<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 MARCH 31, 1996
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 of
common stock, as of the latest practicable date.
COMMON STOCK, $2.50 PAR VALUE 30,294,464 SHARES
______________________________ _____________________________
(Title of Class) (Outstanding at May 10, 1996)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three months ended March 31, 1996 and 1995 3
Consolidated Statements of Condition
March 31, 1996 and 1995, and December 31, 1995 4
Consolidated Statements of Changes
in Stockholders' Equity
Three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 6
Financial Ratios and Other Financial Data 7
Notes to the Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-29
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 None
Signatures 30
2
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARCH 31,
--------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $51,609 $49,678
Interest on Securities:
Available for Sale 14,241 9,315
Held-to-Maturity - 6,145
- -----------------------------------------------------------------------------
Total Interest on Securities 14,241 15,460
- -----------------------------------------------------------------------------
Interest on Money Market Assets:
Time Deposits with Other Banks 3,413 3,483
Federal Funds Sold and Reverse Repurchase Agreements 5,307 3,604
- -----------------------------------------------------------------------------
Total Interest on Money Market Assets 8,720 7,087
- -----------------------------------------------------------------------------
Total Interest Income 74,570 72,225
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 4,647 4,904
Money Market Deposit Accounts 8,493 7,921
Time Deposits in Domestic Offices 10,271 9,255
Time Deposits in Foreign Offices 4,597 4,408
- -----------------------------------------------------------------------------
Total Interest on Deposits 28,008 26,488
- -----------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 2,702 2,216
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 165 662
Long-Term Debt 4,763 4,807
- -----------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and
Long-Term Debt 7,630 7,685
- -----------------------------------------------------------------------------
Total Interest Expense 35,638 34,173
- -----------------------------------------------------------------------------
Net Interest Income 38,932 38,052
Less: Provision for Loan Losses - -
- -----------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 38,932 38,052
NONINTEREST INCOME
Service Charges and Fees 8,673 8,763
Trust Income 7,874 6,642
Other Noninterest Income 3,075 2,547
Securities Gains, Net 5,953 46
- -----------------------------------------------------------------------------
Total Noninterest Income 25,575 17,998
NONINTEREST EXPENSE
Salaries and Wages 14,621 16,157
Pensions and Other Employee Benefits 3,869 4,628
Occupancy, Net 5,291 5,272
Data Processing Services 4,470 4,358
Furniture and Equipment 1,862 2,006
Advertising and Public Relations 1,371 1,254
FDIC Insurance 3 1,989
Other Real Estate Owned Expense (Income), Net (3) (1,084)
Other Noninterest Expense 11,520 12,571
- -----------------------------------------------------------------------------
Total Noninterest Expense 43,004 47,151
Income before Taxes 21,503 8,899
Applicable Income Tax Expense 52 104
- -----------------------------------------------------------------------------
Net Income 21,451 8,795
Dividends on Preferred Stock (2,688) (2,688)
- -----------------------------------------------------------------------------
Net Income Available for Common Stock $18,763 $ 6,107
EARNINGS PER COMMON SHARE $ .61 $ .20
</TABLE>
3
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 261,537 $ 198,636 $ 253,414
Money Market Assets:
Time Deposits with Other Banks 234,743 255,037 231,374
Federal Funds Sold and
Reverse Repurchase Agreements 355,000 192,000 423,000
- ---------------------------------------------------------------------------
Total Money Market Assets 589,743 447,037 654,374
- ---------------------------------------------------------------------------
Securities:
Available for Sale (at Market Value) 1,149,332 601,246 970,006
Held-to-Maturity (Market
Value: March 31, 1995, $514,838) - 518,808 -
- ---------------------------------------------------------------------------
Total Securities 1,149,332 1,120,054 970,006
- ---------------------------------------------------------------------------
Loans 2,507,499 2,531,486 2,571,959
Reserve for Loan Losses 57,227 94,299 56,546
- ---------------------------------------------------------------------------
Net Loans 2,450,272 2,437,187 2,515,413
- ---------------------------------------------------------------------------
Premises and Equipment, Net 156,324 150,079 154,770
Accrued Interest Receivable 40,028 29,094 29,578
Other Real Estate Owned, Net 32,706 46,141 33,197
Other Assets 131,289 110,296 121,781
- ---------------------------------------------------------------------------
Total Assets $4,811,231 $4,538,524$4,732,533
LIABILITIES
Noninterest-Bearing Demand Deposits $ 814,369 $ 836,660$ 910,887
Interest-Bearing Deposits:
Savings and NOW Accounts 863,783 856,555 848,242
Money Market Deposit Accounts 966,781 957,234 951,117
Time Deposits in Domestic Offices 818,308 886,509 857,036
Time Deposits in Foreign Offices 328,901 286,866 317,897
- ---------------------------------------------------------------------------
Total Interest-Bearing Deposits 2,977,773 2,987,164 2,974,292
- ---------------------------------------------------------------------------
Total Deposits 3,792,142 3,823,824 3,885,179
- ---------------------------------------------------------------------------
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements 347,017 102,346 186,009
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 17,923 39,700 15,466
- ---------------------------------------------------------------------------
Total Short-Term Borrowings 364,940 142,046 201,475
- ---------------------------------------------------------------------------
Other Liabilities 46,450 67,942 51,585
Long-Term Debt 217,625 217,625 217,625
- ---------------------------------------------------------------------------
Total Liabilities 4,421,157 4,251,437 4,355,864
STOCKHOLDERS' EQUITY
Preferred Stock-$1.00 Par Value
Shares Authorized - 25,000,000 at
March 31, 1996 and 1995, and
December 31, 1995; Liquidation
Preference - $25 per share
Shares Issued - Noncumulative
Perpetual Series B - 4,000,000 shares
at March 31, 1996 and 1995, and
December 31, 1995 4,000 4,000 4,000
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at
March 31, 1996 and 1995, and
December 31, 1995
Shares Issued - 31,194,262 at
March 31, 1996, 31,145,212 at
March 31, 1995 and 31,175,262 at
December 31, 1995 77,986 77,863 77,938
Surplus - Preferred Stock 91,192 91,192 91,192
Surplus - Common Stock 156,463 156,123 156,320
Foreign Exchange Translation Adjustments (990) (481) (873)
Undivided Profits (Accumulated Deficit) 86,801 (2,907) 68,038
Unrealized Gain (Loss) on
Securities Available for Sale, Net (1,655) (14,980) 3,777
Treasury Stock-900,798 shares at
March 31, 1996 and 1995, and
December 31, 1995 (23,723) (23,723) (23,723)
- ---------------------------------------------------------------------------
Total Stockholders' Equity 390,074 287,087 376,669
- ---------------------------------------------------------------------------
Total Liabilities and Stockholders'Equity $4,811,231 $4,538,524$4,732,533
</TABLE>
4
<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, 1994 $4,000 $ 77,863 $247,315 $ (634) $ (9,014) $ (28,144) $(23,723) $267,663
Net Income - - - - 8,795 - - 8,795
Cash Dividends--
Series B Preferred
Stock, $.671875
per Share - - - - (2,688) - - (2,688)
Unrealized Gain on
Securities Available
for Sale, Net - - - - - 13,164 - 13,164
Foreign Exchange
Translation
Adjustments - - - 153 - - - 153
- -------------------------------------------------------------------------------------------------------
Balance,
March 31, 1995 $ 4,000 $ 77,863 $247,315 $ (481) $ (2,907) $(14,980) $ (23,723) $287,087
Balance,
December 31,1995 $4,000 $ 77,938 $247,512 $ (873) $ 68,038 $ 3,777 $ (23,723) $376,669
Net Income - - - - 21,451 - - 21,451
Issuance of
Common Stock--
Stock Option Plans,
19,000 Shares - 48 143 - - - - 191
Cash Dividends--
Series B Preferred
Stock, $.671875
per Share - - - - (2,688) - - (2,688)
Unrealized Loss on
Securities Available
for Sale, Net - - - - - (5,432) - (5,432)
Foreign Exchange
Translation
Adjustments - - - (117) - - - (117)
- -------------------------------------------------------------------------------------------------------
Balance,
March 31, 1996 $ 4,000 $ 77,986 $247,655 $ (990) $ 86,801 $(1,655) $ (23,723) $390,074
</TABLE>
5
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 21,451 $ 8,795
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses - -
Provision for Other Real Estate Owned Writedowns 216 (53)
Depreciation Expense and
Amortization of Leasehold Improvements 2,750 3,011
Amortization of Purchase Accounting Adjustments 880 901
Provision for Deferred Taxes (6,996) 923
Gains on Securities Sales (5,953) (46)
Gains on Other Real Estate Owned Sales (78) (661)
Increase in Accrued Interest Receivable (10,450) (1,190)
Increase in Other Assets (7,589) (2,233)
Increase in Other Liabilities 1,861 22,873
- --------------------------------------------------------------------------
Total Adjustments (25,359) 23,525
- --------------------------------------------------------------------------
Net Cash (Used In) Provided By Operating Activities (3,908) 32,320
- --------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase In Time Deposits with Other Banks (3,369) (26,813)
Proceeds from Maturities of
Securities Available for Sale 35,155 10,966
Proceeds from Sales of
Securities Available for Sale 738,431 46
Purchase of Securities Available for Sale (955,190) (771)
Purchase of Securities Held-to-Maturity - (75,645)
Net Decrease in Loans 65,012 15,052
Proceeds from Sales of Other Real Estate Owned 650 2,450
Net Increase in Premises and Equipment (4,304) (1,558)
Other, Net (168) 532
- --------------------------------------------------------------------------
Net Cash Used In Investing Activities (123,783) (75,741)
- --------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in:
Demand, NOW, Savings and
Money Market Deposit Accounts (65,313) (43,131)
Time Deposits (27,724) 264,161
Federal Funds Purchased and Repurchase Agreements 161,008 (162,532)
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 2,457 11,141
Net Proceeds From the Issuance of Common Stock 191 -
Dividend Payments - Series B Preferred Stock (2,688) (2,688)
- --------------------------------------------------------------------------
Net Cash Provided By Financing Activities 67,931 66,951
- --------------------------------------------------------------------------
Effect of Exchange Rate Changes (117) 153
- --------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (59,877) 23,683
Cash and Cash Equivalents at Beginning of Period 676,414 366,953
- --------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 616,537 $390,636
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ 306 $ -
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 37,612 $ 33,627
Income Tax Payments 697 1
</TABLE>
6
<PAGE>
RIGGS NATIONAL CORPORATION
FINANCIAL RATIOS AND OTHER FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
PERFORMANCE:
Net Income to Average Assets 1.84 % .80 %
Net Income to Average Earning Assets 2.05 .88
Net Income to Average Stockholders' Equity 22.41 12.99
Net Income Available to Common Stock
to Average Common Equity 26.04 13.81
Net Interest Income to Average
Earning Assets 3.80 3.91
PER COMMON SHARE:
Net Income $ .61 $ .20
Book Value (at period end) $9.73 $6.34
Common Shares Outstanding (at period end) 30,293,464 30,244,414
Weighted Average Common Shares Outstanding 30,280,415 30,244,414
ASSET QUALITY:
Nonaccrual Loans as a % of Total Loans .49 % .90 %
Nonaccrual Loans as a % of Average Loans .49 .90
Nonaccrual and Renegotiated Loans
as a % of Total Loans .60 .91
Nonperforming Assets as a % of
Total Loans and OREO 1.88 2.69
Nonperforming Assets as a % of
Total Assets .99 1.53
Net Charge-Offs (Recoveries) as a
% of Average Loans (.03) .13
Reserve for Loan Losses as a %
of Total Loans 2.28 3.73
Reserve for Loan Losses as a %
of Nonaccrual and Renegotiated Loans 380.30 408.45
Period End Stockholders' Equity to Total Assets 8.11 6.33
CAPITAL RATIOS AT PERIOD END:
Tier I 15.39 % 11.63 %
Combined Tier I and Tier II 24.26 18.72
Leverage 8.25 6.48
</TABLE>
7
<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 and which require the use of management estimates, Riggs
National Corporation's ("the Corporation") consolidated financial position at
March 31, 1996 and 1995, and December 31, 1995 (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 three months of 1996 are not necessarily
indicative of the results to be expected for the full 1996 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 30,280,415 and 30,244,414 for the first quarter of 1996
and 1995, respectively. 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 March 31, 1996, options to purchase
1,054,500 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 March 31, 1996,
options to purchase 215,000 shares have been granted and remain outstanding in
the 1994 Plan at prices ranging from $9.063 to $13.125 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
MARCH 31,
----------------------
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $56,546 $97,039
Provision for loan losses - -
Loans charged-off:
Domestic 512 596
Foreign - 4,846
- ---------------------------------------------------------------------------
Total loans charged-off 512 5,442
Recoveries on charged-off loans:
Domestic 872 555
Foreign 498 1,501
- ---------------------------------------------------------------------------
Total recoveries on charged-off loans 1,370 2,056
Net loan charge-offs (recoveries) (858) 3,386
Foreign exchange translation adjustments (177) 646
- ---------------------------------------------------------------------------
Balance, end of period $57,227 $94,299
</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>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $33,197 $47,763
Additions 306 -
Deductions:
Sales and repayments 572 1,789
Charge-offs 216 -
Other - (53)
- ----------------------------------------------------------------
Total Deductions 788 1,736
Foreign exchange translation adjustments (9) 114
- ----------------------------------------------------------------
Balance, end of period $32,706 $46,141
</TABLE>
Other real estate owned income and expense consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Other Real Estate Owned
Operating Revenues $483 $ 232
Net Gain on Sale of Properties 78 661
- ----------------------------------------------------------------
Net Revenues 561 893
Provision for Other Real Estate Owned Losses 216 (53)
Selling and Other Real Estate
Owned Operating Expenses 342 (138)
- ----------------------------------------------------------------
Net Expenses 558 (191)
- ----------------------------------------------------------------
Total Other Real Estate Owned
Expense (Income), Net $ (3) $(1,084)
</TABLE>
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. NEW FINANCIAL ACCOUNTING STANDARDS
In March 1995, Statement of Financial Accounting Standards ("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. The Corporation implemented SFAS No. 121 on January 1, 1996
with no material affect to the Corporation's financial position.
In December 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 defines a fair value based method of accounting for
employee stock options or similar equity transactions. SFAS No. 123 allows the
recording of such fair value based accounting in the financial statements or the
disclosure of the fair value impact to net income and earnings per common share
on a pro forma basis in the notes to the consolidated financial statements. The
Corporation will adopt SFAS No. 123 under the disclosure method for its employee
stock option plans, and therefore will continue to account for these plans under
Accounting Principles Board Opinion No. 25. SFAS No. 123 is effective for fiscal
years beginning after December 15, 1995 and the Corporation will implement SFAS
No. 123 disclosure requirements in 1996. The Corporation does not anticipate any
material effect on its financial position from this implementation.
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 month period ended March 31, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Domestic Offices $20,866 $ 8,355
Foreign Offices 637 544
- ---------------------------------------------------------------------------
Total $21,503 $ 8,899
</TABLE>
The provision for income taxes for the three month periods ended March 31, 1996
and 1995 consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Current Provision (Benefit):
Federal $ 6,969 $ (923)
State 117 99
Foreign (38) 5
- ---------------------------------------------------------------------------
Total Current Provision (Benefit) 7,048 (819)
Deferred (Benefit) Provision:
Federal (6,996) 923
State - -
Foreign - -
- ---------------------------------------------------------------------------
Total Deferred (Benefit) Provision (6,996) 923
- ---------------------------------------------------------------------------
Applicable Income Tax Expense $ 52 $ 104
</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 March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
CONTRACTUAL OR
NOTIONAL VALUE
MARCH 31,
-----------------------
1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Commitments to Extend Credit:
Commercial $378,864 $276,985
Real Estate:
Commercial/Construction 19,163 27,991
Mortgage 4,196 12,238
Home Equity 185,003 183,330
- ------------------------------------------------------------------
Total Real Estate 208,362 223,559
- ------------------------------------------------------------------
Consumer 84,731 65,350
- ------------------------------------------------------------------
Total Commitments to Extend Credit $671,957 $565,894
Letters of Credit:
Commercial $102,275 $ 60,854
Standby-Financial 44,389 24,731
Standby-Performance 6,897 18,512
- ------------------------------------------------------------------
Total Letters of Credit $153,561 $104,097
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $119,292 $ 24,700
Commitments to Sell 110,000 126,032
Interest Rate Swap Agreements 338,390 289,075
Interest Rate Option Contracts(Corridors) 300,000 400,000
</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. The
Corporation also offers such derivative products to its customers to meet their
financing objectives and to manage their interest and currency rate risk. The
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.
The Corporation's interest rate swap and options contract activity for the
quarter ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER 31, MARCH 31,
1995 ADDITIONS MATURITIES 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Swaps:
Receive fixed/pay variable $200,000 $ - $ - $200,000
Receive variable/pay fixed 100,000 50,000 25,000 125,000
For Customers 13,609 - 219 13,390
Interest Rate
Option Contracts 300,000 - - 300,000
- -------------------------------------------------------------------------
Total $613,609 $ 50,000 $ 25,219 $638,390
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
INTEREST RATE SWAP AGREEMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
1996
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 $(2,458) 5.38% 5.50% $ 1,913 $ 1,986 $ - $ (154)
Receive variable/pay
fixed, Maturing
March 1997 25,000 (545) 5.41 6.97 60 73 - (73)
Receive variable/pay
fixed, Maturing
April 1996 25,000 (56) 5.55 6.55 270 314 - (49)
Receive variable/pay
fixed, Maturing
April 1997 25,000 (303) 5.55 6.70 270 321 - (58)
Receive variable/pay
fixed, Maturing
January 1999 25,000 473 5.50 5.36 256 245 - 11
Receive variable/pay
fixed, Maturing
January 1998 25,000 297 5.50 5.21 256 238 - 18
For Customers 13,390 (246) - - 238 268 - (41)
- ----------------------------------------------------------------------------------------------------
Total Interest Rate
Swap Agreements $338,390 $(2,838) $ 3,263 $ 3,445 $ - $ (346)
</TABLE>
At March 31, 1996, 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 that entail the
receipt of a floating rate equal to three month Libor, reset quarterly, and
payments of fixed rates ranging from 6.73% to 6.97%. One of these swap
agreements matured in March of 1996 and the other matures in March of 1997.
Prior to its maturity in March 1996, $48 thousand in interest expense related to
this swap agreement was recognized in 1996. 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 three-month Libor,
reset quarterly, and payments of fixed rates ranging from 6.55% to 6.70%,
maturing in April 1996 and 1997. In January 1996, the Corporation entered into
two $25 million (notional principal balance) interest-rate swap agreements as
additional hedges of the real estate mortgage loan portfolio. The swap
agreements entail the payment of fixed rates of 5.21% and 5.36%, and the receipt
of floating rates, equal to the three-month Libor, reset quarterly, and mature
in January of 1998 and 1999. Payments for these swap agreements (which hedge the
residential mortgage loan portfolio) are netted on a quarterly basis. The total
aggregate net interest income/expense from these swap agreements is included in
interest income relating to the real estate mortgage loan portfolio.
INTEREST RATE OPTION CONTRACTS (CORRIDORS)
MARCH 31, 1996
<TABLE>
<CAPTION>
1996
ACCRUED UNAMORTIZED YTD NET
NOTIONAL UNREALIZED INTEREST FEES & INTEREST
AMOUNT GAIN(LOSS) RECEIVABLE PREMIUMS INC./(EXP.)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corridor Maturing April 1997 $100,000 $ (336) $ - $ 517 $ (110)
Corridor Maturing August 1996 200,000 - - - (400)
- ----------------------------------------------------------------------------------------------
Total Interest Rate Option Contracts $300,000 $ (336) $ - $ 517 $ (510)
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
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 their 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. Currently, there are no payments being
paid or received as the rate is below the 5.60% floor. In December 1995, the
Corporation terminated one of the $100 million corridor agreements, which would
have matured in April 1996. The termination resulted in an immaterial loss which
was recognized at termination.
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 corridor agreement matures in August 1996.
NOTE 8. RECENT DEVELOPMENTS
On March 28, 1996, the Corporation merged its three national banking
subsidiaries: The Riggs National Bank of Washington, D.C., The Riggs National
Bank of Virginia and The Riggs National Bank of Maryland, renaming the combined
national bank Riggs Bank National Association ("Riggs Bank N.A."). Riggs Bank
N.A. is a wholly owned subsidiary of Riggs National Corporation.
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 $21.5 million ($.61 per
common share) for the first quarter of 1996 compared with net income of $8.8
million ($.20 per common share) for the same quarter a year earlier. The first
quarter performance benefited from net securities gains totaling $6.0 million
from the sale of approximately $647 million in securities available for sale.
These sales were part of an overall repositioning of the securities portfolio
during the quarter. In addition to the securities sales, the Corporation also
received $2.7 million in loan prepayment penalties from the early repayment of
approximately $50 million in loans during the quarter which is included in
interest and fees on loans. The first quarter performance of 1996, excluding
nonrecurring items, continued the strong earnings momentum gained in 1995.
Net interest income for the first quarter was $38.9 million compared with $38.1
million for the first quarter of 1995. The increase from the prior year's
quarter was primarily the result of the previously mentioned $2.7 million in
interest penalties, partially offset by a $1.5 million increase in interest paid
on deposits. The net interest margin for the first quarter of 1996 was 3.80%
compared with a margin of 3.91% for the prior year's first quarter and 3.70% for
the fourth quarter of 1995. The interest income recognized from the prepayment
of loans increased the net interest margin by approximately 25 basis points.
Thus, the adjusted net interest margin for the current quarter of 3.55% is down
from the prior periods' interest margins due to the payoff of higher yielding,
fixed rate assets between the periods and the slight downward movement in
interest rates during 1995. Noninterest income increased $7.6 million between
the quarters, or 42.1%, to $25.6 million. This increase is primarily due to the
aforementioned securities sales and a $1.2 million increase in trust income.
Also affecting the first quarter 1996 results was a decrease in noninterest
expense of $4.1 million (8.8%). The decrease in noninterest expense was
primarily due to decreases in salaries and benefits of $2.3 million and
reductions in FDIC insurance premiums of $2.0 million.
Net interest income for the first quarter of 1996 increased $1.3 million, or
3.5% when compared with $37.6 million for the fourth quarter of 1995. The
increase from the prior quarter was primarily the result of decreases in
interest paid on deposits. The previously mentioned $2.7 million in interest
penalties received during the current quarter was mostly offset by lower average
loans outstanding during the period. Noninterest income increased $6.3 million
between the quarters, or 32.4%, from a total of $19.3 million for the fourth
quarter of 1995. This increase was due to securities gains in the first quarter
of 1996 and increases in international fees and commissions and service charges.
Noninterest expense decreased $815 thousand between the first quarter of 1996
and the fourth quarter of 1995, mostly due to decreases in FDIC insurance of
$288 thousand, advertising and public relations of $241 thousand, and furniture
and equipment of $178 thousand.
Nonperforming assets were reduced over 30.9% from $69.2 million at the end of
the first quarter of 1995 to $47.8 million at March 31, 1996. The current
period's reserve for loan losses represents a $37.1 million decrease, or 39.3%
from the prior year's quarter. The Corporation's overall asset quality continued
to improve between periods as a result of enhanced collection and
asset-management efforts. Nonperforming assets increased $1.8 million (4.0%)
from year-end 1995, the result of a $1.6 million increase in domestic nonaccrual
loans. This increase was primarily due to smaller-balanced loans placed on
nonaccrual status during the quarter from the Corporation's residential loan
portfolio.
Assets totaled $4.8 billion at March 31, 1996, up $78.7 million from year-end
1995 and $272.7 million from March 31, 1995. The increase in total assets from
March 31, 1995 is attributable primarily to net purchases in securities and
money market assets, which was funded from increases in short-term borrowings at
favorable yields (see "Short-Term Borrowings and Long-Term Debt"). Deposits at
March 31, 1996 totaled $3.8 billion, a decrease of $93.0 million from year-end
1995 and $31.7 million from March 31, 1995. Total liabilities increased $65.3
million during the first quarter of 1996 and $169.7 million from the prior
year's quarter. The increase in total liabilities from the prior year's balance
was primarily due an increase in short-term borrowings of $222.9 million,
partially offset by the decrease in deposits between the periods.
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>
MARCH 31, 1996 MARCH 31, 1995
------------------ -------------------
AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities $1,114,295 $1,110,649 $138,863 $137,984
Government Agencies Securities - - 26,581 25,329
Obligations of States &
Political Subdivisions 3,800 4,938 8,800 8,200
Mortgage-Backed Securities - - 426,748 414,499
Other Securities 33,745 33,745 15,234 15,234
- -------------------------------------------------------------------------------
Total $1,151,840 $1,149,332 $616,226 $601,246
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
------------------ -------------------
BOOK MARKET BOOK MARKET
HELD-TO-MATURITY VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ - $ - $318,861 $317,943
Government Agencies Securities - - 199,947 196,895
- -----------------------------------------------------------------------------
Total $ - $ - $518,808 $514,838
</TABLE>
Securities available for sale totaled $1.1 billion at March 31, 1996 compared to
$970 million at year-end 1995 and $601 million at March 31, 1995. The current
quarter's activity included purchases of securities available for sale totaling
$955 million partially offset by sales of securities available for sale totaling
$738 million and proceeds from maturities of $35 million. These sales were due
to a repositioning of the securities portfolio which resulted in securities
gains of $6.0 million, as the Corporation replaced securities from its
government agencies and mortgage-backed securities portfolios with U.S. Treasury
securities. The increase from the prior year was mainly attributable to the
transfer of $446.1 million (book value) in securities held-to-maturity to the
available for sale portfolio in December 1995. This transfer was made in
accordance with accounting guidance provided by the Financial Accounting
Standards Board, allowing a one-time reassessment of securities classifications
and transfers between portfolios without the prescribed accounting for transfers
under SFAS No. 115. The weighted-average maturities and yields for securities
available for sale, adjusted for anticipated prepayments, was approximately 2.4
years and 5.41%, respectively, at March 31, 1996.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
SECURITIES, CONTINUED
The maturity distribution of securities available for sale at
March 31, 1996, follows:
<TABLE>
<CAPTION>
OBLIGATIONS
U.S. GOVERNMENT OF STATES AND MORTGAGE-
TREASURY AGENCIES POLITICAL BACKED OTHER
(IN THOUSANDS) SECURITIES SECURITIES SUBDIVISIONS SECURITIES SECURITIES TOTAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Within 1 year
Amortized Cost $ 604,530 $ - $ 3,800 $ - $ 9,883 $ 618,213
Market/Book 603,464 - 4,938 - 9,883 618,285
Yield* 5.01% - 6.06% - 5.22% 5.02%
After 1 but within 5 years
Amortized Cost 340,115 - - - - 340,115
Market/Book 336,900 - - - - 336,900
Yield* 5.57% - - - - 5.57%
After 5 but within 10 years
Amortized Cost 169,650 - - - 23,862 193,512
Market/Book 170,285 - - - 23,862 194,147
Yield* 6.35% - - - 6.13% 6.33%
- --------------------------------------------------------------------------------------------------------
Total Securities Available for Sale
Amortized Cost $1,114,295 $ - $ 3,800 $ - $ 33,745 $1,151,840
Market/Book 1,110,649 - 4,938 - 33,745 1,149,332
Yield* 5.39% - 6.06% - 5.86% 5.40%
</TABLE>
[FN]
* Weighted-average yield to maturity at March 31, 1996. The security within
the category of "Obligations of States and Political Subdivisions" is a
taxable security and is on a nonaccrual basis at March 31, 1996. All
contractual payments to date have been received. See "Past Due and
Potential Problem Loans/Assets."
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>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and Financial $ 346,792 $ 399,137 $ 400,379
Real Estate -
Commercial/Construction 331,102 312,548 326,965
Residential Mortgage 1,271,609 1,325,928 1,286,256
Home Equity 259,178 222,196 251,798
Consumer 74,097 73,182 77,804
Foreign 220,814 192,495 224,151
- ------------------------------------------------------------------
Loans 2,503,592 2,525,486 2,567,353
Less: Unearned Discount
(Unamortized Premium)and
Net Deferred Fees (3,907) (6,000) (4,606)
- ------------------------------------------------------------------
Total Loans, Net $2,507,499 $2,531,486 $2,571,959
</TABLE>
At March 31, 1996, total loans outstanding (net of premiums/discounts) were
$2.51 billion, compared with $2.53 billion at March 31, 1995. The decrease in
loans from March 31, 1995 was primarily attributable to the $54.3 million
decrease in residential mortgage loans and the $52.3 million decrease in
commercial and financial loans. These decreases were offset in part by the $37.0
million increase in home equity loans, $28.3 million increase in foreign loans,
and the $18.6 million increase in real estate - commercial/construction loans.
Total loans, net, outstanding decreased $64.5 million from the $2.57 billion
balance at December 31, 1995. The decrease was largely due to a decline of $53.6
million in the commercial and financial portfolio coupled with a $14.6 million
decrease in the residential mortgage portfolio. These decreases were partially
offset by slight increases in the real estate - commercial/construction and home
equity portfolios.
REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
MARCH 31, 1996
<TABLE>
<CAPTION>
GEOGRAPHIC LOCATION
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM OTHER TOTAL
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land Acquisition and
Construction Development $ 31,694 $10,751 $ 6,682 $ - $ - $ 49,127
Multifamily Residential 21,926 6,584 4,700 - - 33,210
Commercial:
Office Buildings 63,835 36,381 26,175 - 2,245 128,636
Shopping Centers 11,617 24,278 16,571 - - 52,466
Hotels 4,531 5,358 - - - 9,889
Industrial/Warehouse Loans 2,276 7,488 7,619 - - 17,383
Churches 20,290 1,572 6,654 - - 28,516
Other 2,364 4,589 4,853 - 69 11,875
- ---------------------------------------------------------------------------------------
Total Commercial 104,913 79,666 61,872 2,314 248,765
- ---------------------------------------------------------------------------------------
Total Domestic Real
Estate - Commercial/
Construction Loans 158,533 97,001 73,254 - 2,314 331,102
Foreign - - - 101,939 - 101,939
- ---------------------------------------------------------------------------------------
Total Real Estate -
Commercial/Construction Loans $158,533 $97,001 $73,254 $101,939 $2,314 $433,041
</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 March 31, 1996, 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
March 31, 1996, December 31, 1995 or March 31, 1995.
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>
MARCH 31, 1996
United Kingdom $184.1 3.8% $3.0 $ - $ - $ -
DECEMBER 31, 1995
United Kingdom 180.9 3.8 1.7 - - -
MARCH 31, 1995
United Kingdom 153.1 3.4 7.6 0.2 - 4.4
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccrual loans, renegotiated loans and
other real estate owned (net of reserves), totaled $47.8 million at March 31,
1996, a $1.9 million (4.1%) increase from the year-end 1995 total of $45.9
million and a $21.4 million (30.9%) decrease from the March 31, 1995 total.
NONPERFORMING ASSETS AND PAST-DUE LOANS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
NONPERFORMING ASSETS:
Nonaccrual Loans: (1)
Domestic $ 9,141 $14,397 $ 7,542
Foreign 3,117 8,308 1,784
- ----------------------------------------------------------------------
Total Nonaccrual Loans 12,258 22,705 9,326
- ----------------------------------------------------------------------
Renegotiated Loans: (2)
Domestic 2,790 162 3,410
Foreign - 220 -
- ----------------------------------------------------------------------
Total Renegotiated Loans 2,790 382 3,410
- ----------------------------------------------------------------------
Other Real Estate Owned, Net:
Domestic 32,145 42,887 32,627
Foreign 561 3,254 570
- ----------------------------------------------------------------------
Total Other Real Estate Owned, Net 32,706 46,141 33,197
- ----------------------------------------------------------------------
Total Nonperforming Assets $47,754 $69,228 $45,933
PAST-DUE LOANS: (3)
Domestic $ 5,720 $ 2,919 $ 5,423
Foreign - - 36
- ----------------------------------------------------------------------
Total Past-Due Loans $ 5,720 $ 2,919 $ 5,459
</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, or that are, in management's opinion, doubtful
as to the collectibility of either interest or principal.
(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 $11.0 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
NONACCRUAL AND RENEGOTIATED LOANS
At March 31, 1996, nonaccrual loans, including both domestic and foreign, were
$12.3 million, or 0.5% of total loans, compared with $9.3 million, or 0.4% of
total loans, at year-end 1995 and $22.7 million, or 0.9% of total loans, at
March 31, 1995. The $12.3 million of nonaccrual loans included $3.6 million of
loans identified as impaired (see "Impaired Loans"). The increase in nonaccrual
loans during the first three months of 1996 was due to additions of $3.8
million. These additions were offset by paydowns and payoffs of $468 thousand,
in addition to loans returning to accrual status of $11 thousand, charge-offs of
$25 thousand, transfers to other real estate owned of $306 thousand and foreign
exchange translation adjustments of $29 thousand. Of the $3.8 million in
additions during the first three months of 1996, $2.2 million (58.2%) related to
domestic nonaccrual loans and $1.6 million (41.8%) related to foreign nonaccrual
loans. Renegotiated loans totaled $2.8 million at March 31, 1996, a decrease of
$620 thousand from December 31, 1995. This decrease was a result of paydowns and
payoffs totaling $457 thousand, combined with charge-offs of $163 thousand. The
$2.8 million of renegotiated loans included $2.6 million of loans identified as
impaired (see "Impaired Loans"). Nonaccrual and renegotiated real
estate-commercial/construction loans, both foreign and domestic, totaled $7.4
million at March 31, 1996, or 49.4% of the total nonaccrual and renegotiated
loans at March 31, 1996.
OTHER REAL ESTATE OWNED, NET
Other real estate owned, net of reserves, decreased to $32.7 million at March
31, 1996, compared with $33.2 million at December 31, 1995 and $46.1 million at
March 31, 1995. The decrease during the first three months of 1996 is the result
of paydowns and sales of $572 thousand, net charge-offs of $216 thousand and
foreign exchange translation adjustments of $9 thousand offset by transfers from
nonaccrual loans of $306 thousand. At March 31, 1996, residential and commercial
land composed 88.0% 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
MARCH 31, 1996
<TABLE>
<CAPTION>
GEOGRAPHIC LOCATION
DISTRICT
OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM TOTAL
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land $ - $20,780 $ 8,009 $ - $28,789
Single-Family Residential 76 - 306 - 382
Office Buildings/Retail - 154 2,450 492 3,096
Multifamily Residential - 155 - - 155
Warehouse Loans 215 - - 69 284
- --------------------------------------------------------------------------
Total Other Real Estate
Owned, Net $ 291 $21,089 $10,765 $ 561 $32,706
</TABLE>
[FN]
(1) - Balances are net of valuation reserves totaling $2.3 million.
PAST-DUE AND POTENTIAL PROBLEM LOANS/ASSETS
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 increased $261 thousand during the first three
months of 1996 to $5.7 million, while increasing $2.8 million from March 31,
1995.
At March 31, 1996, the Corporation had identified approximately $5.6 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. 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 $4.9 million in other potential problem assets
at March 31, 1996. 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. On July 7, 1995, the Corporation accepted Orange County's offer to extend
the maturity date of the remaining Notes, under similar terms and conditions, to
June 30, 1996. These securities are classified in the securities available for
sale portfolio at March 31, 1996.
The Corporation's 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 $57.2 million, or 2.28% of total
loans (net of premiums/discounts) at March 31, 1996, compared with $56.5
million, or 2.20% of total loans at December 31, 1995, and $94.3 million, or
3.73% of total loans, at March 31, 1995. The Corporation reduced the reserve for
loan losses by $55.0 million in the third quarter of 1995, mainly due to the
improved quality of its loan portfolio. The coverage ratio was 380% at March 31,
1996, 444% at year-end 1995 and 408% at March 31, 1995. The decrease in the
coverage ratio from the prior year's periods was the result of the
aforementioned reduction in the reserve for loan losses, partially offset by the
$8.0 million decrease in nonaccrual and renegotiated loans between the periods.
IMPAIRED LOANS
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS No. 114) and No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures" (SFAS No. 118). SFAS No. 114 requires that
impaired loans be measured and reported based on the present value of expected
cash flows discounted at the loan's effective interest rate, or at the fair
value of the loan's collateral if the loan is deemed "collateral dependent."
Impaired loans are generally defined as nonaccrual loans, excluding large groups
of smaller-balance loans (with similar collateral characteristics), which are
collectively evaluated for impairment. Specific reserves are required to the
extent that the fair value of the impaired loans is less than the recorded
investment. All of the Corporation's impaired loans are included in the totals
of the preceding "Nonperforming Assets and Past-Due Loans" table.
Specific reserves for impaired loans are included in the reserves for loan
losses. The Corporation's charge-off policy for impaired loans is consistent
with its policy for loan charge-offs to the reserve: impaired loans are
charged-off when, in the opinion of management, the impaired loan cannot be
fully collected. SFAS No. 118 allows a creditor to use existing methods for
recognizing interest income on an impaired loan. Consistent with the
Corporation's method for nonaccrual loans, interest received on impaired loans
is recognized as interest income or, when there is doubt as to the ability to
collect either interest or principal, interest received is applied to principal.
The initial adoption of SFAS No. 114 and SFAS No. 118 did not require an
increase to the reserves for loan losses and was not material to the
Corporation's consolidated financial statements or results from operations.
Impaired loans totaled $6.2 million at March 31, 1996, an $862 thousand increase
from the December 31, 1995 total of $5.4 million. Collateral dependent loans,
which are measured at the fair value of the collateral, constituted $3.5
million, or 56.4% of impaired loans at March 31, 1996. The remaining impaired
loans of $2.7 million were measured based on the present value of expected cash
flows.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY, CONTINUED
The following tables present impaired loans:
TOTAL IMPAIRED LOANS (1)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Domestic:
Commercial and Financial $ - $ -
Real Estate - Commercial/Construction 4,081 4,696
Foreign 2,151 674
- -----------------------------------------------------------------------
Total Impaired Loans $ 6,232 $ 5,370
</TABLE>
[FN]
(1) There were no specific reserves for impaired loans as of March 31, 1996 and
December 31, 1995.
----------------------------------------------------------
IMPAIRED LOANS
AVERAGE INVESTMENT AND INTEREST RECOGNIZED
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
AVERAGE INTEREST
(IN THOUSANDS) INVESTMENT RECOGNIZED
- -----------------------------------------------------------------------
<S> <C> <C>
Domestic:
Commercial and Financial $ - $ -
Real Estate - Commercial/Construction 4,388 -
Foreign 1,413 -
- -----------------------------------------------------------------------
Total $ 5,801 $ -
</TABLE>
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 $3.8 billion at March 31, 1996, decreasing $31.7
million (0.8%) from the March 31, 1995 deposit total. The decrease from the year
earlier balance was due to decreases in domestic time deposits ($68.2 million)
and demand deposits ($22.3 million), partially offset by the increase in foreign
time deposits of $42.0 million and slight increases in savings and NOW accounts
and money market deposits.
DEPOSITS
<TABLE>
<CAPTION>
MARCH 31, CHANGE
----------------- -----------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand Deposits $ 814,369 $ 836,660 $(22,291) (2.7)%
Interest-Bearing Deposits:
Savings and NOW Accounts 863,783 856,555 7,228 0.8
Money Market Deposit Accounts 966,781 957,234 9,547 1.0
Time Deposits in Domestic Offices 818,308 886,509 (68,201) (7.7)
Time Deposits in Foreign Offices 328,901 286,866 42,035 14.7
- -------------------------------------------------------------------------------
Total Interest-Bearing Deposits 2,977,773 2,987,164 (9,391) (.3)
- -------------------------------------------------------------------------------
Total Deposits $3,792,142 $3,823,824 $(31,682) (.8)%
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
DEPOSITS, CONTINUED
Since 1994, 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 five retail branches as part of this analysis. The Corporation is
actively seeking enhancements to existing branches to attract new customers,
improve service quality and the overall profitability of its branches. The
Corporation is also searching for opportunities to establish new retail banking
branches in strategic locations.
In 1995, the retail banking group formed a marketing team to explore the current
and future prospects of electronic banking for retail banking customers. Retail
banking advertising and product information have been established on a
local-area, on-line service, and completion of the Internet Home Page is
anticipated in 1996. This development group is also analyzing opportunities for
home banking within the Corporation's market and the numerous delivery
configurations available. This research is ongoing, and management expects to
complete this project and to formalize delivery methodologies for home banking
within the next 12 to 18 months.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings increased $163.5 million (81.1%) during the first three
months of 1996 and increased $222.9 million (156.9%) from the year earlier
balance. Short-term borrowings are an additional source of funds that the
Corporation has utilized to meet certain asset/liability and daily cash
management objectives. The increase in short-term borrowings from year-end 1995
and the first quarter of 1995 was primarily to fund decreases in deposits and to
take advantage of favorable financing costs versus overnight money market
assets.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, CHANGE
---------------- -----------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Funds Purchased and $347,017 $102,346 $244,671 239.1 %
Repurchase Agreements
U.S. Treasury Notes and Other 17,923 39,700 (21,777) (54.9)
Borrowed Funds
- ---------------------------------------------------------------------------
Total Short-Term Borrowings 364,940 142,046 222,894 156.9
Floating-Rate Subordinated Capital 26,100 26,100 - -
Notes due 1996
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 $582,565 $359,671 $222,894 62.0 %
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
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 March 31, 1996, 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 $2.0 billion (41.6% of
total assets). This compares with $1.9 billion (39.7%) at December 31, 1995, and
$1.7 billion (38.4%) at March 31, 1995. The increase in total liquid assets and
the percentage of liquid assets to total assets from March 31, 1995, was the
result of cash inflows from short-term borrowings combined with loan maturities.
The Corporation expects liquid assets to remain at approximately the March 31,
1996 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.
Additionally, the Corporation has other sources of funds, such as short-term
borrowings and advances available through its membership in the Federal Home
Loan Bank of Atlanta.
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 manage prudently 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, which portrays a
snapshot of the statement of condition at one point in time. However, this
methodology does not adequately measure the Corporation's exposure to
interest-rate risk. The statement of condition must be viewed within a dynamic
framework in which relationships may vary over time in virtually every segment
of the financial statement.
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 the ensuing 12-month period
under the "most likely" scenario described above. As of year-end 1995, the
Corporation's interest sensitivity position was liability sensitive and
continued to be liability sensitive at March 31, 1996. In both instances the
Corporation was well-insulated against interest rates moving significantly in
either direction. At March 31, 1996, the forecasted impact of interest rates
either steadily rising or falling 300 basis points versus a "most likely"
scenario would reflect a change in net interest income of less than 2% over both
an initial 12-month period and the entire 36-month horizon -- well below the
established tolerance levels set by the Corporation.
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.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Total stockholders' equity at March 31, 1996 was $390.1 million, up $13.4
million from the year-end 1995 total and $103.0 million from March 31, 1995. The
increase from year-end 1995 was the result of earnings totaling $21.5 million,
partially offset by an increase in net unrealized losses in the Corporation's
securities available for sale portfolio of $5.4 million and dividends on
preferred stock of $2.7 million. The increase in stockholders' equity over the
preceding year is mostly attributable to earnings during the period combined
with net unrealized gains of $13.3 million in the Corporation's securities
available for sale portfolio.
The Corporation's total (combined Tier I and Tier II) and core (Tier I) capital
ratios were 24.26% and 15.39%, respectively, at March 31, 1996, compared with
21.62% and 13.57% at December 31, 1995 and 18.72% and 11.63% at March 31, 1995,
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 8.25% at March 31, 1996, compared with
leverage ratios of 8.03% and 6.48% at December 31, 1995 and March 31, 1995,
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 March 31, 1996. The Corporation's equity to assets ratio, which does
include these unrealized losses, increased to 8.11% at March 31, 1996 compared
to 7.96% and 6.33% at December 31, 1995, and March 31, 1995, respectively.
The Corporation ensures that its operating subsidiaries are capitalized in
accordance with regulatory guidelines. The Corporation's national bank
subsidiary--Riggs Bank National Association ("Riggs Bank N.A.") is 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 subsidiary:
CAPITAL RATIOS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31, REQUIRED
1996 1995 1995 MINIMUMS
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RIGGS NATIONAL CORPORATION:
Tier I 15.39% 13.57% 11.63% 4.00%
Combined Tier I and Tier II 24.26 21.62 18.72 8.00
Leverage* 8.25 8.03 6.48 4.00
RIGGS BANK N.A.:
Tier I 18.75 n/a n/a 4.00
Combined Tier I and Tier II 20.01 n/a n/a 8.00
Leverage* 10.00 n/a n/a 4.00
</TABLE>
[FN]
* Most bank holding companies and national banks, including the Corporation
and the Corporation's national bank subsidiary, 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 March 31, 1996.
25
<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 $39.6 million in
the first quarter of 1996, increasing $1.3 million from the fourth quarter of
1995 and $723 thousand from the first quarter of 1995. The increase from the
prior year's quarter was primarily the result of $2.7 million of interest income
recognized from the prepayment of taxable commercial loans totaling
approximately $50 million, partially offset by a $1.5 million increase in
interest paid on deposits. The net interest margin (net interest income on a
tax-equivalent basis divided by average earning assets) for the first quarter of
1996 was 3.80% (see schedule on the following page), an increase of 10 basis
points from 3.70% for the fourth quarter of 1995 and a decrease of 11 basis
points from 3.91% for the first quarter of 1995. The interest income recognized
from the prepayment of loans increased the net interest margin by approximately
25 basis points during the first quarter of 1996. Thus, the adjusted net
interest margin for the current quarter of 3.55% is down from the prior periods'
interest margins due to the payoff of higher yielding, fixed rate assets between
the periods and the slight downward movement in interest rates during 1995. The
loan-to-deposit ratio stood at 66.1% at March 31, 1996, down slightly from the
year-end 1995 ratio of 66.2%, the result of the aforementioned decreases in
loans. The ratio of average loans to average earning assets was 59.8% for the
first quarter of 1996, compared with ratios of 62.4% and 62.6% for the fourth
quarter of 1995 and the first quarter of 1995, respectively.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 VS 1995
-------------------------
DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans (Including Fees) $ 1,744 $ (79) $ 1,665
Securities Available for Sale (935) 6,264 5,329
Securities Held-to-Maturity (109) (6,330) (6,439)
Time Deposits with Other Banks (840) 770 (70)
Federal Funds Sold and Reverse
Repurchase Agreements (312) 2,015 1,703
- -----------------------------------------------------------------------
Total Interest Income (452) 2,640 2,188
Interest Expense:
Savings and NOW Accounts (245) (12) (257)
Money Market Deposit Accounts 546 26 572
Time Deposits in Domestic Offices 449 567 1,016
Time Deposits in Foreign Offices (468) 657 189
Federal Funds Purchased and
Repurchase Agreements (231) 717 486
U.S. Treasury Demand Notes
and Other Short-Term Borrowings (185) (312) (497)
Long-Term Debt (44) - (44)
- -----------------------------------------------------------------------
Total Interest Expense (178) 1,643 1,465
- -----------------------------------------------------------------------
Net Interest Income $ (274) $ 997 $ 723
</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.
26
<PAGE>
RIGGS NATIONAL CORPORATION
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
------------------------ ---------------------
(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 $ 324,286 $ 9,099 11.29% $ 351,528 $ 7,258 8.37%
Commercial - Tax-Exempt 29,242 717 9.86 36,398 918 10.23
Real Estate -
Commercial/Construction 319,170 7,186 9.06 316,274 7,516 9.64
Residential Mortgage 1,282,592 22,796 7.15 1,326,838 23,544 7.20
Home Equity 259,489 5,505 8.53 224,722 4,901 8.84
Consumer 75,981 2,296 12.15 73,814 2,165 11.90
Foreign 214,460 4,311 8.08 199,650 3,943 8.01
- ---------------------------------------------------------------------------------
Total Loans (Including Fees) 2,505,220 51,910 8.33 2,529,224 50,245 8.06
- ---------------------------------------------------------------------------------
Securities Available for
Sale (3) 1,027,384 14,644 5.73 598,156 9,315 6.32
Securities Held-to-Maturity - - - 448,205 6,439 5.83
Time Deposits with
Other Banks 268,426 3,413 5.11 216,031 3,483 6.54
Federal Funds Sold and
Resale Agreements 391,103 5,307 5.46 246,224 3,604 5.94
- ---------------------------------------------------------------------------------
Total Earning Assets and
Average Rate Earned 4,192,133 75,274 7.22 4,037,840 73,086 7.34
- ---------------------------------------------------------------------------------
Less: Reserve for Loan Losses 56,959 97,658
Cash and Due from Banks 217,508 202,617
Premises and Equipment, Net 155,464 150,953
Other Assets 190,310 183,222
- ---------------------------------------------------------------------------------
Total Assets $4,698,456 $4,476,974
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 845,465 $ 4,647 2.21% $ 848,026 $ 4,904 2.35%
Money Market Deposit Accounts 975,399 8,493 3.50 972,617 7,921 3.30
Time Deposits in
Domestic Offices 851,100 10,271 4.85 806,490 9,255 4.65
Time Deposits in
Foreign Offices 330,041 4,597 5.60 286,311 4,408 6.24
- ---------------------------------------------------------------------------------
Total Interest-
Bearing Deposits 3,002,005 28,008 3.75 2,913,444 26,488 3.69
- ---------------------------------------------------------------------------------
Borrowed Funds:
Federal Funds Purchased and
Repurchase Agreements 200,081 2,702 5.43 149,401 2,216 6.02
U.S. Treasury Notes and
Other Borrowed Funds 18,848 165 3.52 48,515 662 5.53
Long-Term Debt 217,625 4,763 8.80 217,625 4,807 8.96
- ---------------------------------------------------------------------------------
Total Interest-Bearing Funds
and Average Rate Paid 3,438,559 35,638 4.17 3,328,985 34,173 4.16
- ---------------------------------------------------------------------------------
Demand Deposits 824,820 828,149
Other Liabilities 50,063 45,354
Stockholders' Equity 385,014 274,486
- ---------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $4,698,456 $4,476,974
- ---------------------------------------------------------------------------------
NET INTEREST INCOME
AND SPREAD $39,636 3.05% $38,913 3.18%
- ---------------------------------------------------------------------------------
NET INTEREST MARGIN ON
EARNING ASSETS 3.80% 3.91%
</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) - The averages and rates for the securities available for sale portfolio
are based on amortized cost.
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 $33 thousand
and $117 thousand for the three months ended March 31, 1996 and 1995,
respectively. Interest income that would have been earned under the original
terms of these loans was $238 thousand and $869 thousand, respectively, which
reduced the net interest margin by approximately 2 basis points in 1996 and
approximately 7 basis points in 1995.
INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS) MARCH 31, 1996
- ---------------------------------------------------------------------
<S> <C>
Interest Income at Original Terms:
Nonaccrual Loans:
Domestic Loans $ 94
Foreign Loans 64
Renegotiated Loans 80
- -----------------------------------------------------------------
Total $238
Actual Interest Income Earned:
Nonaccrual Loans:
Domestic Loans $ 29
Foreign Loans 4
Renegotiated Loans -
- -----------------------------------------------------------------
Total $ 33
</TABLE>
[FN]
(1) - For loans on nonaccrual and a renegotiated status at March 31, 1996, the
table shows total interest income at original terms and actual income
recognized for the three months ended March 31, 1996.
NONINTEREST INCOME
Noninterest income for the first quarter of 1996 was $25.6 million, up $6.3
million from the fourth quarter total of 1995 and $7.6 million from the first
quarter of 1995. The increase from the fourth quarter of 1995 was due to a
repositioning of the securities available for sale portfolio that resulted in
securities gains of $6.0 million. Also contributing to this increase were the
upward movements in service charges and international fees and commissions. The
increase from 1995's first quarter was mostly the result of the aforementioned
securities sales and an increase in trust income of $1.2 million, the result of
higher margins and fees in 1996 linked to increased market valuations of assets
managed.
NONINTEREST INCOME
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, CHANGE
--------------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Charges $ 8,207 $ 8,543 $ (336) (3.9)%
Trust Income 7,874 6,642 1,232 18.5
International Noncredit
Commissions and Fees 466 220 246 n/a
Foreign Exchange Income 542 610 (68) (11.1)
Other Noninterest Income 2,533 1,937 596 30.8
- ------------------------------------------------------------------------
Noninterest Income Excluding
Securities Gains, Net 19,622 17,952 1,670 9.3
Securities Gains, Net 5,953 46 5,907 n/a
- ------------------------------------------------------------------------
Total Noninterest Income $25,575 $17,998 $7,577 42.1 %
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1996 was $43.0 million, a decrease
of $815 thousand compared with the last quarter of 1995 and a decrease of $4.1
million when compared with the first quarter of 1995. The decrease from the
fourth quarter of 1995 was primarily due to decreases in FDIC insurance of $288
thousand, advertising and public relations expenses of $241 thousand, and
furniture and equipment expenses of $178 thousand. The decrease from the prior
year's first quarter was due to decreases in salaries and benefits of $2.3
million, a reduction in FDIC insurance of $2.0 million and a reduction in other
expenses of $1.1 million. The $2.3 million decrease in salaries and benefits was
the result of reorganization initiatives completed in the fourth quarter of
1995. The reduction in FDIC expense was the result of the reduction in deposit
insurance rates by the FDIC in the third quarter of 1995. During the first
quarter of 1996, the Corporation was incurring the mandatory minimum deposit
insurance premiums required by the FDIC. The $1.1 million reduction of other
expenses was primarily the result of $700 thousand of non-loan related losses
recognized in the first quarter of 1995.
The construction of the new operations center located in Riverdale, Maryland is
near completion. The Corporation expects to begin moving employees to the
technology center in May 1996. The Corporation estimates the relocation of
personnel from leased locations to this new facility will result in annualized
savings of $6 million, beginning in the third quarter of 1996.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, CHANGE
-------------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and Wages $14,621 $16,157 $(1,536) (9.5)%
Pensions and Other Employee Benefits 3,869 4,628 (759) (16.4)
- ------------------------------------------------------------------------------
Total Staff Expense 18,490 20,785 (2,295) (11.0)
- ------------------------------------------------------------------------------
Occupancy, Net 5,291 5,272 19 0.4
Data Processing Services 4,470 4,358 112 2.6
Furniture and Equipment 1,862 2,006 (144) (7.2)
Advertising and Public Relations 1,371 1,254 117 9.3
FDIC Insurance 3 1,989 (1,986) n/a
Other Real Estate Owned (Income)Expense, Net (3) (1,084) 1,081 n/a
Other Noninterest Expense 11,520 12,571 (1,051) (8.4)
- ------------------------------------------------------------------------------
Total Noninterest Expense $43,004 $47,151 $(4,147) (8.8)%
</TABLE>
TAXES
The Corporation's provision for income taxes includes Federal, state and foreign
income taxes. Income tax expense totaling $52 thousand was recognized for the
quarter ended March 31, 1996, compared with $104 thousand for the quarter ended
March 31, 1995. The 1996 tax provision was less than the statutory rate because
of the Corporation's ability to carryforward net operating losses.
29
<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
None
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: May 14, 1996 /s/ Timothy C. Coughlin
---------------- --------------------------
Timothy C. Coughlin
President
Date: May 14, 1996 /s/ John L. Davis
---------------- ------------------------
John L. Davis
Chief Financial Officer
(Principal Financial and
Accounting Officer)
30
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 261,537
<INT-BEARING-DEPOSITS> 234,743
<FED-FUNDS-SOLD> 355,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,149,332
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,507,499
<ALLOWANCE> 57,227
<TOTAL-ASSETS> 4,811,231
<DEPOSITS> 3,792,142
<SHORT-TERM> 364,940
<LIABILITIES-OTHER> 46,450
<LONG-TERM> 217,625
<COMMON> 77,986
0
4,000
<OTHER-SE> 308,088
<TOTAL-LIABILITIES-AND-EQUITY> 4,811,231
<INTEREST-LOAN> 51,609
<INTEREST-INVEST> 14,241
<INTEREST-OTHER> 8,720
<INTEREST-TOTAL> 74,570
<INTEREST-DEPOSIT> 28,008
<INTEREST-EXPENSE> 35,638
<INTEREST-INCOME-NET> 38,932
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 5,953
<EXPENSE-OTHER> 43,004
<INCOME-PRETAX> 21,503
<INCOME-PRE-EXTRAORDINARY> 21,503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,451
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<YIELD-ACTUAL> 3.80
<LOANS-NON> 12,258
<LOANS-PAST> 5,720
<LOANS-TROUBLED> 2,790
<LOANS-PROBLEM> 5,568
<ALLOWANCE-OPEN> 56,546
<CHARGE-OFFS> 512
<RECOVERIES> 1,370
<ALLOWANCE-CLOSE> 57,227
<ALLOWANCE-DOMESTIC> 50,267
<ALLOWANCE-FOREIGN> 6,960
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
