, nor shall the attendance of such ex officio members be required at any regular or special meeting of the Executive Committee nor shall such persons be required to execute written consent minutes in order for the Executive Committee to take informal action as provided in Article IV, Section 6. Each ex officio member appointed by the Board will be eligible to vote at any regular or special meeting of the Executive Committee at which such ex officio member is in attendance. Section 7. Chairman of the Executive Committee: A Chairman of the Executive Committee shall be elected by the members of the Board of Directors from their number at any meeting of the Board. The Chairman shall preside at all meetings of the Executive Committee and perform such other duties as may be directed by the Executive Committee. ARTICLE VI Executive Management Group Section 1. Membership and Duties: The Executive Management Group of the corporation shall consist of the Chairman of the Board and the Executive Vice Chairman of the Board, who shall be the Chief Executive Officers of the corporation. The Executive Management Group shall carry into effect all legal directives of the Board of Directors or the Executive Committee and shall at all times exercise general supervision over the interests, affairs and obligations of the corporation and perform all duties with reference to or incident to their offices, subject to such regulations and restrictions as the Board of Directors shall from time to time determine. Each member of the Executive Management Group shall be an ex officio member of all committees to which said Executive Management Group member is not specifically appointed. ARTICLE VII Officers Section 1. Number: The officers of the corporation shall consist of a Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, and Secretary and may also consist of one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Treasurer, and other specially designated Vice Presidents or Assistant Vice Presidents as may be determined by the Board of Directors, and such Assistant Secretaries and other officers as may be deemed necessary or advisable by the Board of Directors, each of which officers or assistant officers thereto shall have such powers as may be delegated to them by the Board of Directors, the Executive Management Group and these Bylaws. Any two or more offices may be held by the same person, except that no officer may act in more than one capacity where action of two or more officers is required. Section 2. Election and Term: The officers of the corporation shall be elected by the Board of Directors. Such elections may be held at any regular or special meeting of the Board. Each officer shall hold office until his death, resignation, retirement, removal, disqualification, or until his successor is duly elected and qualified. Section 3. Removal: Any officer or agent elected or appointed by the Board of Directors may be removed by the affirmative vote of a majority of the Board with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Compensation: The compensation of all officers of the corporation shall be fixed by the Board of Directors or as delegated by the Board of Directors. Section 5. Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, and President: The Chairman of the Board shall preside at all meetings of the Board of Directors and the meetings of shareholders. In his absence or disability, the Executive Vice Chairman shall perform the duties of the Chairman of the Board at all such meetings. In the absence or disability of both the Chairman of the Board and the Executive Vice Chairman of the Board, the Vice Chairman of the Board shall perform such duties. In the absence of all of the Chairman of the Board, Executive Vice Chairman of the Board, and the Vice Chairman of the Board, the President shall perform such duties. The Chairman of the Board and the Executive Vice Chairman of the Board, being the members of the Executive Management Group, shall, subject to the control of the Board of Directors, supervise, control and manage the corporation and shall be jointly responsible to the Board for the carrying out of the Executive Management Group functions. The Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, and the President, or any one of them, shall sign, with any other proper officer, certificates for shares of the corporation and any deeds, leases, mortgages, bonds, contracts or other instruments which may be lawfully executed on behalf of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors, the Chairman of the Board or the Executive Management Group to some other officer or agent. The Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, and the President, and each of them, may, when exercising the authority granted in this Section, use the title of "President"; and all documents signed on behalf of the corporation by any such person, for purposes of, among other things, N.C. Gen. Stat. Sect. 47-18.3, shall be deemed to have been signed by the President of the corporation. Section 6. Vice Chairman: The Vice Chairman shall be the chief operating officer of the corporation and, subject to the control of the Board of Directors, the Chairman of the Board and the Executive Management Group, shall operate, administer and supervise the management of the corporation in accordance with these Bylaws. The Vice Chairman shall sign, with any other proper officer, all documents referred to in Section 5 above and in general, he shall perform all duties incident to the office of Vice Chairman and such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, or the Executive Management Group from time to time. Section 7. President: The President shall be the principal staff officer of the corporation and, subject to the control of the Board of Directors, the Chairman of the Board, the Executive Management Group, and the Vice Chairman of the Board, shall direct, administer and supervise all of the staff and support functions of the corporation in accordance with these Bylaws. The President shall sign, with any other proper officer, all documents referred to in Section 5 above, and, in general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Executive Management Group or the Vice Chairman from time to time. Section 8. Executive Vice Presidents, Senior Vice Presidents and other Vice Presidents: The duties of the Executive Vice Presidents, the Senior Vice Presidents and other Vice Presidents shall be to perform the tasks assigned and exercise the powers of the office given to them as directed by the Board of Directors, the Executive Management Group, the Chairman of the Board and the Vice Chairman of the Board, and to have such other powers as the Board of Directors shall prescribe. Section 9. Secretary: The Secretary shall attend and keep accurate records of the acts and proceedings of all meetings of shareholders and directors. He shall give or cause to be given all notices required by law and by these Bylaws. He shall have general charge of the corporate books and records and of the corporate seal, and he shall affix the corporate seal to any lawfully executed instrument requiring it. He shall have general charge of the stock transfer books of the corporation and shall keep, at the registered or principal office of the corporation, a record of shareholders showing the name and address of each shareholder and the number and class of the shares held by each. He shall sign such instruments as may require his signature and shall perform such other duties as may be assigned to him by the Vice Chairman, the Executive Management Group or the Board of Directors. The Secretary shall sign, with the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, or a Vice President, or other authorized officer, certificates for shares of the corporation. Section 10. Assistant Secretaries: In the absence of the Secretary or in the event of his death, inability or refusal to act, the Assistant Secretaries in the order of their length of service as Assistant Secretaries, unless otherwise determined by the Board of Directors, shall perform the duties of the Secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary. They shall perform such other duties as may be assigned to them by the Secretary, the Vice Chairman, the Executive Management Group or the Board of Directors. Any Assistant Secretary may sign, with the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, or a Vice President, or other authorized officer, certificates for shares of the corporation. Section 11. Treasurer: The Treasurer shall have custody of all funds and securities belonging to the corporation and shall receive, deposit or disburse the same under the direction of the Board of Directors. He shall keep full and accurate accounts of the finances of the corporation and shall render to the Vice Chairman and the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. The Treasurer, in general, shall perform all duties incident to his office and such other duties as may be assigned to him from time to time by the Vice Chairman, the Executive Management Group or the Board of Directors. Section 12. Assistant Treasurers: In the absence of the Treasurer or in the event of his death, inability, or refusal to act, the Assistant Treasurers in the order of their length of service as Assistant Treasurers, unless otherwise determined by the Board of Directors, shall perform the duties of the Treasurer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Treasurer. They shall perform such other duties as may be assigned to them by the Treasurer, the Vice Chairman, the Executive Management Group or the Board of Directors. Section 13. Other Officers: The duties of all officers and employees not defined and enumerated in the Bylaws shall be prescribed and fixed by the Executive Management Group and the Vice Chairman and in carrying out the authority to do all other acts necessary to be done to carry out the prescribed duties unless otherwise ordered by the Board of Directors, including but not limited to the power to sign, certify or endorse notes, certificates of indebtedness, deeds, checks, drafts or other contracts for and on behalf of the corporation and/or to affix the seal of the corporation to such documents as may require it. Section 14. Bonds: The Board of Directors may by resolution require any or all officers, agents and employees of the corporation to give bond to the corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors. ARTICLE VIII Contracts, Loans, Checks and Deposits Section 1. Contracts: The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract, lease, or to execute and deliver any instrument on behalf of the corporation, and such authority may be general or confined to specific instances. The Board of Directors may enter into employment contracts for any length of time it deems wise. Section 2. Loans: No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or specific in nature and scope. Section 3. Checks and Drafts: All checks, drafts or other orders for the payment of money issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as from time to time shall be determined by resolution of the Board of Directors. Section 4. Deposits: All funds of the corporation not otherwise employed from time to time shall be deposited to the credit of the corporation in such depositories as the Board of Directors shall direct. ARTICLE IX Certificates of Stock and Their Transfer Section 1. Certificates of Stock: Certificates representing stock in the corporation shall be issued in such form as the Board of Directors shall determine to every shareholder for the fully paid shares owned by him; such stock certificates shall indicate thereon a reference to any and all restrictive conditions of said stock. These certificates shall be signed by the Chairman of the Board, or the Executive Vice Chairman of the Board, or the Vice Chairman of the Board, or the President, or any Vice President and the Secretary, an Assistant Secretary, Treasurer or an Assistant Treasurer or may have facsimile signatures of such officers placed thereon and such officers shall have the power to make or order to be made by an authorized officer or transfer agent any and all transfers of the securities of the corporation. They shall be consecutively numbered or otherwise identified; and the name and address of the persons to whom they are issued, with the number of shares and the date of issue, shall be entered on the stock transfer books of the corporation. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such an officer, transfer agent or registrar at the date of issue. Section 2. Transfer of Stock: Transfer of stock shall be made on the stock transfer books of the corporation only upon surrender of the certificates for the shares sought to be transferred by the registered holder thereof or by his duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be cancelled before new certificates for the transferred shares shall be issued. Upon surrender to the corporation or its transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation or its transfer agent to issue a new certificate to the person entitled thereto, to cancel the old certificate and to record the transaction upon its books. Section 3. Fixing Record Date: In order that the corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 4. Lost Certificates: The Board of Directors may authorize and direct the issuance of a new share certificate or certificates in place of a certificate or certificates claimed to have been lost, stolen or destroyed, upon receipt of an affidavit to such fact from the person claiming the loss, theft or destruction. When authorizing such issuance of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the claimant, or his legal representative, to advertise the same in such manner as it may require and/or to give the corporation a bond in such sum as the Board may direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost, stolen or destroyed; or the Board may, by resolution reciting the circumstances justifying such action, authorize the issuance of the new certificate or certificates without requiring such a bond. Section 5. Registered Shareholders: The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to interest in such share or shares on the part of any other person, whether or not it shall have express or other notice hereof, except as otherwise provided by the laws of Delaware. Section 6. Treasury Shares: Treasury shares of the corporation shall consist of such shares as have been issued and thereafter acquired but not cancelled by the corporation. Treasury shares shall not carry voting or dividend rights. ARTICLE X General Provisions Section 1. Dividends: Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors or the Executive Committee at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Seal: The corporate seal of the corporation shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 3. Annual Statement: The Board of Directors shall present at each annual meeting, and at any special meeting of the shareholders when called for by majority vote of the shareholders, a full and clear statement of the business and condition of the corporation. Section 4. Notice and Waiver of Notice: Whenever any notice is required to be given to any shareholder or director under the provisions of the General Corporation Law of the State of Delaware or under the provisions of the Certificate of Incorporation or Bylaws of this corporation, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, telephone, telecopier or other electronic communication media. Whenever notice is required to be given under the provisions of the General Corporation Law of the State of Delaware or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. The attendance by a director at a meeting of the Board or a committee of the Board shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Amendments: Except as otherwise provided herein, these Bylaws may be altered, amended or repealed and new bylaws may be adopted at any regular meeting of the Board of Directors or the shareholders, or at any special meeting of the Board of Directors or shareholders if notice of such alteration, amendment, repeal or adoption, be contained in the notice of said special meeting. Section 6. Fiscal Year: The fiscal year of the corporation shall be fixed by the Board of Directors. Section 7. Indemnification: The corporation shall indemnify its officers, directors, employees and agents to the maximum extent permitted by the General Corporation Law of the State of Delaware. Section 8. Disallowance of Deductions: Any payments made to or on behalf of an officer or director of the corporation, including salary, commission, bonus, interest, rent or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense of the corporation by the Internal Revenue Service (and such determination shall be acceded to by the corporation, or such determination shall be rendered final by the appropriate taxing authority, or a judgment of a court of competent jurisdiction and no appeal shall be taken therefrom, or the applicable period for filing notice of appeal shall have expired), then such sum shall be reimbursed by such officer or director to the corporation to the full extent of such disallowance. It shall be the duty of the Board of Directors to enforce the payment of any such sum disallowed and such repayment may not be waived. However, in lieu of such direct payment by the officer or director involved to the corporation, and subject to the determination of the Board of Directors in its sole discretion, proportionate amounts may be withheld from future compensation payments of such officer or director until the amount owed to the corporation as a result of such disallowance has been fully recovered. -----END PRIVACY-ENHANCED MESSAGE-----