<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1217953
---------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 Pennsylvania Avenue, N.W., Washington, D.C. 20005
------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(202) 835-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months(or shorter periods 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 .
Indicate the number of shares outstanding of each of the issuer's classes
common stock, as of the last practical date.
Common Stock, $2.50 par value 30,266,464 shares
----------------------------- -----------------
(Title of Class) (Outstanding at November 3, 1995)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three and nine months ended September 30, 1995 and 1994 3
Consolidated Statements of Condition
September 30, 1995 and 1994, and December 31, 1994 4
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1994 6
Financial Ratios and Other Financial Data 7
Notes to the Consolidated Statements 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Change in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 31
-2-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 51,260 $ 48,872 $ 152,135 $ 144,407
Interest and Dividends on Securities Available for Sale 9,377 8,040 28,309 21,817
Interest and Dividends on Securities Held-to-Maturity 8,535 5,579 23,518 16,545
Interest on Money Market Assets:
Time Deposits with Other Banks 3,620 2,383 11,138 7,062
Federal Funds Sold and Reverse Repurchase Agreements 3,071 2,545 9,463 5,909
_________ _________ _________ _________
Total Interest on Money Market Assets 6,691 4,928 20,601 12,971
--------- --------- --------- ---------
Total Interest Income 75,863 67,419 224,563 195,740
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 4,766 4,964 14,473 14,464
Money Market Deposit Accounts 8,259 6,886 24,272 19,555
Time Deposits in Domestic Offices 11,481 6,210 32,016 18,113
Time Deposits in Foreign Offices 5,076 2,825 14,081 8,263
--------- --------- --------- ---------
Total Interest on Deposits 29,582 20,885 84,842 60,395
--------- --------- --------- ---------
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 2,720 1,878 8,285 3,470
U.S. Treasury Demand Notes and Other Short-Term Borrowings 1,418 473 3,643 1,914
Long-Term Debt 4,788 4,700 14,399 15,285
--------- --------- --------- ---------
Total Interest on Short-Term Borrowings and Long-Term Debt 8,926 7,051 26,327 20,669
--------- --------- --------- ---------
Total Interest Expense 38,508 27,936 111,169 81,064
--------- --------- --------- ---------
Net Interest Income 37,355 39,483 113,394 114,676
Less: Provision for Loan Losses (55,000) 2,100 (55,000) 6,300
--------- --------- --------- ---------
Net Interest Income after Provision for Loan Losses 92,355 37,383 168,394 108,376
NONINTEREST INCOME
Service Charges and Fees 8,718 10,227 26,214 33,448
Trust Income 7,518 6,567 21,489 21,562
Gain on Settlement of Mortgage Insurance Claims -- -- -- 4,739
Other Noninterest Income 1,954 1,999 6,777 6,953
Securities Gains, Net 155 -- 201 1,424
--------- --------- --------- ---------
Total Noninterest Income 18,345 18,793 54,681 68,126
NONINTEREST EXPENSE
Salaries and Wages 17,649 15,970 49,803 48,851
Pensions and Other Employee Benefits 3,828 3,263 12,348 13,113
Occupancy, Net 10,101 6,414 21,307 18,003
Data Processing Services 4,334 3,981 12,718 12,647
Furniture and Equipment 1,886 2,163 5,920 7,111
FDIC Insurance 29 2,370 4,012 7,233
Advertising and Public Relations 1,303 1,438 3,964 4,365
Other Real Estate Owned Expense (Income), Net 2,503 (2,160) 530 (1,154)
Restructuring Expense -- -- -- (2,059)
Other Noninterest Expense 12,361 14,336 37,413 42,808
--------- --------- --------- ---------
Total Noninterest Expense 53,994 47,775 148,015 150,918
Income before Taxes 56,706 8,401 75,060 25,584
Applicable Income Tax Expense (Benefit) 64 171 255 (392)
--------- --------- --------- ---------
Net Income 56,642 8,230 74,805 25,976
Dividends on Preferred Stock 2,688 3,045 8,063 9,436
--------- --------- --------- ---------
Net Income Available for Common Stock $ 53,954 $ 5,185 $ 66,742 $ 16,540
EARNINGS PER COMMON SHARE $ 1.78 $ .17 $ 2.20 $ .55
</TABLE>
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<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(UNAUDITED IN SEPTEMBER 30, 1995 AND 1994) 1995 1994 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 251,930 $ 187,114 $ 206,953
Money Market Assets:
Time Deposits with Other Banks 177,662 193,835 228,224
Federal Funds Sold and Reverse Repurchase Agreements 446,000 179,684 160,000
----------- ----------- -----------
Total Money Market Assets 623,662 373,519 388,224
----------- ----------- -----------
Securities Available for Sale (at Market Value) 612,357 613,204 598,277
Securities Held-to-Maturity (Market Value:September 30, 1995,$401,324;
September 30, 1994, $434,114; December 31, 1994, $434,993) 401,223 439,207 443,163
Loans 2,532,503 2,608,065 2,549,924
Reserve for Loan Losses 55,390 95,800 97,039
----------- ----------- -----------
Net Loans 2,477,113 2,512,265 2,452,885
----------- ----------- -----------
Premises and Equipment, Net 150,621 153,477 151,532
Accrued Interest Receivable 31,385 28,521 27,904
Other Real Estate Owned, Net 37,538 56,911 47,763
Other Assets 117,012 106,540 108,964
----------- ----------- -----------
Total Assets $ 4,702,841 $ 4,470,758 $ 4,425,665
LIABILITIES
Noninterest-Bearing Demand Deposits $ 824,106 $ 787,592 $ 827,023
Interest-Bearing Deposits:
Savings and NOW Accounts 798,294 882,954 900,209
Money Market Deposit Accounts 945,372 1,023,895 966,348
Time Deposits in Domestic Offices 830,442 592,506 625,432
Time Deposits in Foreign Offices 304,559 261,653 283,782
----------- ----------- -----------
Total Interest-Bearing Deposits 2,878,667 2,761,008 2,775,771
----------- ----------- -----------
Total Deposits 3,702,773 3,548,600 3,602,794
----------- ----------- -----------
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 100,534 208,376 264,878
U.S. Treasury Demand Notes and Other Short-Term Borrowings 266,985 184,600 28,559
----------- ----------- -----------
Total Short-Term Borrowings 367,519 392,976 293,437
----------- ----------- -----------
Other Liabilities 53,989 40,330 44,146
Long-Term Debt 217,625 217,625 217,625
----------- ----------- -----------
Total Liabilities 4,341,906 4,199,531 4,158,002
STOCKHOLDERS' EQUITY
Preferred Stock-$1.00 Par Value
Shares Authorized - 25,000,000 at September 30, 1995 and 1994, and
December 31, 1994; Liquidation Preference - $25 per share
Noncumulative Perpetual Series B - 4,000,000 shares at
September 30, 1995 and 1994, and December 31, 1994 4,000 4,000 4,000
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at September 30, 1995 and 1994, and
December 31, 1994;
Shares Issued - 31,166,962 at September 30, 1995, 31,141,212 at
September 30, 1994 and 31,145,212 at December 31, 1994 77,917 77,853 77,863
Surplus - Preferred Stock 91,192 91,192 91,192
Surplus - Common Stock 156,266 156,097 156,123
Foreign Exchange Translation Adjustments (727) (538) (634)
Undivided Profits (Accumulated Deficit) 57,728 (14,370) (9,014)
Unrealized Loss on Securities Available for Sale, Net (1,718) (19,284) (28,144)
Treasury Stock-900,798 shares at September 30, 1995 and 1994, and
December 31, 1994 (23,723) (23,723) (23,723)
----------- ----------- -----------
Total Stockholders' Equity 360,935 271,227 267,663
----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 4,702,841 $ 4,470,758 $ 4,425,665
</TABLE>
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<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN UNDIVIDED GAIN (LOSS)
PREFERRED COMMON EXCHANGE PROFITS ON SECURITIES TOTAL
STOCK STOCK TRANSLATION (ACCUM. AVAILABLE TREASURY STOCKHOLDERS'
$1.00 PAR $2.50 PAR SURPLUS ADJUSTMENTS DEFICIT) FOR SALE, NET STOCK EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 $ 4,765 $ 77,807 $ 265,564 $ (1,527) $ (30,965) $ 1,276 $ (23,723) $ 293,197
Net Income -- -- -- -- 25,976 -- -- 25,976
Issuance of
Common Stock--
Stock Option Plans -- 46 119 -- -- -- -- 165
Preferred Stock
Stock Repurchase (765) -- (18,232) -- (118) -- -- (19,115)
Cash Dividends --
Preferred -- -- -- -- (9,436) -- -- (9,436)
Unrealized Loss on
Securities Available
for Sale, Net -- -- -- -- -- (20,560) -- (20,560)
Foreign Exchange
Translation Adjustments -- -- -- 989 -- -- -- 989
Other -- -- (162) -- 173 -- -- 11
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Balance,
September 30, 1994 $ 4,000 $ 77,853 $ 247,289 $ (538) $ (14,370) $ (19,284) $ (23,723) $ 271,227
Balance,
December 31, 1994 $ 4,000 $ 77,863 $ 247,315 $ (634) $ (9,014) $ (28,144) $ (23,723) $ 267,663
Net Income -- -- -- -- 74,805 -- -- 74,805
Issuance of
Common Stock--
Stock Option Plans -- 54 143 -- -- -- -- 197
Cash Dividends--
Preferred -- -- -- -- (8,063) -- -- (8,063)
Unrealized Gain on
Securities Available
for Sale, Net -- -- -- -- -- 26,426 -- 26,426
Foreign Exchange
Translation Adjustments -- -- -- (93) -- -- -- (93)
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Balance,
September 30, 1995 $ 4,000 $ 77,917 $ 247,458 $ (727) $ 57,728 $ (1,718) $ (23,723) $ 360,935
</TABLE>
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<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
Increase (decrease) in cash and cash equivalents 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 74,805 $ 25,976
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses (55,000) 6,300
Provision for Other Real Estate Owned Writedowns 2,868 1,946
Depreciation Expense and Amortization of Leasehold Improvements 8,888 9,091
Amortization of Purchase Accounting Adjustments 2,702 2,872
Provision for Deferred Taxes 3,745 (840)
Restructuring Charges -- (2,059)
Gains on Securities Sales (201) (1,424)
Gains on Sales from Other Real Estate Owned (2,631) (2,595)
Increase in Accrued Interest Receivable (3,481) (5,610)
(Increase) Decrease in Other Assets (9,865) 11,563
Increase (Decrease) in Other Liabilities 6,098 (2,839)
--------- ----------
Total Adjustments (46,877) 16,405
--------- ----------
Net Cash Provided By Operating Activities 27,928 42,381
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease In Time Deposits with Other Banks 50,562 7,111
Proceeds from Maturities of Securities Available for Sale 45,632 97,677
Proceeds from Sales of Securities Available for Sale 201 193,048
Purchase of Securities Available for Sale (34,171) (201,867)
Proceeds from the Maturity of Securities Held-to-Maturity 378,654 1,036,838
Proceeds from Sales of Securities Held-to-Maturity -- 4,825
Purchase of Securities Held-to-Maturity (336,714) (833,869)
Net Decrease (Increase) in Loans 30,510 (100,155)
Proceeds from Sales of Other Real Estate Owned 10,103 20,230
Net Increase in Premises and Equipment (7,977) (1,470)
Other, Net 147 (479)
--------- ----------
Net Cash Provided By Investing Activities 136,947 221,889
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in:
Demand, NOW, Savings and Money Market Deposit Accounts (125,808) (207,867)
Time Deposits 225,787 (17,357)
Federal Funds Purchased and Repurchase Agreements (164,344) (93,954)
U.S. Treasury Demand Notes and Other Short-Term Borrowings 238,426 32,903
Net Proceeds From the Issuance of Long-Term Debt -- 121,250
Repayment of Long-Term Debt -- (120,700)
Net Proceeds From the Issuance of Common Stock 197 165
Repurchase of Preferred Stock-Series A -- (19,115)
Dividend Payments - Preferred (8,063) (9,436)
Other, Net -- 11
--------- ----------
Net Cash Provided By (Used In) Financing Activities 166,195 (314,100)
--------- ----------
Effect of Exchange Rate Changes (93) 989
--------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 330,977 (48,841)
Cash and Cash Equivalents at Beginning of Period 366,953 415,639
--------- ----------
Cash and Cash Equivalents at End of Period $ 697,930 $ 366,798
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ 741 $ 23,210
Loans to Finance the Sale of Other Real Estate Owned 685 --
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 109,561 $ 81,664
Income Tax Payments (Refund) 3,755 (6,976)
</TABLE>
-6-
<PAGE>
RIGGS NATIONAL CORPORATION
FINANCIAL RATIOS AND OTHER FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERFORMANCE:
Net Income to Average Assets N/M .74% 2.19 % .77 %
Net Income to Average Earning Assets N/M .82% 2.42 % .86 %
Net Income to Average Stockholders' Equity N/M 11.40% 34.22 % 12.08 %
Net Income Available to Common Stock
to Average Common Equity N/M 11.88% 45.29 % 12.75 %
Net Interest Income to Average Earning Assets 3.66% 4.01% 3.76 % 3.87 %
PER COMMON SHARE:
Net Income $ 1.78 $ .17 $ 2.20 $ .55
Book Value (at period end) $ 8.78 $ 5.82 $ 8.78 $ 5.82
Common Shares Outstanding (at period end) 30,266,164 30,240,414 30,266,164 30,240,414
Average Common Shares Outstanding 30,259,678 30,231,084 30,254,122 30,225,501
ASSET QUALITY:
Nonaccrual Loans as a % of Total Loans .49 % 1.42 %
Nonaccrual Loans as a % of Average Loans .49 % 1.42 %
Nonaccrual and Renegotiated Loans as a % of
Total Loans .50 % 1.44 %
Nonperforming Assets as a % of Total Loans and OREO 1.95 % 3.55 %
Nonperforming Assets as a % of Total Assets 1.07 % 2.11 %
Net Charge-Offs (Recoveries) as a % of Average Loans (.52)% (.06)%
Reserve for Loan Losses as a % of Total Loans 2.19 % 3.67 %
Reserve for Loan Losses as a % of Nonaccrual and
Renegotiated Loans 439.88 % 254.90 %
Period End Stockholders' Equity to Total Assets 7.67 % 6.07 %
CAPITAL RATIOS AT PERIOD END:
Tier I 13.45 % 11.05 %
Combined Tier I and Tier II 21.44 % 17.86 %
Leverage 7.81 % 6.30 %
</TABLE>
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<PAGE>
RIGGS NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments, of a normal recurring nature, necessary to present
fairly, in conformity with generally accepted accounting principles applied on a
consistent basis, the Corporation's consolidated financial position at September
30, 1995 and 1994, and December 31, 1994 (audited), and the related changes in
stockholders' equity, the consolidated statements of income and cash flows for
the interim periods presented. These statements should be read in conjunction
with the financial statements and accompanying notes included in the
Corporation's latest annual report. Certain reclassifications have been made to
prior-period amounts to conform with the current year's presentation. The
results of operations for the first nine months of 1995 are not necessarily
indicative of the results to be expected for the full 1995 year.
NOTE 2. COMMON SHARES
Earnings per common share are calculated using the weighted average number of
shares of common stock outstanding during the period. The weighted average
shares outstanding were 30,259,678 and 30,254,122 for the third quarter of 1995
and the nine month period ended September 30, 1995, respectively, with
30,231,084 and 30,225,501 for the same periods in 1994. The weighted average
number of shares of common stock outstanding does not include shares granted
under the 1993 Riggs National Corporation Stock Option Plan (the "1993 Plan") or
shares granted under the 1994 Riggs National Corporation Stock Option Plan (the
"1994 Plan"). Under the 1993 Plan, options to purchase up to 1,250,000 shares of
common stock may be granted to key employees of the Corporation. As of September
30, 1995, options to purchase 1,110,000 shares have been granted and remain
outstanding in the 1993 Plan at prices ranging from $9.00 to $10.63 per share
and are currently not dilutive. Under the 1994 Plan, options to purchase up to
1,250,000 shares of common stock may be granted to key employees of the
Corporation. As of September 30, 1995, options to purchase 215,000 shares have
been granted and remain outstanding in the 1994 Plan at prices ranging from
$9.06 to $10.00 per share and are currently not dilutive.
NOTE 3. RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 100,145 $ 92,094 $ 97,039 $ 86,513
Provision for loan losses (55,000) 2,100 (55,000) 6,300
Loans charged-off:
Domestic 280 1,707 1,387 7,171
Foreign 255 538 5,101 3,201
---------- ---------- ---------- ----------
Total loans charged-off 535 2,245 6,488 10,372
Recoveries on charged-off loans:
Domestic 4,797 1,454 11,629 7,468
Foreign 6,081 1,985 8,004 4,529
---------- ---------- ---------- ----------
Total recoveries on charged-off loans 10,878 3,439 19,633 11,997
Net loan charge-offs (recoveries) (10,343) (1,194) (13,145) (1,625)
Foreign exchange translation adjustments (98) 412 206 1,362
---------- ---------- ---------- ----------
Balance, end of period $ 55,390 $ 95,800 $ 55,390 $ 95,800
</TABLE>
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. OTHER REAL ESTATE OWNED
Changes in other real estate owned, net of reserves, are summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $47,763 $52,803
Additions 741 23,210
Deductions:
Sales and repayments 7,920 17,183
Charge-offs 3,105 2,398
------- -------
Total Deductions 11,025 19,581
Foreign exchange translation adjustments 59 479
------- -------
Balance, end of period $37,538 $56,911
</TABLE>
NOTE 5. NEW FINANCIAL ACCOUNTING STANDARDS
In May 1993, SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
was issued and was amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" in October 1994.
These pronouncements specify how allowances for credit losses related to
impaired loans, as defined within these Statements, should be determined. Under
SFAS No. 114, the Corporation is required to identify and measure impaired loans
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, for collateral-dependent loans, on the fair
value of the collateral. If the valuation of the impaired loan is less than the
recorded investment in the loan, the Corporation will recognize an impairment by
creating a valuation allowance with a corresponding charge to provision for loan
losses or by adjusting an existing valuation allowance for the impaired loan,
with the corresponding amount reflected in earnings. SFAS No. 118 provides
additional disclosure guidance of impaired loans and allows for use of existing
methods for recognizing interest income on impaired loans, as determined by
Corporation policy. Both statements are effective for fiscal years beginning
after December 15, 1994. The Corporation implemented SFAS Nos. 114 and 118 on
January 1, 1995. At the time of implementation, the Corporation utilized methods
for the identification and measurement of impaired loans similar to those
prescribed in SFAS Nos. 114 and 118, and thus their adoption did not have a
material effect on the Corporation's financial position.
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" was issued, requiring that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such recoverability is
measured based on the estimated future cash flows expected to result from the
use of the asset as well as its eventual disposition. SFAS No. 121 excludes
financial instruments, long-term customer relationships of financial
institutions, mortgage and other servicing rights and deferred tax assets. SFAS
No. 121 is effective for fiscal years beginning after December 15, 1995. The
Corporation does not anticipate any material effect on the Corporation's
financial position from the implementation of SFAS No. 121.
In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights" was
issued. SFAS No. 122 amends Statement of Financial Accounting Standard No. 65,
"Accounting for Certain Mortgage Banking Activities" to require that mortgage
banking enterprises recognize as separate assets rights to service mortgage
loans for others. SFAS No. 122 also requires that mortgage banking enterprises
assess capitalized mortgage servicing rights based on the fair value of those
rights on a disaggregated basis. SFAS No. 122 is effective for fiscal years
beginning after December 15, 1995. The Corporation does not anticipate any
material effect on the Corporation's financial position from the implementation
of SFAS No. 122.
-9-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 6. INCOME TAXES
The provision for income taxes is based on income reported for consolidated
financial statement purposes and includes deferred taxes resulting from the
recognition of certain revenues and expenses in different periods for tax
reporting purposes.
Income before income taxes relating to the operations of domestic offices and
foreign offices for the three and nine month periods ended September 30, 1995
and 1994, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic Offices $46,770 $ 2,486 $63,767 $ 5,444
Foreign Offices 9,936 5,915 11,293 20,140
------- ------- ------- -------
Total $56,706 $ 8,401 $75,060 $25,584
</TABLE>
The provision for income taxes for the three and nine month periods ended
September 30, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Provision (Benefit):
Federal $(1,927) $ 840 $(3,782) $ 840
State 81 168 257 315
Foreign 11 3 35 (707)
-------- -------- -------- --------
Total Current Provision (Benefit) (1,835) 1,011 (3,490) 448
Deferred Provision (Benefit):
Federal 1,899 (840) 3,745 (840)
State -- -- -- --
Foreign -- -- -- --
-------- -------- -------- --------
Total Deferred Provision (Benefit) 1,899 (840) 3,745 (840)
Applicable Income Tax Expense (Benefit) $ 64 $ 171 $ 255 $ (392)
</TABLE>
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at September 30, 1995, and 1994, are as
follows:
<TABLE>
<CAPTION>
CONTRACTUAL OR
NOTIONAL VALUE
SEPTEMBER 30,
1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to Extend Credit:
Commercial $306,667 $225,684
Real Estate 227,441 217,999
Consumer 65,656 63,109
-------- --------
Total Commitments to Extend Credit $599,764 $506,792
Letters of Credit:
Commercial $ 58,985 $ 49,894
Standby-Financial 36,798 26,063
Standby-Performance 15,522 24,264
-------- --------
Total Letters of Credit $111,305 $100,221
Financial Instruments with Off-Balance Sheet Market Risk:
Foreign Exchange Contracts:
Commitments to Purchase $ 90,877 $ 41,420
Commitments to Sell 191,892 142,433
Interest Rate Swap Agreements 329,217 254,488
Interest Rate Option Contracts (Corridors) 400,000 400,000
</TABLE>
In the normal course of business, the Corporation enters into various
transactions that, in accordance with generally accepted accounting principles,
are not included on the consolidated statements of condition. These transactions
are referred to as "off-balance-sheet" commitments and differ from the
Corporation's balance sheet activities in that they do not give rise to funded
assets or liabilities. The Corporation enters into derivative transactions to
manage its own risks arising from movements in interest and currency rates.
Off-balance-sheet activities involve varying degrees of credit, interest-rate or
liquidity risk in excess of amounts recognized on the consolidated statements of
condition. The Corporation's management believes that financial derivatives,
such as interest-rate agreements, can be an important element of prudent balance
sheet and interest-rate risk management. The Corporation seeks to minimize its
exposure to loss under these commitments by subjecting them to credit approval
and monitoring procedures.
INTEREST RATE SWAP AGREEMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1995
WEIGHTED ACCRUED ACCRUED UNAMORTIZED YTD NET
NOTIONAL UNREALIZED AVERAGE RATE INTEREST INTEREST FEES & INTEREST
AMOUNT GAIN(LOSS) RECEIVE PAY RECEIVABLE PAYABLE PREMIUMS INC./(EXP.)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay variable,
Maturing July 1998 $200,000 $ (4,071) 5.38% 5.93% $ 1,913 $ 2,176 $-- $(1,243)
Receive variable/pay fixed,
Maturing March 1996 25,000 (83) 5.88% 6.73% 61 70 -- (60)
Receive variable/pay fixed,
Maturing March 1997 25,000 (331) 5.88% 6.97% 61 73 -- (92)
Receive variable/pay fixed
Maturing April 1996 25,000 (78) 5.88% 6.55% 290 314 -- (38)
Receive variable/pay fixed
Maturing April 1997 25,000 (248) 5.88% 6.70% 290 321 -- (55)
For Customers 29,217 (208) N/M N/M 645 668 -- (280)
-------- --------- ----- ----- -------- -------- --- --------
Total Interest Rate Swap
Agreements $329,217 $ (5,019) $ 3,260 $ 3,622 $-- $(1,768)
</TABLE>
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
At September 30, 1995, the Corporation's financial derivative instruments
included a $200 million (notional principal amount) interest-rate swap
agreement, entered into in July 1993, to hedge money market assets against the
possibility of declining interest rates. The swap agreement entails the receipt
of a fixed-rate of 5.38% while paying a floating rate equal to three-month
Libor, reset quarterly. The rate earned on the actual money market assets is
intended to offset the floating-rate payment and the Corporation is left with
the fixed-rate of 5.38%. All payments are netted on a quarterly basis. The total
aggregate net interest expense from this swap transaction is included in
interest income relating to the money market assets.
In March 1995, the Corporation entered into two $25 million (notional principal
balance) interest-rate swap agreements to alter the interest sensitivity of a
portion of the Corporation's real estate mortgage loan portfolio. Both swap
agreements entail the receipt of a floating rate equal to 3-month Libor, reset
quarterly, and payments of fixed rates ranging from 6.73% to 6.97%, maturing in
March of 1996 and 1997. Also, in April 1995, the Corporation entered into two
additional $25 million (notional principal balance) interest-rate swap
agreements to alter the interest sensitivity of a portion of the Corporation's
real estate mortgage loan portfolio. The April 1995 swap agreements entail the
receipt of a floating rate equal to 3-month Libor, reset quarterly, and payments
of fixed rates ranging from 6.55% to 6.70%, maturing in April 1996 and 1997.
Payments for the March and April 1995 swap agreements are netted on a quarterly
basis. The total net interest income/expense from these swap agreements are
included in interest income relating to the real estate mortgage loan portfolio.
INTEREST RATE OPTION CONTRACTS (CORRIDORS)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1995
WEIGHTED ACCRUED ACCRUED UNAMORTIZED YTD NET
NOTIONAL UNREALIZED AVERAGE RATE INTEREST INTEREST FEES & INTEREST
AMOUNT GAIN(LOSS) RECEIVE PAY RECEIVABLE PAYABLE PREMIUMS INC./(EXP.)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receive variable/pay fixed,
Maturing April 1996 $100,000 $ (25) 5.93% 5.60% $ 1,071 $ 1,011 $ 225 $ 78
Receive variable/pay fixed,
Maturing April 1997 100,000 (255) 5.93% 5.69% 1,071 1,026 775 (72)
Receive variable/pay fixed,
Maturing August 1996 200,000 (411) N/A N/A -- -- 571 (263)
-------- --------- ----- ----- -------- -------- -------- ---------
Total Interest Rate Option
Contracts $400,000 $ (691) $ 2,142 $ 2,037 $ 1,571 $ (257)
</TABLE>
Based on the possibility of further short-term rate increases by the Federal
Reserve, in April 1994, the Corporation purchased two $100 million (notional
principal balance) corridors to reduce its interest-rate risk exposure relating
to the $200 million swap agreement to hedge money market assets. A premium was
paid for these agreements, with the cost amortized over the respective lives.
Under the original terms, the corridor limits for three-month Libor were set
from 5.00% to 6.00%. However, in early November 1994, the rates were adjusted
based upon market conditions. Under the terms of their adjustments, the
Corporation would receive payments from the counterparty if three-month Libor
exceeded a level of approximately 5.60%; however, if Libor rose above 7.00%,
then the Corporation would begin paying to the counterparty the amount by which
Libor exceeds 7.00%. The net result was that the floating-rate paid on the swap
would be capped at 5.60% unless Libor rose above 7.00%. If rates exceeded 7.00%,
the Corporation would effectively reduce the actual floating-rate to be paid by
1.40% as a result of the corridor (7.00%-5.60% = 1.40%). All rates are reset
quarterly to coincide with the interest-rate swap reset dates. The total
aggregate net interest income/expense for these corridor agreements are included
in interest income relating to money market assets. These corridor agreements
mature in April 1996 and 1997.
In August 1994, the Corporation entered into another corridor transaction in the
amount of $200 million (notional principal balance). This corridor, executed to
hedge the costs of certain short-term borrowings against rising interest rates,
included a termination agreement. A premium was also paid for this corridor,
with the cost amortized over the two-year life. Under the agreement, the
Corporation receives payments, calculated quarterly on the notional principal
amount, by the amount that three-month Libor exceeds 6.00%. Such payments will
cease, if three-month Libor equals or exceeds 8.00% on a reset date. Currently,
there are no payments being paid or received as the rate is below the 6.00%
floor. The total aggregate net interest income/expense for this corridor
agreement is included in interest expense relating to short-term borrowings.
This "terminating corridor" agreement matures in August 1996.
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 8. RECENT DEVELOPMENTS
The purchase and construction of the new operations center located in Riverdale,
Maryland has been approved by local governmental authorities, with construction
commencing in July 1995. The Corporation does not anticipate any substantial
delays and expects the operations center to be completed in May 1996. The
Corporation estimates that the relocation of personnel from leased locations
to this new facility will have a positive impact on its results of operations
for the fourth quarter of 1996 and thereafter. The Corporation does not
anticipate any material impact to its financial condition or results of
operations in the current fiscal year from its plans for building
this new facility.
NOTE 9. REGULATORY MATTERS
On September 28, 1995, the Corporation was notified by the Federal Reserve Bank
of Richmond that the Memorandum of Understanding dated May 14, 1993 was
terminated effective immediately. The now terminated Memorandum of Understanding
was the result of regulatory concern over financial and operational weaknesses
and continued losses related primarily to the Corporation's domestic and United
Kingdom commercial real estate exposure. This brought to an end all operating
agreements between the Corporation and its banking regulators.
-13-
<PAGE>
RIGGS NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
The Corporation reported consolidated net income of $56.6 million ($1.78 per
common share) for the third quarter of 1995 compared with net income of $8.2
million ($.17 per common share) for the same quarter a year earlier. The third
quarter performance for 1995 was the highest in the Corporation's history. Net
interest income before the provision for loan losses (adjusted for tax savings
on tax-exempt interest) decreased $2.0 million, or 5.0%, with a 35 basis point
decline in the net interest margin between the periods. The declines in net
interest income and margin were due to overall increases in costs of funds,
primarily in time deposits. The Corporation experienced a 111 basis point
increase in cost of funds between the periods as the impact of the overall
flattening of the domestic yield curve continued to place pressure on the
Corporation's margin.
Also affecting the third quarter 1995 results was an increase in noninterest
expense of $6.2 million (13.0%) along with a slight decline of $448 thousand
(2.4%) in noninterest income. The increase in noninterest expense was primarily
due to nonrecurring accruals of $4.4 million for expenses related to occupancy
initiatives, including the Corporation's new technology center, and $1.2 million
for reorganization and severance related costs. In addition to these accruals,
the Corporation recorded $2.5 million in other real estate owned writedowns in
the current quarter, compared with gains recognized from the sale of properties
in the prior period. The loss of noninterest income due to the sale of three
foreign subsidiaries in the third quarter of 1994 totaled $551 thousand between
the quarters.
There was a substantial reduction in the reserve for loan losses during the
third quarter of 1995 of $55.0 million. This reduction was the result of
management's assessments during the third quarter of the Corporation's risk
characteristics within the loan portfolio as well as current asset quality,
lending levels, economic developments and other factors. Nonperforming assets
were reduced over 47% from $94.5 million at the end of the third quarter of 1994
to $50.1 million at September 30, 1995. The current period's reserve also
represents a $25.6 million decrease, or 33.8% from year-end 1994. The
Corporation's overall asset quality continues to improve as a result of
collection and asset-management efforts as well as improved economic conditions
domestically and in the United Kingdom.
Consolidated net income for the first nine months of 1995 was $74.8 million
($2.20 per common share) compared with $26.0 million ($.55 per common share) for
the year-earlier period. The current results for the first nine months of 1995
were impacted by the same trends as described for the current quarter results
including the $55.0 million reduction in the reserve for loan losses. The
nine-month results for 1994 also include securities gains of $1.4 million and a
$4.7 million gain on the settlement of mortgage insurance claims.
Assets totaled $4.70 billion at September 30, 1995, up $277.2 million from
year-end 1994 and $232.1 million from September 30, 1994. The increase in total
assets from September 30, 1994 is attributable primarily to net purchases in
money market assets. Deposits at September 30, 1995 totaled $3.70 billion, an
increase of $100.0 million from year-end 1994 and $154.2 million from September
30, 1994. The increase over the last twelve months is primarily due to increases
in domestic time deposits combined with several new initiatives in the deposit
area (see "Deposits"). Total liabilities increased $183.9 million during 1995
and increased $142.4 million from the year-earlier level. The increase from the
year-earlier balances was due to the aforementioned increase in deposits and a
$13.7 million increase in other liabilities, partially offset by a $25.5 million
decrease in short-term borrowings (see "Short-Term Borrowings and Long-Term
Debt").
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
SECURITIES
Schedules detailing securities available for sale and held-to-maturity follow:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Treasury Securities $159,563 $159,418 $138,368 $137,315
Government Agencies Securities 26,629 26,460 26,534 25,043
Obligations of States & Political Subdivisions 3,800 4,550 - -
Mortgage-Backed Securities 400,963 397,924 453,161 436,421
Other Securities 24,005 24,005 14,425 14,425
-------- -------- -------- --------
Total $614,960 $612,357 $632,488 $613,204
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
BOOK MARKET BOOK MARKET
HELD-TO-MATURITY VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Treasury Securities $ 24,932 $ 24,937 $312,607 $311,096
Government Agencies Securities 376,291 376,387 125,000 121,418
Other Securities - - 1,600 1,600
-------- -------- -------- --------
Total $401,223 $401,324 $439,207 $434,114
</TABLE>
Total securities held-to-maturity and available for sale decreased $27.9 million
(2.7%) during the first nine months of 1995, and $38.8 million (3.7%) since
September 30, 1994. The decrease in securities from year-end 1994 and from the
prior year was mainly due to maturities during the first nine months of 1995
totaling $424.3 million. The weighted-average maturities and yields for
securities held-to-maturity, adjusted for anticipated prepayments, was
approximately 2 years and 6.32% at September 30, 1995. The weighted-average
maturities and yields for securities available for sale, adjusted for
anticipated prepayments, was approximately 3 years and 6.08%, respectively, at
September 30, 1995.
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
SECURITIES, CONTINUED
The maturity distribution of securities at September 30, 1995, follows:
<TABLE>
<CAPTION>
OBLIGATIONS
GOVERNMENT OF STATES
U.S. TREASURY AGENCIES AND POLITICAL OTHER
(IN THOUSANDS) SECURITIES SECURITIES SUBDIVISIONS SECURITIES TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
Within 1 year
Amortized Cost $159,563 $ - $3,800 $ 7,906 $171,269
Book/Market 159,418 - 4,550 7,906 171,874
Yield* 5.79% - 6.06% 5.44% 5.78%
After 1 but within 5 years
Amortized Cost - 26,629 - 298,282 324,911
Book/Market - 26,460 - 296,601 323,061
Yield* - 6.02% - 5.32% 5.37%
After 5 but within 10 years
Amortized Cost - - - 91,517 91,517
Book/Market - - - 90,154 90,154
Yield* - - - 5.56% 5.56%
After 10 years
Amortized Cost - - - 27,263 27,263
Book/Market - - - 27,268 27,268
Yield* - - - 3.70% 3.70%
--------- --------- ------- --------- ---------
Total Securities Available for Sale
Amortized Cost $159,563 $ 26,629 $3,800 $424,968 $614,960
Book/Market 159,418 26,460 4,550 421,929 612,357
Yield* 5.79% 6.02% 6.06% 5.27% 5.44%
SECURITIES HELD-TO-MATURITY
Within 1 year
Book $ 24,932 $ 50,152 $ - $ - $ 75,084
Market 24,937 50,162 - - 75,099
Yield* 5.94% 6.02% - - 5.99%
After 1 but within 5 years
Book - 326,139 - - 326,139
Market - 326,225 - - 326,225
Yield* - 6.56% - - 6.56%
--------- --------- ------- --------- ---------
Total Securities Held-to-Maturity
Book $ 24,932 $376,291 $ - $ - $401,223
Market 24,937 376,387 - - 401,324
Yield* 5.94% 6.49% - - 6.45%
</TABLE>
[FN]
*Weighted average yield to maturity at September 30, 1995. The security
within the category of "Securities Available for Sale - Obligations of State and
Political Subdivisions" is a taxable security and is on a nonaccrual basis at
September 30, 1995. All contractual payments to date have been received.
-16-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
LOANS
The following table reflects loans by type for the periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
LOAN TYPE (IN THOUSANDS) 1995 1994 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and Financial $ 419,569 $ 461,432 $ 400,660
Real Estate - Commercial/Construction 331,342 337,941 323,835
Residential Mortgage 1,298,760 1,316,023 1,317,169
Home Equity 234,878 223,243 220,910
Consumer 79,449 76,328 75,887
Foreign 163,557 186,641 204,558
---------- ---------- ----------
Loans 2,527,555 2,601,608 2,543,019
Less: Unearned Discount (Unamortized
Premium) and Net Deferred Fees (4,948) (6,457) (6,905)
---------- ---------- ----------
Total Loans, Net $2,532,503 $2,608,065 $2,549,924
</TABLE>
At September 30, 1995, total loans outstanding (net of premiums/discounts) were
$2.53 billion, compared with $2.55 billion at December 31, 1994, and $2.61
billion at September 30, 1994. The decrease in loans from December 31, 1994 was
mostly attributable to a decrease of $41.0 million in foreign loans and $18.4
million in domestic residential mortgage loans. The decrease in foreign loans
was due to reduced lending in this area, while the decrease in residential
mortgages was the result of increased competition in this area combined with an
increase in refinancing activity in 1995. These decreases were offset in part
by increases in the remaining loan categories, reflecting several local area
initiatives begun in the first quarter of 1995 targeting selective markets
within the respective loan types. The decrease in loans from September 30, 1994
was mainly due to similar reductions in foreign and residential loan categories,
combined with reductions in commercial and financial loans, which experienced
significant maturities in the latter half of 1994.
REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GEOGRAPHIC LOCATION
DISTRICT OF UNITED
PROJECT TYPE (IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM OTHER TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land Acquisition and
Construction Development $ 30,663 $ 16,104 $13,485 $ - $ - $ 60,252
Multifamily Residential 26,266 10,455 5,888 - - 42,609
Commercial:
Office Buildings 49,348 40,572 23,474 - 2,317 115,711
Shopping Centers 11,638 27,485 18,718 - - 57,841
Hotels 4,559 5,451 - - - 10,010
Industrial/Warehouse Loans 2,289 11,684 7,844 - - 21,817
Churches 6,220 1,636 6,963 - - 14,819
Other 1,979 4,636 1,597 - 71 8,283
-------- -------- ------- -------- ------ --------
Total Commercial 76,033 91,464 58,596 - 2,388 228,481
Foreign - - - 107,460 - 107,460
-------- -------- ------- -------- ------ --------
Total Real Estate-Commercial/
Construction Loans $132,962 $118,023 $77,969 $107,460 $2,388 $438,802
</TABLE>
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
LOANS, CONTINUED
The Corporation extends credit to borrowers domiciled outside of the United
States through several of its banking subsidiaries. Cross-border outstandings
include loans, acceptances, interest-bearing deposits with other banks,
investments, accrued interest and other monetary assets. These assets may be
impacted by changing economic conditions in their respective countries. In
addition, cross-border outstandings include legally enforceable guarantees
issued on behalf of non-local third parties and local currency outstandings to
the extent they are not funded by local currency borrowings. Cross-border
outstandings are then reduced by tangible liquid collateral and any legally
enforceable guarantees issued by non-local third parties on behalf of the
respective country.
The table below details those countries in which the Corporation had total
outstandings in excess of 1% of its total assets. At September 30, 1995, the
Corporation had no cross-border outstandings exceeding 1% of its total assets to
countries experiencing difficulties in repaying their external debt. The
Corporation did not have any cross-border outstandings between .75% and 1% at
September 30, 1995, December 31, 1994 or at September 30, 1994.
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
<TABLE>
<CAPTION>
90 DAYS
% OF OR MORE POTENTIAL
(IN MILLIONS) AMOUNT ASSETS NONACCRUAL RENEGOTIATED PAST DUE PROBLEM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1995
United Kingdom $178.5 3.8% $ 4.5 $0.1 $ - $ -
DECEMBER 31, 1994
United Kingdom 149.4 3.4 10.6 0.3 - 4.3
France 61.1 1.4 - - - -
SEPTEMBER 30, 1994
United Kingdom 170.1 3.8 12.6 0.3 0.3 4.4
France 51.4 1.1 - - - -
</TABLE>
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY
Nonperforming assets, which include nonaccrual loans, renegotiated loans and
other real estate owned (net of reserves), totaled $50.1 million at September
30, 1995, a $25.6 million (33.8%) decrease from the year-end 1994 total of $75.7
million and a $44.4 million (47.0%) decrease from the September 30, 1994 total.
The composition of nonperforming assets and past due loans is detailed below:
NONPERFORMING ASSETS AND PAST-DUE LOANS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NONPERFORMING ASSETS:
Nonaccrual Loans: (1)
Domestic $ 7,781 $19,309 $11,518
Foreign 4,525 17,789 15,865
------- ------- -------
Total Nonaccrual Loans 12,306 37,098 27,383
------- ------- -------
Renegotiated Loans: (2)
Domestic 152 189 288
Foreign 134 298 267
------- ------- -------
Total Renegotiated Loans 286 487 555
------- ------- -------
Other Real Estate Owned, Net:
Domestic 36,069 49,703 44,068
Foreign 1,469 7,208 3,695
------- ------- -------
Total Other Real Estate Owned, Net 37,538 56,911 47,763
------- ------- -------
Total Nonperforming Assets $50,130 $94,496 $75,701
PAST-DUE LOANS: (3)
Domestic $ 4,841 $ 1,782 $ 6,091
Foreign - - 30
------- ------- -------
Total Past-Due Loans $ 4,841 $ 1,782 $ 6,121
</TABLE>
[FN]
(1) - Loans (other than consumer) that are in default in either principal
or interest for 90 days or more that are not well-secured and in the process of
collection.
(2) - Loans for which terms have been renegotiated to provide a
reduction of interest or principal as a result of a deterioration in the
financial position of the borrower in accordance with Statement of Financial
Accounting Standard No. 15. Renegotiated loans do not include $13.3 million in
loans renegotiated at market terms that have performed in accordance with their
respective renegotiated terms. These performing, market rate loans are no longer
included in nonperforming asset totals.
(3) - Loans contractually past due 90 days or more in principal or interest
that are well-secured and in the process of collection.
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY, CONTINUED
At September 30, 1995, nonaccrual loans, including both domestic and foreign,
were $12.3 million, or .49% of total loans, compared with $27.4 million, or 1.1%
of total loans, at year-end 1994 and $37.1 million, or 1.4% of total loans, at
September 30, 1994. The decrease in nonaccrual loans during the first nine
months of 1995 was due to paydowns and payoffs of $15.2 million, in addition to
loans returning to accrual status of $2.6 million, charge-offs of $5.5 million
and transfers to other real estate owned of $741 thousand. These reductions were
partially offset by additions of $8.8 million and foreign exchange translation
adjustments of $138 thousand. Of the $15.2 million in paydowns and payoffs
during the first nine months of 1995, $7.4 million (48.5%) related to foreign
nonaccrual loans and $7.8 million (51.5%) related to domestic nonaccrual loans.
Renegotiated loans decreased $269 thousand during the first nine months of 1995,
with paydowns and payoffs totaling $155 thousand, combined with transfers back
to accrual status of $114 thousand. Nonaccrual and renegotiated real
estate-commercial/construction loans, both foreign and domestic, totaled $3.5
million at September 30, 1995, or 28.2% of the total nonaccrual and renegotiated
loans at September 30, 1995.
Other real estate owned, net of reserves, decreased to $37.5 million at
September 30, 1995, from $47.8 million at December 31, 1994 and $56.9 million at
September 30, 1994. The decrease during the first nine months of 1995 is the
result of paydowns and sales of $8.0 million and net charge-offs of $3.1 million
offset by foreign exchange translation adjustments of $59 thousand and transfers
from nonaccrual loans of $741 thousand. At September 30, 1995, residential and
commercial land composed 77% of other real estate owned with office, industrial,
retail and other categories accounting for the remainder of the portfolio.
OTHER REAL ESTATE OWNED - (1)
GEOGRAPHIC DISTRIBUTION BY TYPE
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GEOGRAPHIC LOCATION
DISTRICT OF UNITED
PROJECT TYPE (IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land $ - $20,888 $ 8,009 $ - $ - $28,897
Single-Family Residential 144 352 235 - - 731
Office Buildings/Retail - 537 2,972 639 2,561 6,709
Multifamily Residential - 156 - - - 156
Warehouse Loans 215 - - 830 - 1,045
---- ------- ------- ------ ------ -------
Total Other Real Estate Owned, Net $359 $21,933 $11,216 $1,469 $2,561 $37,538
</TABLE>
[FN]
(1) - Balances are net of valuation reserves totaling $2.7 million.
Past due loans consist predominantly of residential real estate and consumer
loans that are well-secured and in the process of collection and that are
accruing interest. Past due loans decreased $1.3 million during the first nine
months of 1995 to $4.8 million, while increasing $3.1 million from September 30,
1994.
At September 30, 1995, the Corporation had identified approximately $10.5
million in potential problem loans that are currently performing but that
management believes have certain attributes that may lead to nonaccrual or past
due status in the foreseeable future. As of the third quarter, these loans
consisted entirely of domestic loans, primarily commercial and financial.
-20-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY, CONTINUED
In addition, the Corporation had $4.6 million in other potential problem assets
at September 30, 1995. In December 1994, the Corporation purchased $10.0
million, par value, of Orange County, California, variable-rate one-year notes
due in July and August 1995 (the "Notes"), which were purchased from the
Corporation's proprietary RIMCO Monument Money Market Fund. Due to Orange
County's bankruptcy declaration on December 6, 1994, the Notes are on a
nonaccrual basis and are carried at their estimated fair value. Interest on the
Notes is current, but due to the uncertainty of the outcome of the bankruptcy
proceedings, there is no assurance that future payments will be received. In
August 1995, $5 million of the Notes, which were not part of the bankruptcy
proceedings, matured and were paid off. On July 7, 1995 the Corporation accepted
Orange County's offer to extend the maturity date of the remaining $5 million
par value of the Notes, under similar terms and conditions, to June 30, 1996.
These securities are classified in the securities available for sale portfolio
at September 30, 1995.
The Corporation's banking subsidiaries maintain reserves for loan losses that
are available to absorb potential losses in the current loan portfolio. The
reserve for loan losses is based on management's assessment of existing
conditions and reflects potential losses determined to be probable and subject
to reasonable estimation. The reserve for loan losses was $55.4 million, or
2.19% of total loans (net of premiums/discounts) at September 30, 1995, compared
with $97.0 million, or 3.81% of total loans at December 31, 1994, and $95.8
million, or 3.67% of total loans, at September 30, 1994. The Corporation reduced
the reserve for loan losses by $55.0 million in the third quarter of 1995,
derived primarily from the improved quality of its loan portfolio. The coverage
ratio was 440% at September 30, 1995, 347% at year-end 1994 and 255% at
September 30, 1994. The increase in the coverage ratio during the periods was
the result of decreases in total nonperforming loans during the periods.
DEPOSITS
Deposits, which are offered through several banking subsidiaries of the
Corporation, are the primary and most stable source of funds for the
Corporation. Deposits totaled $3.70 billion at September 30, 1995, increasing
$100.0 million (2.8%) from the year-end 1994's deposit total and $154.2 million
(4.3%) from the September 30, 1994 deposit total. The increase from the year
earlier balance was due to increases in domestic time ($237.9 million) and
foreign time deposits ($42.9 million), partially offset by declines in savings
and NOW accounts and money market deposits ($163.2 million). The increase in
domestic time deposits was partially due to a $70.9 million increase in the
balance of time deposits with the U.S. Treasury at September 30, 1995. The
remainder of the increase was due to several deposit initiatives implemented in
the latter half of 1994, primarily targeting demand deposit and time deposit
products.
Beginning in 1994 and continuing in 1995, the Corporation has been conducting a
detailed analysis of its retail banking system, determining the best use of its
locations, branch facilities, product lines and personnel. The Corporation has
already sold or consolidated four retail branches as part of this analysis. The
Corporation currently does not anticipate significant branch sales or
consolidations, but the Corporation is actively seeking enhancements to existing
branches to attract new customers, improve service quality and the overall
profitability of its branches, and is also searching for opportunities to
establish new retail banking branches in strategic locations.
DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30, CHANGE
(IN THOUSANDS) 1995 1994 AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand Deposits $ 824,106 $ 787,592 $ 36,514 4.6 %
Interest-Bearing Deposits:
Savings and NOW Accounts 798,294 882,954 (84,660) (9.6)
Money Market Deposit Accounts 945,372 1,023,895 (78,523) (7.7)
Time Deposits in Domestic Offices 830,442 592,506 237,936 40.2
Time Deposits in Foreign Offices 304,559 261,653 42,906 16.4
---------- ---------- -------- ------
Total Interest-Bearing Deposits 2,878,667 2,761,008 117,659 4.3
---------- ---------- -------- ------
Total Deposits $3,702,773 $3,548,600 $154,173 4.3 %
</TABLE>
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings increased $74.1 million (25.3%) during the first nine
months of 1995 and declined $25.5 million (6.5%) from the year earlier balance.
Short-term borrowings are an additional source of funds that the Corporation has
established to meet certain asset/liability and daily cash management
objectives. The Corporation's increase in short-term borrowings during the first
nine months of 1995 was primarily due to a temporary increase in treasury, tax
and loan balances in the third quarter.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, CHANGE
(IN THOUSANDS) 1995 1994 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Funds Purchased and Repurchase Agreements $100,534 $208,376 $(107,842) (51.8)%
U.S. Treasury Notes and Other Borrowed Funds 266,985 184,600 82,385 44.6 %
-------- -------- ---------- -------
Total Short-Term Borrowings 367,519 392,976 (25,457) (6.5)%
Floating-Rate Subordinated Capital Notes due 1996 26,100 26,100 - -
Subordinated Debentures due 2009 66,525 66,525 - -
Subordinated Notes due 2006 125,000 125,000 - -
-------- -------- ---------- -------
Total Long-Term Debt 217,625 217,625 - -
-------- -------- ---------- -------
Total Short-Term Borrowings and Long-Term Debt $585,144 $610,601 $ (25,457) (4.2)%
</TABLE>
LIQUIDITY
The Corporation seeks to maintain sufficient liquidity to meet the needs of
depositors, borrowers and creditors at a reasonable cost and without undue
stress on the operations of the Corporation and its banking subsidiaries. The
Corporation's Asset-Liability Committee actively analyzes and manages liquidity
in coordination with other areas of the organization (see "Interest Rate Risk
Management"). At September 30, 1995, the Corporation's liquid assets, on a
consolidated basis, which include cash and due from banks, U.S. Treasury
securities and Government obligations, federal funds sold, reverse repurchase
agreements and time deposits at other banks, totaled $1.9 billion (39.6% of
total assets). This compares with $1.6 billion (36.5%) at December 31, 1994, and
$1.6 billion (35.7%) at September 30, 1994. The increase in total liquid assets
and the percentage of liquid assets to total assets from September 30, 1994, was
the result of cash inflows from the Corporation's deposit initiatives,
combined with loan maturities. The Corporation expects liquid assets to remain
at approximately the September 30, 1995 level for the foreseeable future.
The liquidity position of the Corporation is enhanced by the stable source of
funds maintained through the Corporation's core deposit relationships, in
addition to its ability to attract new deposits and other sources of funds, such
as short-term borrowings and advances available from the Federal Home Loan Bank
of Atlanta, which the Corporation became a member in June 1995.
-22-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
INTEREST RATE RISK MANAGEMENT
The Corporation's asset/liability management function is controlled by the
Asset/Liability Committee ("ALCO"), which is comprised of representatives who
lead the major divisions within the Corporation. The objective of the group is
to prudently manage the assets and liabilities of the Corporation to provide
both an optimum and stable net interest margin while maintaining adequate levels
of liquidity and capital. This approach entails the management of overall risk
of the organization in conjunction with the acquisition and deployment of funds.
ALCO monitors and modifies exposure to changes in interest rates based upon its
view of current and prospective market and economic conditions. The traditional
measurement of an organization's exposure to interest-rate fluctuations, such as
interest sensitivity, entails a "static gap" measurement portraying a snapshot
of the balance sheet at one point in time. However, this methodology does not
adequately measure the Corporation's exposure to interest-rate risk. The balance
sheet must be viewed within a dynamic framework in which relationships may vary
over time in virtually every segment of the statement of condition.
The Corporation manages interest-rate risk through the use of a simulation model
allowing for various interest-rate scenarios to be portrayed. The model
forecasts the impact on earnings of these rate scenarios over a 36-month time
horizon assuming selected changes in the mix of assets and liabilities, spread
relationships, and management actions. A "most likely" scenario is forecasted
based upon a consensus view of the marketplace. Alternatives, which reflect
interest rates moving significantly higher or lower than this view, are also
evaluated, with the results compared against risk tolerance limits established
by corporate policy. The Corporation's current policy establishes limits for
possible fluctuations in net interest income for an ensuing 12-month period
under all of the scenarios described above. At September 30, 1995, the
Corporation maintained a relatively balanced interest-rate risk position. This
position would serve to insulate the Corporation against interest rates moving
significantly in either direction.
In managing the Corporation's interest-rate risk, ALCO also utilizes financial
derivatives in the normal course of business. These products might include
interest-rate swaps, caps, collars, floors, futures, and options, among others.
Financial derivatives are employed to assist in the management and/or reduction
of interest-rate risk for the Corporation and can effectively alter the interest
sensitivity of segments of the statement of condition for specified periods of
time. All of these vehicles are considered "off-balance sheet" as they do not
impact the actual levels of assets or liabilities of the Corporation.
Management finds that all of the methodologies discussed above provide a
meaningful representation of the Corporation's interest-rate sensitivity, though
factors other than changes in the interest-rate environment, such as levels of
nonearning assets, and changes in the composition of earning assets, may impact
net interest income. Management believes its current rate sensitivity level is
appropriate, considering the Corporation's economic outlook and the conservative
approach taken in the review and monitoring of the Corporation's interest-rate
risk position.
-23-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Total stockholders' equity at September 30, 1995 was $360.9 million, up $93.3
million from the year-end 1994 total and $89.7 million from September 30, 1994.
The increase from year-end 1994 was the result of earnings totaling $74.8
million combined with a reduction in net unrealized losses in the Corporation's
securities available for sale portfolio of $26.4 million, partially offset by
dividends on preferred stock of $8.1 million. The increase in stockholders'
equity over the preceding year is attributable to earnings during the period
combined with a $17.6 million decrease in net unrealized losses in the
Corporation's securities available for sale portfolio. These increases were
offset by the repurchase of the Preferred Stock, Series A totaling $19.1 million
in 1994.
The Corporation's total (combined Tier I and Tier II) and core (Tier I) capital
ratios were 21.44% and 13.45%, respectively, at September 30, 1995, compared
with 18.50% and 11.48% at December 31, 1994 and 17.86% and 11.05% at September
30, 1994, respectively. The Federal Reserve Board's risk-based capital
guidelines require bank holding companies to meet a minimum ratio of qualifying
total (combined Tier I and Tier II) capital to risk-weighted assets of 8.00%, at
least half of which must be composed of core (Tier I) capital elements. The
Federal Reserve Board has established an additional capital adequacy
guideline-the leverage ratio, which measures the ratio of Tier I capital to
quarterly average assets. The most highly rated bank holding companies are
required to maintain a minimum leverage ratio of 3.00%. Those that are not in
the most highly rated category, including the Corporation, are expected to
maintain minimum ratios of at least 4.00%, or higher, if determined appropriate
by the Federal Reserve Board through its assessment of the Corporation's asset
quality, earnings performance, interest-rate risk and liquidity. The Federal
Reserve Board has not advised the Corporation of a specific leverage ratio
requirement above the 4.00% minimum. The Corporation's leverage ratio was 7.81%
at September 30, 1995, compared with leverage ratios of 6.42% and 6.30% at
December 31, 1994 and September 30, 1994, respectively. Regulatory capital
ratios do not include the impact of net unrealized losses on the securities
available for sale portfolio totaling $1.7 million at September 30, 1995. The
Corporation's equity to assets ratio, which does include these unrealized
losses, increased approximately 160 basis points to 7.67% at September 30,
1995 compared to 6.05% and 6.07% at December 31, 1994, and September 30, 1994,
respectively.
The Corporation ensures that its operating subsidiaries are capitalized in
accordance with regulatory guidelines. The three national bank subsidiaries of
the Corporation are subject to minimum capital ratios prescribed by the Office
of the Comptroller of the Currency, which are generally the same as those of the
Federal Reserve Board. The following table details the actual and required
minimum ratios for the Corporation and its insured bank subsidiaries:
CAPITAL RATIOS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, REQUIRED
1995 1994 1994 MINIMUMS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RIGGS NATIONAL CORPORATION:
Tier I 13.45% 11.48% 11.05% 4.00%
Combined Tier I and Tier II 21.44 18.50 17.86 8.00
Leverage* 7.81 6.42 6.30 4.00
THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.:
Tier I 16.06 13.35 12.53 4.00
Combined Tier I and Tier II 17.32 14.64 13.82 8.00
Leverage* 9.36 7.39 7.16 4.00
THE RIGGS NATIONAL BANK OF VIRGINIA:
Tier I 18.41 18.18 18.45 4.00
Combined Tier I and Tier II 19.46 19.43 19.70 8.00
Leverage* 9.48 9.74 9.62 4.00
THE RIGGS NATIONAL BANK OF MARYLAND:
Tier I 12.80 13.21 12.97 4.00
Combined Tier I and Tier II 14.05 14.46 14.22 8.00
Leverage* 7.21 7.33 6.80 4.00
</TABLE>
[FN]
* Most bank holding companies and national banks, including the Corporation
and the Corporation's national bank subsidiaries, are expected to maintain at
least a 4.00% minimum leverage ratio, or higher, if determined appropriate by
the Federal Reserve Board and other regulators. The Federal Reserve Board has
not indicated a requirement higher than 4.00% at September 30, 1995.
-24-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NET INTEREST INCOME
Net interest income on a tax-equivalent basis (net interest income plus an
amount equal to the tax savings on tax-exempt interest) totaled $38.2 million in
the third quarter of 1995, decreasing $660 thousand from the second quarter of
1995 and $2.0 million from the third quarter of 1994. Net interest income on a
tax-equivalent basis was $116.0 million for the first nine months of 1995,
compared with $117.2 million for the same period in the prior year. The net
interest margin (net interest income on a tax-equivalent basis divided by
average earning assets) for the third quarter of 1995 was 3.66% (see schedule
on the following page), a decrease of 5 basis point from 3.71% for the second
quarter of 1995 and 35 basis points from 4.01% for the third quarter of 1994.
The net interest margin for the nine-month period ended September 30, 1995 was
3.76%, down 11 basis points from the 1994 level of 3.87%. With the rising rates
in 1994, the Corporation's assets generally repriced faster than liabilities.
However, the interest rate increases of 1994 abated during the first quarter of
1995. Thus during the first nine months of 1995, asset repricing has leveled,
resulting initially in a leveling of the Corporation's net interest margin, and
in the past two quarters, a movement downward in the net interest margin. The
Corporation anticipates the net interest margin will continue at approximately
its current level. The loan-to-deposit ratio stood at 68.4% at September 30,
1995, down slightly from the year-end 1994 ratio of 70.8%, the result of the
aforementioned deposit increases. The ratio of average loans to average earning
assets was 61.1% for the third quarter of 1995, compared with ratios of 60.7%
and 65.2% for the second quarter of 1995 and the third quarter of 1994,
respectively.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 VS 1994 SEPTEMBER 30, 1995 VS 1994
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans (Including Fees) $ 4,194 $(1,627) $ 2,567 $13,818 $(6,160) $ 7,658
Securities Available for Sale 216 1,100 1,316 5,029 1,442 6,471
Securities Held-to-Maturity 979 1,937 2,916 4,802 2,294 7,096
Time Deposits with Other Banks 641 596 1,237 2,141 1,935 4,076
Federal Funds Sold and Reverse
Repurchase Agreements 716 (190) 526 3,045 509 3,554
------- -------- ------- ------- -------- -------
Total Interest Income 6,746 1,816 8,562 28,835 20 28,855
Interest Expense:
Savings and NOW Accounts 374 (572) (198) 1,640 (1,631) 9
Money Market Deposit Accounts 2,101 (728) 1,373 6,730 (2,013) 4,717
Time Deposits in Domestic Offices 4,080 1,191 5,271 11,918 1,985 13,903
Time Deposits in Foreign Offices 660 1,591 2,251 1,969 3,849 5,818
Federal Funds Purchased and
Repurchase Agreements 560 282 842 2,263 2,552 4,815
U.S. Treasury Demand Notes and Other
Short-Term Borrowings 149 796 945 1,356 373 1,729
Long-Term Debt 88 - 88 446 (1,332) (886)
------- -------- ------- ------- -------- -------
Total Interest Expense 8,012 2,560 10,572 26,322 3,783 30,105
------- -------- ------- ------- -------- -------
Net Interest Income $(1,266) $ (744) $(2,010) $ 2,513 $(3,763) $(1,250)
</TABLE>
[FN]
(1) - The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change in
volume) has been allocated between rate and volume variances based on the
percentage relationship of such variances to each other. Income and rates are
computed on a tax-equivalent basis using a Federal income tax rate of 35% and
local tax rates as applicable.
-25-
<PAGE>
RIGGS NATIONAL CORPORATION
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans: (2)
Commercial - Taxable $ 392,738 $ 7,914 7.99 % $ 382,511 $ 6,559 6.80 %
Commercial - Tax-Exempt 30,575 1,136 14.74 54,220 1,336 9.78
Real Estate - Commercial/Construction 328,865 7,886 9.51 335,890 7,533 8.90
Residential Mortgage 1,308,967 23,490 7.12 1,337,217 23,344 6.93
Home Equity 234,154 5,350 9.06 224,873 4,523 7.98
Consumer 76,123 2,344 12.22 76,073 2,257 11.77
Foreign 159,199 3,805 9.48 187,811 3,806 8.04
---------- ------- ------- ---------- ------- -------
Total Loans (Including Fees) 2,530,621 51,925 8.14 2,598,595 49,358 7.54
---------- ------- ------- ---------- ------- -------
Securities Available for Sale (3) 616,192 9,356 6.02 543,445 8,040 5.87
Securities Held-to-Maturity 558,943 8,739 6.20 429,018 5,823 5.38
Time Deposits with Other Banks 232,935 3,620 6.17 190,415 2,383 4.97
Federal Funds Sold and Resale Agreements 205,831 3,071 5.92 221,533 2,545 4.56
---------- ------- ------- ---------- ------- -------
Total Earning Assets and Average Rate Earned 4,144,522 76,711 7.34 3,983,006 68,149 6.79
---------- ------- ------- ---------- ------- -------
Less: Reserve for Loan Losses 100,928 94,234
Cash and Due from Banks 198,515 214,039
Premises and Equipment, Net 151,774 154,996
Other Assets 190,364 183,702
---------- ----------
Total Assets $4,584,247 $4,441,509
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 802,861 $ 4,766 2.36 % $ 901,508 $ 4,964 2.18 %
Money Market Deposit Accounts 941,195 8,259 3.48 1,044,066 6,886 2.62
Time Deposits in Domestic Offices 857,682 11,481 5.31 733,322 6,210 3.36
Time Deposits in Foreign Offices 333,056 5,076 6.05 223,079 2,825 5.02
---------- ------- ------- ---------- ------- -------
Total Interest-Bearing Deposits 2,934,794 29,582 4.00 2,901,975 20,885 2.86
---------- ------- ------- ---------- ------- -------
Borrowed Funds:
Federal Funds Purchased and
Repurchase Agreements 179,601 2,720 6.01 157,922 1,878 4.72
U.S. Treasury Notes and Other Borrowed Funds 98,290 1,418 5.72 41,247 473 4.55
Long-Term Debt 217,625 4,788 8.73 217,627 4,700 8.57
---------- ------- ------- ---------- ------- -------
Total Interest-Bearing Funds and Average Rate Paid 3,430,310 38,508 4.45 3,318,771 27,936 3.34
---------- ------- ------- ---------- ------- -------
Demand Deposits 795,170 793,098
Other Liabilities 51,282 43,101
Stockholders' Equity 307,485 286,539
---------- ----------
Total Liabilities and Stockholders' Equity $4,584,247 $4,441,509
_______ _______ _______ _______
NET INTEREST INCOME AND SPREAD $38,203 2.89 % $40,213 3.45 %
------- -------
NET INTEREST MARGIN ON EARNING ASSETS 3.66 % 4.01 %
</TABLE>
[FN]
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - Securities available for sale averages and rates are based on
amortized costs.
-26-
<PAGE>
RIGGS NATIONAL CORPORATION
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans: (2)
Commercial - Taxable $ 396,146 $ 23,953 8.08 % $ 377,307 $ 17,614 6.24 %
Commercial - Tax-Exempt 33,802 2,978 11.78 64,417 5,217 10.83
Real Estate - Commercial/Construction 324,663 23,438 9.65 360,347 22,319 8.28
Residential Mortgage 1,320,641 70,673 7.15 1,297,947 68,891 7.10
Home Equity 229,367 15,447 9.00 225,306 12,355 7.33
Consumer 74,450 6,732 12.09 75,725 6,721 11.87
Foreign 158,000 10,730 9.08 209,165 13,176 8.42
---------- -------- ------- ---------- -------- -------
Total Loans (Including Fees) 2,537,069 153,951 8.11 2,610,214 146,293 7.49
---------- -------- ------- ---------- -------- -------
Securities Available for Sale (3) 612,782 28,288 6.17 576,460 21,817 5.06
Securities Held-to-Maturity 537,636 24,308 6.04 478,909 17,212 4.81
Time Deposits with Other Banks 229,710 11,138 6.48 184,839 7,062 5.11
Federal Funds Sold and Resale Agreements 211,432 9,463 5.98 195,668 5,909 4.04
---------- -------- ------- ---------- -------- -------
Total Earning Assets and Average Rate Earned 4,128,629 227,148 7.36 4,046,090 198,293 6.55
---------- -------- ------- ---------- -------- -------
Less: Reserve for Loan Losses 98,588 90,279
Cash and Due from Banks 201,192 224,580
Premises and Equipment, Net 150,921 157,801
Other Assets 185,391 184,975
---------- ----------
Total Assets $4,567,545 $4,523,167
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 823,142 $ 14,473 2.35 % $ 921,916 $ 14,464 2.10 %
Money Market Deposit Accounts 951,667 24,272 3.41 1,052,167 19,555 2.48
Time Deposits in Domestic Offices 844,098 32,016 5.07 766,884 18,113 3.16
Time Deposits in Foreign Offices 308,302 14,081 6.11 218,782 8,263 5.05
---------- -------- ------- ---------- -------- -------
Total Interest-Bearing Deposits 2,927,209 84,842 3.88 2,959,749 60,395 2.73
---------- -------- ------- ---------- -------- -------
Borrowed Funds:
Federal Funds Purchased and
Repurchase Agreements 182,634 8,285 6.07 115,722 3,470 4.01
U.S. Treasury Notes and Other Borrowed Funds 84,876 3,643 5.74 72,406 1,914 3.53
Long-Term Debt 217,625 14,399 8.85 237,901 15,285 8.59
---------- -------- ------- ---------- -------- -------
Total Interest-Bearing Funds and Average Rate Paid 3,412,344 111,169 4.36 3,385,778 81,064 3.20
---------- -------- ------- ---------- -------- -------
Demand Deposits 813,816 803,387
Other Liabilities 49,157 46,515
Stockholders' Equity 292,228 287,487
---------- ----------
Total Liabilities and Stockholders' Equity $4,567,545 $4,523,167
________ _______ ________ _______
NET INTEREST INCOME AND SPREAD $115,979 3.00 % $117,229 3.35 %
------- -------
NET INTEREST MARGIN ON EARNING ASSETS 3.76 % 3.87 %
</TABLE>
[FN]
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - Securities available for sale averages and rates are based on
amortized costs.
-27-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NET INTEREST INCOME, CONTINUED
Interest income earned on nonaccrual and restructured loans totaled $363
thousand and $1.3 million for the nine months ended September 30, 1995 and 1994,
respectively. Interest income that would have been earned under the original
terms of these loans was $2.0 million and $5.6 million, respectively, which
reduced the net interest margin by approximately 5 basis points in 1995 and
approximately 14 basis points in 1994.
INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS (1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(IN THOUSANDS) SEPTEMBER 30, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Interest Income at Original Terms:
Nonaccrual Loans:
Domestic Loans $ 923
Foreign Loans 1,032
Renegotiated Loans 75
------
Total $2,030
Actual Interest Income Recognized:
Nonaccrual Loans:
Domestic Loans $ 182
Foreign Loans 181
Renegotiated Loans -
------
Total $ 363
</TABLE>
[FN]
(1)- For loans on nonaccrual and a renegotiated status at September 30, 1995,
the table shows total interest income at original terms and actual income
recognized for the nine months ended September 30, 1995.
-28-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST INCOME
Noninterest income for the third quarter of 1995 was $18.3 million, comparable
to the second quarter of 1995 and down $448 thousand from the $18.8 million
total for the third quarter of 1994. The decrease in noninterest income between
the third quarter of 1995 and the prior year's period was due to decreases in
service charges of $1.1 million and international fee income of $391 thousand.
The decrease in service charges was due to decreases in transaction-based
deposit accounts between the periods, while the decrease in international fees
was attributed to the loss of $515 thousand in fee income from three foreign
subsidiaries sold in the third quarter of 1994. These decreases were offset by a
$951 thousand increase in trust income stemming primarily from increased revenue
from the Corporation's personal trust and mutual fund operations.
Noninterest income decreased $13.4 million when comparing the first nine months
of 1995 to the same period in 1994. This decrease was due to two nonrecurring
items in 1994, combined with reductions in service charges and securities gains.
The nonrecurring items were a $4.7 million insurance gain recorded in the first
quarter of 1994 and the loss of income totaling $5.6 million from the previously
mentioned sale of certain foreign subsidiaries. Service charges for the
nine-month periods were down $2.5 million, the result of reduced balances in
transaction-based deposit accounts, as securities gains decreased $1.2 million
between the periods.
NONINTEREST INCOME
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
(IN THOUSANDS) 1995 1994 AMOUNT PERCENT 1995 1994 AMOUNT PERCENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service Charges $ 8,509 $ 9,628 $(1,119) (11.6)% $25,616 $28,133 $ (2,517) (8.9)%
Trust Income 7,518 6,567 951 14.5 21,489 21,562 (73) (0.3)
International Noncredit
Commissions and Fees 209 600 (391) (65.2) 598 5,315 (4,717) (88.7)
Gain on Settlement of Mortgage
Insurance Claims - - - - - 4,739 (4,739) (100.0)
Foreign Exchange Income 561 597 (36) (6.0) 1,692 1,731 (39) (2.3)
Other Noninterest Income 1,393 1,401 (8) (0.6) 5,085 5,222 (137) (2.6)
------- ------- -------- ------- ------- ------- --------- --------
Noninterest Income Excluding
Securities Gains, Net 18,190 18,793 (603) (3.2) 54,480 66,702 (12,222) (18.3)
Securities Gains, Net 155 - 155 - 201 1,424 (1,223) (85.9)
------- ------- -------- ------- ------- ------- --------- --------
Total Noninterest Income $18,345 $18,793 $ (448) (2.4)% $54,681 $68,126 $(13,445) (19.7)%
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 1995 was $54.0 million, an increase
of $7.1 million when compared with the second quarter of 1995 and $6.2 million
when compared with the third quarter of 1994. The increase from the second
quarter of 1995 was primarily due to nonrecurring accruals of $4.4 million for
occupancy related expenses and $1.2 million for reorganization and severance
related expenses. Increased other real estate owned expense, up $3.4 million,
also contributed to the increase; the result of $2.5 million in writedowns
recorded in the current quarter compared to $889 thousand in net gains in the
previous quarter. Offsetting these increases was a $2.0 million decrease in
deposit insurance premiums during the current quarter, which resulted from a
$2.1 million refund received from the FDIC. Of the $2.1 million refund received,
approximately $1.6 million related to the current quarter's premium and $500
thousand related to the first half of 1995. Effective this quarter, insurance
rates have reduced from a range of $.23 to $.26 per $100 in deposits insured to
a range of $.04 to $.07 per $100 in deposits insured. This reduction is expected
to generate approximately $6 million in annual deposit insurance savings. The
$6.2 million increase in noninterest expense from the third quarter of 1994 was
due to trends similar to the items detailed above, as the $5.6 million in
nonrecurring accruals combined with a $4.7 million increase in other real estate
owned expense were offset by reductions in deposit insurance premiums and other
noninterest expense.
-29-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST EXPENSE, CONTINUED
The reorganization and severance related accrual detailed above was provided for
upcoming expenditures for several efficiency initiatives implemented in the
third quarter. The Corporation has identified certain areas within its
organizational structure to consolidate functions and/or reduce staff positions.
Management expects the reorganization initiatives to be completed in the fourth
quarter of 1995, generating approximately $8 million in compensation-based
savings in 1996. The occupancy accrual was recorded to provide for several
occupancy initiatives currently undertaken, including the new technology center
to be completed in mid-year 1996, as well as the marketing of office space to
third parties that is currently vacant or that may become available from the
previously discussed reorganization initiatives. Management expects the
occupancy initiatives to generate approximately $6.0 million in occupancy
related expense savings in 1996, with greater improvements expected in 1997 and
thereafter.
Noninterest expense decreased $2.9 million when comparing the first nine months
of 1995 to the same period in 1994. This decrease was primarily due to the
decrease in deposit insurance premiums of $3.2 million, reductions in furniture
and equipment expense totaling $1.2 million and a decrease in other noninterest
expense of $5.4 million. These decreases were offset by the previously mentioned
$4.4 million accrual for occupancy efficiency programs, combined with a $1.7
million increase in other real estate owned expenses and a $2.1 million
restructuring reversal recorded in 1994.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
(IN THOUSANDS) 1995 1994 AMOUNT PERCENT 1995 1994 AMOUNT PERCENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and Wages $17,649 $15,970 $ 1,679 10.5 % $ 49,803 $ 48,851 $ 952 1.9 %
Pensions and Other Employee
Benefits 3,828 3,263 565 17.3 12,348 13,113 (765) (5.8)
------- ------- ------- ------- -------- -------- -------- -------
Total Staff Expense 21,477 19,233 2,244 11.7 62,151 61,964 187 0.3
------- ------- ------- ------- -------- -------- -------- -------
Occupancy, Net 10,101 6,414 3,687 57.5 21,307 18,003 3,304 18.4
Data Processing Services 4,334 3,981 353 8.9 12,718 12,647 71 0.6
Furniture and Equipment 1,886 2,163 (277) (12.8) 5,920 7,111 (1,191) (16.7)
FDIC Insurance 29 2,370 (2,341) (98.8) 4,012 7,233 (3,221) (44.5)
Advertising and Public Relations 1,303 1,438 (135) (9.4) 3,964 4,365 (401) (9.2)
Other Real Estate Owned Expense
(Income), Net 2,503 (2,160) 4,663 (215.9) 530 (1,154) 1,684 (145.9)
Restructuring Expense - - - - - (2,059) 2,059 (100.0)
Other Noninterest Expense 12,361 14,336 (1,975) (13.8) 37,413 42,808 (5,395) (12.6)
------- ------- ------- ------- -------- -------- -------- -------
Total Noninterest Expense $53,994 $47,775 $ 6,219 13.0 % $148,015 $150,918 $(2,903) (1.9)%
</TABLE>
TAXES
The Corporation's provision for income taxes includes federal, state and
foreign income taxes. Income tax expense totaling $64 thousand was recognized
for the quarter ended September 30, 1995, compared with $171 thousand for the
quarter ended September 30, 1994. Income tax expense totaling $255 thousand,
compared with income tax benefits of $392 thousand, was recognized for the
nine-month periods ended September 30, 1995 and 1994, respectively. The 1995 tax
provision was less than the statutory rate because of the Corporation's ability
to carryforward net operating losses.
-30-
<PAGE>
RIGGS NATIONAL CORPORATION
EXHIBITS AND SIGNATURES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
On September 28, 1995, the Corporation filed a Form 8-K
announcing it had been notified by the Federal Reserve Bank of
Richmond (the "Federal Reserve") that the Federal Reserve had
terminated the Memorandum of Understanding under which the
Corporation had been operating since May 14, 1993.
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.
Date: November 6, 1995 /s/ Timothy C. Coughlin
---------------- -----------------------
Timothy C. Coughlin
President
Date: November 6, 1995 /s/ John L. Davis
---------------- ------------------------
John L. Davis
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-31-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q DATED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 251,930
<INT-BEARING-DEPOSITS> 177,662
<FED-FUNDS-SOLD> 446,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 612,357
<INVESTMENTS-CARRYING> 401,223
<INVESTMENTS-MARKET> 401,324
<LOANS> 2,532,503
<ALLOWANCE> 55,390
<TOTAL-ASSETS> 4,702,841
<DEPOSITS> 3,702,773
<SHORT-TERM> 367,519
<LIABILITIES-OTHER> 53,989
<LONG-TERM> 217,625
<COMMON> 77,917
0
4,000
<OTHER-SE> 279,018
<TOTAL-LIABILITIES-AND-EQUITY> 4,702,841
<INTEREST-LOAN> 152,135
<INTEREST-INVEST> 51,827
<INTEREST-OTHER> 20,601
<INTEREST-TOTAL> 224,563
<INTEREST-DEPOSIT> 84,842
<INTEREST-EXPENSE> 111,169
<INTEREST-INCOME-NET> 113,394
<LOAN-LOSSES> (55,000)
<SECURITIES-GAINS> 201
<EXPENSE-OTHER> 148,015
<INCOME-PRETAX> 75,060
<INCOME-PRE-EXTRAORDINARY> 75,060
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,805
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 3.76
<LOANS-NON> 12,306
<LOANS-PAST> 4,841
<LOANS-TROUBLED> 286
<LOANS-PROBLEM> 10,481
<ALLOWANCE-OPEN> 97,039
<CHARGE-OFFS> 6,488
<RECOVERIES> 19,633
<ALLOWANCE-CLOSE> 55,390
<ALLOWANCE-DOMESTIC> 48,033
<ALLOWANCE-FOREIGN> 7,357
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
