<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, 1996
[ ] 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)
(301) 887-6000
(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 such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
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 30,365,296 shares
----------------------------- ------------------------
(Title of Class) (Outstanding at November 6, 1996)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three and nine months ended September 30, 1996 and 1995 3
Consolidated Statements of Condition
September 30, 1996 and 1995, and December 31, 1995 4
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 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 14-31
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 32
</TABLE>
2
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 50,223 $ 51,260 $150,757 $152,135
Interest on Securities:
Available for Sale 17,249 9,377 48,900 28,309
Held-to-Maturity - 8,535 - 23,518
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Securities 17,249 17,912 48,900 51,827
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Money Market Assets:
Time Deposits with Other Banks 2,213 3,620 8,003 11,138
Federal Funds Sold and Reverse Repurchase Agreements 3,126 3,071 11,461 9,463
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Money Market Assets 5,339 6,691 19,464 20,601
- ----------------------------------------------------------------------------------------------------------------------------------
,
Total Interest Income 72,811 75,863 219,121 224,563
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 4,269 4,766 13,238 14,473
Money Market Deposit Accounts 8,799 8,259 25,669 24,272
Time Deposits in Domestic Offices 9,574 11,481 29,357 32,016
Time Deposits in Foreign Offices 4,651 5,076 13,984 14,081
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 27,293 29,582 82,248 84,842
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 2,573 2,720 7,599 8,285
U.S. Treasury Demand Notes and Other Short-Term Borrowings 457 1,418 1,073 3,643
Long-Term Debt 4,736 4,788 14,244 14,399
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 7,766 8,926 22,916 26,327
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 35,059 38,508 105,164 111,169
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 37,752 37,355 113,957 113,394
Less: Provision for Loan Losses - (55,000) - (55,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 37,572 92,355 113,957 168,394
NONINTEREST INCOME
Service Charges and Fees 9,384 8,718 26,880 26,214
Trust Income 7,866 7,518 24,266 21,489
Interest on Tax Receivables - - 5,135 -
Other Noninterest Income 3,920 1,954 9,044 6,777
Securities Gains, Net 4 155 7,166 201
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 21,174 18,345 72,491 54,681
NONINTEREST EXPENSE
Salaries and Wages 15,299 17,649 45,066 49,803
Pensions and Other Employee Benefits 3,397 3,828 10,454 12,348
Occupancy, Net 5,879 10,101 16,918 21,307
Data Processing Services 4,626 4,334 13,564 12,718
Furniture and Equipment 1,995 1,886 5,561 5,920
Advertising and Public Relations 1,290 1,303 3,967 3,964
Other Real Estate Owned (Income) Expense, Net (18) 2,503 165 530
FDIC Insurance - 29 4 4,012
Other Noninterest Expense 11,579 12,361 35,283 37,413
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 44,047 53,994 130,982 148,015
Income before Taxes 14,879 56,706 55,466 75,060
Applicable Income Tax Expense 3,062 64 744 255
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 11,817 56,642 54,722 74,805
Dividends on Preferred Stock 2,688 2,688 8,063 8,063
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income Available for Common Stock $ 9,129 $ 53,954 $ 46,659 $ 66,742
EARNINGS PER COMMON SHARE $ .29 $ 1.78 $ 1.52 $ 2.20
</TABLE>
3
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED) SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S>
ASSETS <C> <C> <C>
Cash and Due from Banks $ 172,626 $ 251,930 $ 253,414
Money Market Assets:
Time Deposits with Other Banks 178,508 177,662 231,374
Federal Funds Sold and Reverse Repurchase Agreements 475,000 446,000 423,000
- --------------------------------------------------------------------------------------------------------------------------------
Total Money Market Assets 653,508 623,662 654,374
- --------------------------------------------------------------------------------------------------------------------------------
Securities:
Available for Sale (at Market Value) 973,051 612,357 970,006
Held-to-Maturity (Market Value: September 30, 1995, $401,324) - 401,223 -
- --------------------------------------------------------------------------------------------------------------------------------
Total Securities 973,051 1,013,580 970,006
- --------------------------------------------------------------------------------------------------------------------------------
Loans 2,599,773 2,532,503 2,571,959
Reserve for Loan Losses 60,689 55,390 56,546
- --------------------------------------------------------------------------------------------------------------------------------
Net Loans 2,539,084 2,477,113 2,515,413
- --------------------------------------------------------------------------------------------------------------------------------
Premises and Equipment, Net 163,931 150,621 154,770
Accrued Interest Receivable 33,895 31,385 29,578
Other Real Estate Owned, Net 32,902 37,538 33,197
Other Assets 147,758 117,012 121,781
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $4,716,755 $4,702,841 $4,732,533
LIABILITIES
Noninterest-Bearing Demand Deposits $ 833,912 $ 824,106 $ 910,887
Interest-Bearing Deposits:
Savings and NOW Accounts 542,515 798,294 848,242
Money Market Deposit Accounts 1,265,826 945,372 951,117
Time Deposits in Domestic Offices 831,800 830,442 857,036
Time Deposits in Foreign Offices 312,135 304,559 317,897
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 2,952,276 2,878,667 2,974,292
- --------------------------------------------------------------------------------------------------------------------------------
Total Deposits 3,786,188 3,702,773 3,885,179
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 167,443 100,534 186,009
U.S. Treasury Demand Notes and Other Short-Term Borrowings 113,258 266,985 15,466
- --------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Borrowings 280,701 367,519 201,475
- --------------------------------------------------------------------------------------------------------------------------------
Other Liabilities 46,031 53,989 51,585
Long-Term Debt 191,525 217,625 217,625
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,304,445 4,341,906 4,355,864
STOCKHOLDERS' EQUITY
Preferred Stock-$1.00 Par Value
Shares Authorized - 25,000,000 at September 30, 1996 and 1995,
and December 31, 1995; Liquidation Preference - $25 per share
Shares Issued - Noncumulative Perpetual Series B - 4,000,000 shares
at September 30, 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 September 30, 1996 and 1995,
and December 31, 1995
Shares Issued - 31,263,994 at September 30, 1996, 31,166,962 at
September 30, 1995 and 31,175,262 at December 31, 1995 78,160 77,917 77,938
Surplus - Preferred Stock 91,192 91,192 91,192
Surplus - Common Stock 156,992 156,266 156,320
Foreign Exchange Translation Adjustments (1,164) (727) (873)
Undivided Profits 111,668 57,728 68,038
Unrealized Gain (Loss) on Securities Available for Sale, Net (4,815) (1,718) 3,777
Treasury Stock - 900,798 shares at September 30, 1996 and 1995,
and December 31, 1995 (23,723) (23,723) (23,723)
- --------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 412,310 360,935 376,669
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $4,716,755 $4,702,841 $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 - - - - 74,805 - - 74,805
Issuance of
Common Stock--
Stock Option Plans,
21,750 Shares - 54 143 - - - - 197
Cash Dividends --
Series B Preferred
Stock, $2.01563 per Share - - - - (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
Balance,
December 31, 1995 $ 4,000 $ 77,938 $247,512 $ (873) $ 68,038 $ 3,777 $ (23,723) $376,669
Net Income - - - - 54,722 - - 54,722
Issuance of
Common Stock--
Stock Option Plans,
88,732 Shares - 222 672 - - - - 894
Cash Dividends--
Series B Preferred
Stock, $2.01563 per Share - - - - (8,063) - - (8,063)
Cash Dividends--
Common Stock,
$.10 per Share - - - - (3,029) - - (3,029)
Unrealized Loss on
Securities Available
for Sale, Net - - - - - (8,592) - (8,592)
Foreign Exchange
Translation Adjustments - - - (291) - - - (291)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1996 $ 4,000 $ 78,160 $248,184 $ (1,164) $111,668 $ (4,815) $ (23,723) $412,310
</TABLE>
5
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS) NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
Increase (decrease) in cash and cash equivalents 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 54,722 $ 74,805
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses - (55,000)
Provision for Other Real Estate Owned Writedowns 216 2,868
Depreciation Expense and Amortization of Leasehold Improvements 8,304 8,888
Interest on Tax Receivables (5,135) -
Amortization of Purchase Accounting Adjustments 2,641 2,702
Provision (Benefit) for Deferred Taxes (14,891) 3,745
Securities Gains (7,166) (201)
Gains on Other Real Estate Owned Sales (259) (2,642)
Increase in Accrued Interest Receivable (4,317) (3,481)
Increase in Other Assets (4,166) (9,865)
Increase (Decrease) in Other Liabilities (5,554) 6,098
- -----------------------------------------------------------------------------------------------------------------------------
Total Adjustments (30,327) (46,888)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 24,395 27,917
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase In Time Deposits with Other Banks 52,866 50,562
Proceeds from Maturities of Securities Available for Sale 427,983 45,632
Proceeds from Sales of Securities Available for Sale 743,345 201
Purchase of Securities Available for Sale (1,180,225) (34,171)
Proceeds from the Maturity of Securities Held-to-Maturity - 378,654
Purchase of Securities Held-to-Maturity - (336,714)
Net (Increase) Decrease in Loans (25,526) 30,510
Proceeds from Other Real Estate Owned Sales 2,081 10,114
Net Increase in Premises and Equipment (17,465) (7,977)
Other, Net 112 147
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Investing Activities 3,171 136,958
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in:
Demand, NOW, Savings and Money Market Deposit Accounts (67,993) (125,808)
Time Deposits (30,998) 225,787
Federal Funds Purchased and Repurchase Agreements (18,566) (164,344)
U.S. Treasury Demand Notes and Other Short-Term Borrowings 97,792 238,426
Repayment of Long-Term Debt (26,100) -
Net Proceeds From the Issuance of Common Stock 894 197
Dividend Payments - Series B Preferred Stock and Common Stock (11,092) (8,063)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Financing Activities (56,063) 166,195
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (291) (93)
- -----------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (28,788) 330,977
Cash and Cash Equivalents at Beginning of Period 676,414 366,953
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 647,626 $ 697,930
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ 1,739 $ 741
Loans to Finance the Sale of Other Real Estate Owned - 685
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 107,228 $ 109,561
Income Tax Payments 21,134 3,755
</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,
---------------------------- ----------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERFORMANCE:
Net Income to Average Assets 1.00 % N/M 1.55 % 2.19 %
Net Income to Average Earning Assets 1.12 N/M 1.74 2.42
Net Income to Average Stockholders' Equity 11.64 N/M 18.57 34.22
Net Income Available to Common Stock
to Average Common Equity 11.77 N/M 20.88 45.29
Net Interest Income to Average Earning Assets 3.67 3.66 % 3.71 3.76
PER COMMON SHARE:
Net Income $ .29 $ 1.78 $ 1.52 $ 2.20
Dividends Paid per Common Share $ .05 $ - $ .10 $ -
Book Value (at period end) $10.44 $ 8.78 $10.44 $ 8.78
Common Shares Outstanding (at period end) 30,363,196 30,266,164 30,363,196 30,266,164
Weighted Average Common Shares Outstanding 30,327,726 30,259,678 30,300,926 30,254,122
ASSET QUALITY:
Nonaccrual Loans as a % of Total Loans .51 % .49 %
Nonaccrual Loans as a % of Average Loans .52 .49
Nonaccrual and Renegotiated Loans as a % of Total Loans .52 .50
Nonperforming Assets as a % of Total Loans and OREO 1.76 1.95
Nonperforming Assets as a % of Total Assets .98 1.07
Net Charge-Offs (Recoveries) as a % of Average Loans (.16) (.52)
Reserve for Loan Losses as a % of Total Loans 2.33 2.19
Reserve for Loan Losses as a % of Nonaccrual and
Renegotiated Loans 451.35 439.88
Period End Stockholders' Equity to Total Assets 8.74 7.67
CAPITAL RATIOS AT PERIOD END:
Tier I 15.71 % 13.45 %
Combined Tier I and Tier II 24.26 21.44
Leverage 8.76 7.81
</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
September 30, 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 nine 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 and common stock equivalents during the
period. The weighted average shares outstanding were 30,327,726 and 30,300,926
for the third quarter of 1996 and the nine-month period ended September 30,
1996, respectively, with 30,259,678 and 30,254,122 for the same periods in 1995.
The weighted average number of shares of common stock outstanding does not
include options 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, 1996, options to purchase 1,118,500
shares have been granted and remain outstanding in the 1993 Plan at prices
ranging from $9.00 to $12.00 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, 1996, options
to purchase 514,266 shares have been granted and remain outstanding in the 1994
Plan at prices ranging from $9.063 to $12.375 per share and are currently not
dilutive. Additionally, in May 1996, the board of directors and shareholders
approved the Riggs National Corporation 1996 Stock Option Plan (the "1996
Plan"). Under the 1996 Plan, options to purchase up to 2,000,000 shares may be
granted to key employees of the Corporation. As of September 30, 1996, options
to purchase 1,000,000 shares have been granted and remain outstanding in the
1996 Plan at a price of $12.375 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,
-------------------------------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 58,802 $100,145 $ 56,546 $ 97,039
Provision for loan losses - (55,000) - (55,000)
Loans charged-off:
Domestic 667 280 1,866 1,387
Foreign - 255 260 5,101
- -------------------------------------------------------------------------------------------------------------------------------
Total loans charged-off 667 535 2,126 6,488
Recoveries on charged-off loans:
Domestic 1,661 4,797 4,169 11,629
Foreign 771 6,081 1,984 8,004
- -------------------------------------------------------------------------------------------------------------------------------
Total recoveries on charged-off loans 2,432 10,878 6,153 19,633
Net loan charge-offs (recoveries) (1,765) (10,343) (4,027) (13,145)
Foreign exchange translation adjustments 122 (98) 116 206
- -------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 60,689 $ 55,390 $ 60,689 $ 55,390
</TABLE>
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. OTHER REAL ESTATE OWNED, NET
Changes in other real estate owned, net of reserves, are summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995
- ------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Balance, beginning of period $33,197 $47,763
Additions 2,031 741
Deductions:
Sales and repayments 2,114 8,157
Charge-offs 216 2,868
- ------------------------------------------------------------------------- ----------------- ----------------
Total Deductions 2,330 11,025
Foreign exchange translation adjustments 4 59
- ------------------------------------------------------------------------- ----------------- ----------------
Balance, end of period $32,902 $37,538
</TABLE>
Other real estate owned income and expense consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995
- -------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Other Real Estate Owned Operating Revenue $ 556 $ 1,020
Net Gain on Sale of Properties 259 2,642
- -------------------------------------------------------------------------- ---------------- -----------------
Net Revenue 815 3,662
Provision for Other Real Estate Owned Losses 216 2,868
Selling and Other Real Estate Owned Operating Expense 764 1,324
- -------------------------------------------------------------------------- ---------------- -----------------
Net Expense 980 4,192
- -------------------------------------------------------------------------- ---------------- -----------------
Total Other Real Estate Owned (Income) Expense, Net $ 165 $ 530
</TABLE>
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
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. NEW FINANCIAL ACCOUNTING STANDARDS, CONTINUED
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.
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities, based on a financial-components approach that focuses on control.
Under this approach, after a transfer of financial assets, financial and
servicing assets are recognized if controlled or liabilities are recognized if
incurred. Financial and servicing assets are removed from the statement of
condition when control has been surrendered and liabilities are removed when
extinguished. SFAS No. 125 is effective January 1, 1997 and will be applied
prospectively. The Corporation is currently assessing the impact of the adoption
of this pronouncement.
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, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Domestic Offices $11,421 $46,770 $50,936 $63,767
Foreign Offices 3,458 9,936 4,530 11,293
- -------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
Total $14,879 $56,706 $55,466 $75,060
</TABLE>
The provision for income taxes for the three and nine month periods ended
September 30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Current Provision (Benefit):
Federal $ 4,267 $ (1,927) $ 17,921 $(3,782)
State - 81 (2,235) 257
Foreign (7) 11 (51) 35
- --------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total Current Provision (Benefit) 4,260 (1,835) 15,635 (3,490)
Deferred (Benefit) Provision:
Federal (1,198) 1,899 (14,891) 3,745
State - - - -
Foreign - - - -
- --------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Total Deferred (Benefit) Provision (1,198) 1,899 (14,891) 3,745
- --------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Applicable Income Tax Expense $ 3,062 $ 64 $ 744 $ 255
</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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
CONTRACTUAL OR
NOTIONAL VALUE
SEPTEMBER 30,
--------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to Extend Credit:
Commercial $389,714 $306,667
Real Estate:
Commercial/Construction 44,004 38,410
Mortgage 5,802 9,574
Home Equity 178,888 179,457
- ---------------------------------------------------------------------------------------------------------------
Total Real Estate 228,694 227,441
- ---------------------------------------------------------------------------------------------------------------
Consumer 86,242 65,656
- ---------------------------------------------------------------------------------------------------------------
Total Commitments to Extend Credit $704,650 $599,764
Letters of Credit:
Commercial $ 92,515 $ 58,985
Standby-Financial 33,716 36,798
Standby-Performance 8,040 15,522
- ---------------------------------------------------------------------------------------------------------------
Total Letters of Credit $134,271 $111,305
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $ 87,487 $ 90,877
Commitments to Sell 185,377 191,892
Interest Rate Swap Agreements 322,327 329,217
Interest Rate Option Contracts (Corridors) 100,000 400,000
</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 swaps and option contracts activity for the nine
months ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, SEPTEMBER 30,
1995 ADDITIONS MATURITIES OTHER 1996
- --------------------------------- ---- ---------------- ------------- -------------- ---------------- -----------------
<S>
Interest Rate Swaps: <C> <C> <C> <C> <C>
Receive fixed/pay variable $200,000 $ - $ - $ - $200,000
Receive variable/pay fixed 100,000 50,000 50,000 - 100,000
For Customers 13,609 8,545 - 173 22,327
Interest Rate Option Contracts 300,000 - 200,000 - 100,000
- --------------------------------- ---- ---------------- ------------- -------------- ---------------- -----------------
Total $613,609 $ 58,545 $250,000 $ 173 $422,327
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
<TABLE>
<CAPTION>
INTEREST RATE SWAP AGREEMENTS
SEPTEMBER 30, 1996 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 $ (2,348) 5.38% 5.63% $ 1,913 $ 2,063 $ - $ (405)
Receive variable/pay
fixed, Maturing
March 1997 25,000 (153) 5.63 6.97 59 73 - (243)
Receive variable/pay
fixed, Maturing
April 1997 25,000 (190) 5.66 6.70 279 321 - (188)
Receive variable/pay
fixed, Maturing
January 1998 25,000 457 5.63 5.21 266 242 - 71
Receive variable/pay
fixed, Maturing
January 1999 25,000 247 5.63 5.36 266 249 - 45
For Customers 22,327 (475) - - 305 382 - (187)
- -------------------------------------------------------------------------------------------------------------------------
Total Interest Rate Swap
Agreements $322,327 $ (2,462) $ 3,088 $ 3,330 $ - $ (907)
</TABLE>
At September 30, 1996, the Corporation's financial derivative instruments
included a $200 million (notional principal amount) interest-rate swap
agreement, entered into in July 1993 and maturing in July 1998, 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 of 6.73% and 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 net interest expense related to this $25 million
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 of 6.55% and 6.70%. One of these
agreements matured in April 1996 and the other matures in April 1997. Prior to
its maturity in April 1996, $63 thousand in net interest expense related to this
$25 million swap agreement was recognized in 1996. In January 1996, the
Corporation entered into two additional $25 million (notional principal balance)
interest-rate swap agreements hedging a portion 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.
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 maturing in April 1996 and April 1997, 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 remaining $100 million corridor matures in April 1997, and as of September
30, 1996, had unamortized fees and premiums of $258 thousand as well as 1996
year-to-date net interest expense of $368 thousand relating to the amortization
of the premiums and fees during the period. The unrealized loss on this $100
million corridor was $176 thousand at September 30, 1996.
In August 1994, the Corporation entered into another corridor transaction in the
amount of $200 million (notional principal balance) that matured in August 1996.
This corridor, executed to hedge the costs of certain short-term borrowings
against rising interest rates, included a termination agreement. In 1996, there
were no payments paid or received as the rate was below the 6.00% floor. A
premium was also paid for this corridor, with the cost amortized over the
two-year life, of which, $400 thousand was amortized in 1996. The total
aggregate net interest income/expense for this corridor agreement is included in
interest expense relating to short-term borrowings.
NOTE 8. REGULATORY MATTERS
On September 30, 1996, Congress passed and the President signed an omnibus
funding bill which included legislation for the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). This legislation includes a provision
requiring the merger of the Bank Insurance Fund ("BIF"), which is also
administered by the FDIC, and SAIF in 1999, assuming that bank charters and
thrift charters are combined by that time. The legislation included several
other bank-related components, the most important of which is the one-time
assessment on institutions with deposits insured by SAIF equaling approximately
66 cents per one-hundred dollars of deposits insured, to be applied retroactive
to an institution's deposits as of March 31, 1995. This provision is effective
immediately. In addition, the legislation provides for a new Financing
Corporation ("FICO") sharing formula between BIF and SAIF insured institutions,
which will impose a surcharge of 1.3 cents per one hundred dollars of
BIF-insured deposits.
The Corporation does not have any SAIF insured deposit balances as of September
30, 1996. The Corporation's deposits are insured through BIF. Therefore, the
Corporation is not subject to the one-time SAIF surcharge. However, the
Corporation is subject to the FICO surcharge and will be required to pay
one-fifth of the rate that SAIF institutions pay for a three year period
beginning in 1997. The FICO surcharge is expected to cost the Corporation
approximately $400 thousand annually.
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 $11.8 million ($.29 per
common share) for the third quarter of 1996 compared with net income of $56.6
million ($1.78 per common share) for the same quarter a year earlier. Net
earnings for the nine months of 1996 totaled $54.7 million, or $1.52 per common
share compared with $74.8 million, or $2.20 per common share, for the same
period in 1995. Net income for the third quarter and the first nine months of
1995 benefited from several nonrecurring items, which included a $55.0 million
reduction in the reserve for loan losses, partially offset by $5.6 million in
charges from several operating expense initiatives begun in the third quarter of
1995.
Net interest income before the provision for loan losses was $37.8 million for
the third quarter and $114.0 million for the first nine months of 1996, level
with $37.4 million and $113.4 million for the same periods in 1995. The current
quarter's net interest income increased $479 thousand from the second quarter
1996 total of $37.3 million. The net interest margin for the third quarter and
first nine months of 1996 were 3.67% and 3.71%, compared with a margin of 3.66%
for the prior year's third quarter and 3.76% for the first nine months of 1995.
Though the net interest margin decreased five basis points on a year-to-date
basis, this decrease was more than offset by a $71.7 million increase in earning
assets between periods, resulting in the $568 thousand increase in the net
interest income (before provision for loan losses) between the periods.
Noninterest income, excluding securities gains, for the third quarter and
nine-month periods of 1996 totaled $21.2 million and $65.3 million,
respectively, compared with $18.2 million and $54.5 million, respectively, from
the prior year's periods. The increase from the third quarter of 1995, totaling
$2.9 million (16.4%), was partially due to a litigation settlement in the United
Kingdom of $1.9 million, with the remainder attributed to increases in trust and
service fee income. The increase in the nine-month period totaling $10.5 million
(19.9%) was primarily due to $5.1 million of interest from the tax settlements
recorded in the second quarter, a $2.8 million increase in trust income, and the
previously mentioned litigation settlement.
Noninterest expense for 1996's third quarter totaled $44.0 million, a decrease
of $9.9 million (18.4%) from the prior year's quarter total of $54.0 million.
Likewise, noninterest expense for the first nine months of 1996 totaled $131.0
million, a decrease of $17.0 million (11.5%), compared with $148.0 million for
the first nine months of 1995. The reduction in noninterest expense for the
third quarter of 1996 in comparison to the same period in 1995 was mostly due to
decreases in occupancy and personnel related expenses, as well as losses from
other real estate owned properties in the prior year's period. The reduction in
noninterest expense for the first nine months of 1996 in comparison to the same
period in 1995 was primarily due to decreases in personnel related and occupancy
expenses along with reductions in deposit insurance premiums.
Nonperforming assets, including other real estate owned, decreased $3.8 million,
or 7.5% to $46.3 million at September 30, 1996, when compared with 1995's third
quarter nonperforming asset total of $50.1 million. At September 30, 1996,
Riggs' reserve to total loans ratio stood at 2.33%. Nonperforming loans totaled
$13.4 million at quarter end, with a reserve to nonperforming loans (coverage)
ratio of 451 percent.
Assets totaled $4.72 billion at September 30, 1996, comparable with the $4.70
billion total at September 30, 1995. Total loans (net of premiums/discounts)
increased $67.3 million, or 2.6% from September 30, 1995 to a total of $2.60
billion. Deposits at September 30, 1996 totaled $3.78 billion, an increase of
$83.4 million (2.3%) from the September 30, 1995 total of $3.70 billion. Total
liabilities decreased $37.5 million from the prior year's quarter to $4.30
billion. The decrease in total liabilities from the prior year's balance was
primarily due to the decreases in short-term borrowings of $86.8 million,
long-term debt of $26.1 million and $8.0 million in other liabilities, partially
offset by the increase 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>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- -------------------------------
AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Treasury Securities $949,880 $942,585 $159,563 $159,418
Government Agencies Securities - - 26,629 26,460
Obligations of States & Political Subdivisions - - 3,800 4,550
Mortgage-Backed Securities - - 400,963 397,924
Other Securities 30,466 30,466 24,005 24,005
- -----------------------------------------------------------------------------------------------------------------
Total $980,346 $973,051 $614,960 $612,357
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- -------------------------------
BOOK MARKET BOOK MARKET
HELD-TO-MATURITY VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S>
(In thousands) <C> <C> <C> <C>
U.S. Treasury Securities $ - $ - $ 24,932 $ 24,937
Government Agencies Securities - - 376,291 376,387
- -----------------------------------------------------------------------------------------------------------------
Total $ - $ - $401,223 $401,324
</TABLE>
Securities available for sale totaled $973.1 million at September 30, 1996
compared to $970.0 million at year-end 1995 and $612.4 million at September 30,
1995. The activity for the first nine months of 1996 included purchases of
securities available for sale totaling $1.2 billion partially offset by sales of
securities available for sale totaling $743.3 million and proceeds from
maturities of $428.0 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. Also included in securities
gains for the first nine months of 1996 was a $1.2 million recovery of a prior
year loss recognized in December 1994 from the Orange County bankruptcy. Final
maturities of the remaining Orange County securities, which were part of the
available for sale portfolio, were received at par value in June 1996, resulting
in the recovery. The increase in securities available for sale 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. Unrealized losses from
securities available for sale totaled $7.3 million at September 30, 1996 ($4.8
million net of taxes), compared with unrealized losses of $2.6 million at
September 30, 1995 ($1.7 million net of taxes). The weighted-average maturities
and yields for securities available for sale, adjusted for anticipated
prepayments, was approximately 2.8 years and 5.77%, respectively, at September
30, 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 September 30,
1996, follows:
<TABLE>
<CAPTION>
U.S. TREASURY OTHER
(IN THOUSANDS) SECURITIES SECURITIES TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Within 1 year
Amortized Cost $300,620 $ 6,197 $306,817
Market/Book 300,522 6,197 306,719
Yield* 5.27% 4.81% 5.26%
After 1 but within 5 years 479,392 - 479,392
Amortized Cost 474,824 - 474,824
Market/Book 5.83% - 5.83%
Yield*
After 5 but within 10 years
Amortized Cost 169,868 24,269 194,137
Market/Book 167,239 24,269 191,508
Yield* 6.35% 6.13% 6.33%
- -------------------------------------------------------------------------------------------
Total Securities Available for Sale
Amortized Cost $949,880 $ 30,466 $980,346
Market/Book 942,585 30,466 973,051
Yield* 5.75% 5.86% 5.75%
</TABLE>
[FN]
*Weighted-average yield to maturity at September 30, 1996.
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,
(IN THOUSANDS) 1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and Financial $ 419,159 $ 390,730 $ 400,379
Real Estate - Commercial/Construction 346,282 331,342 326,965
Residential Mortgage 1,238,357 1,298,760 1,286,256
Home Equity 281,032 234,878 251,798
Consumer 78,846 78,913 77,804
Foreign 231,829 192,932 224,151
- ----------------------------------------------------------------------------------------------------------------
Loans 2,595,505 2,527,555 2,567,353
Less: Unearned Discount (Unamortized
Premium) and Net Deferred Fees (4,268) (4,948) (4,606)
- ----------------------------------------------------------------------------------------------------------------
Total Loans, Net $2,599,773 $2,532,503 $2,571,959
</TABLE>
At September 30, 1996, total loans outstanding (net of premiums/discounts) were
$2.60 billion, increasing $67.3 million from the September 30, 1995 total of
$2.53 billion. The increase in loans from September 30, 1995 was attributable to
increases of $46.2 million increase in home equity loans, $39.0 million increase
in foreign loans, $28.4 million in commercial and financial loans, and $14.9
million of real estate -commercial construction loans. These increases were
offset in part by the $60.4 million decrease in residential mortgage loans.
REAL ESTATE - COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
SEPTEMBER 30, 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 $ 25,384 $ 8,944 $ 5,266 $ - $ - $ 39,594
Multifamily Residential 19,205 8,961 3,184 - - 31,350
Commercial:
Office Buildings 55,389 45,519 26,129 - 2,167 129,204
Shopping Centers 32,373 12,858 20,516 - - 65,747
Hotels 4,503 3,547 - - - 8,050
Industrial/Warehouse Loans 2,266 11,782 7,666 - - 21,714
Churches 25,072 1,539 6,954 - - 33,565
Other 4,268 6,118 6,604 - 68 17,058
- ----------------------------------------------------------------------------------------------------------------------------
Total Commercial 123,871 81,363 67,869 - 2,235 275,338
- ----------------------------------------------------------------------------------------------------------------------------
Total Domestic Real Estate -
Commercial/Construction Loans 168,460 99,268 76,319 - 2,235 346,282
Foreign - - - 116,788 - 116,788
- ----------------------------------------------------------------------------------------------------------------------------
Total Real Estate - Commercial/
Construction Loans $168,460 $99,268 $ 76,319 $116,788 $ 2,235 $463,070
</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, 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
September 30, 1996, December 31, 1995 or September 30, 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>
SEPTEMBER 30, 1996
United Kingdom $204.4 4.3% $2.0 $ - $ - $ -
DECEMBER 31, 1995
United Kingdom 180.9 3.8 1.7 - - -
SEPTEMBER 30, 1995
United Kingdom 178.5 3.8 4.5 0.1 - -
</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 $46.3 million at September
30, 1996, a $3.8 million (7.5%) decrease from September 30, 1995, and a $415
thousand (.9%) increase from the year-end 1995 total of $45.9 million.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AND PAST-DUE LOANS
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1996 1995 1995
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
<S> <C> <C> <C>
NONPERFORMING ASSETS:
Nonaccrual Loans: (1)
Domestic $11,158 $ 7,781 $ 7,542
Foreign 1,992 4,525 1,784
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Total Nonaccrual Loans 13,150 12,306 9,326
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Renegotiated Loans: (2)
Domestic 296 152 3,410
Foreign - 134 -
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Total Renegotiated Loans 296 286 3,410
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Other Real Estate Owned, Net:
Domestic 32,538 36,069 32,627
Foreign 364 1,469 570
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Total Other Real Estate Owned, Net 32,902 37,538 33,197
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Total Nonperforming Assets $46,348 $50,130 $45,933
PAST-DUE LOANS: (3)
Domestic $ 4,664 $ 4,841 $ 5,423
Foreign - - 36
- ---------------------------------------------- ----------- -- --- ----------------- ---------------- -----------------
Total Past-Due Loans $ 4,664 $ 4,841 $ 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 $10.8 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 September 30, 1996, nonaccrual loans, including both domestic and foreign,
were $13.1 million, or .5% of total loans, compared with $9.3 million, or .4% of
total loans, at year-end 1995 and $12.3 million, or .5% of total loans, at
September 30, 1995. The $13.1 million of nonaccrual loans includes $5.4 million
of loans identified as impaired (see "Impaired Loans"). The increase in
nonaccrual loans during the first nine months of 1996 was due to additions of
$8.7 million. These additions were partially offset by paydowns and payoffs of
$2.9 million in addition to loans returning to accrual status of $270 thousand,
charge-offs of $515 thousand and transfers to other real estate owned of $1.2
million. Of the $8.7 million in additions during the first nine months of 1996,
$7.0 million (80.5%) related to domestic nonaccrual loans and $1.7 million
(19.5%) related to foreign nonaccrual loans. Renegotiated loans totaled $296
thousand at September 30, 1996, a decrease of $3.1 million from December 31,
1995. This decrease was a result of paydowns and payoffs totaling $2.6 million
and charge-offs of $463 thousand. The $296 thousand of renegotiated loans at
September 30, 1996, does not include any loans identified as impaired (see
"Impaired Loans"). Nonaccrual and renegotiated real estate -
commercial/construction loans, both foreign and domestic, totaled $6.8 million
at September 30, 1996, or 50.8% of the total nonaccrual and renegotiated loans
at September 30, 1996.
OTHER REAL ESTATE OWNED, NET
Other real estate owned, net of reserves, decreased slightly to $32.9 million at
September 30, 1996, compared with $33.2 million at December 31, 1995, and
decreasing $4.6 million compared with $37.5 million at September 30, 1995. The
decrease during the first nine months of 1996 is the result of paydowns and
sales of $2.1 million and net charge-offs of $216 thousand, partially offset by
additions of $2.0 million. At September 30, 1996, residential and commercial
land composed 85.1% 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, 1996
<TABLE>
<CAPTION>
GEOGRAPHIC LOCATION
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land $ - $20,779 $ 7,209 $ - $27,988
Single-Family Residential - 876 1,135 - 2,011
Multifamily Residential - 156 - - 156
Office Buildings/Retail - 138 2,030 364 2,532
Warehouse Loans 215 - - - 215
- -----------------------------------------------------------------------------------------------------------------------------
Total Other Real Estate Owned, Net $ 215 $21,949 $10,374 $ 364 $32,902
</TABLE>
[FN]
(1) - Balances are net of valuation reserves totaling $2.3 million.
PAST-DUE AND POTENTIAL PROBLEM LOANS/ASSETS
Past-due loans consist primarily 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 $795 thousand during the first nine months of
1996 to $4.7 million, and decreased $177 thousand from September 30, 1995.
At September 30, 1996, the Corporation had identified approximately $1.3 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 residential.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY, CONTINUED
The Corporation did not have any other potential problem assets at September 30,
1996. The $4.7 million of Orange County variable-rate one-year notes (the
"Notes") that had been identified as potential problem assets at December 31,
1995 matured with proceeds received from Orange County in June 1996. The
recovery of $1.2 million was recognized when these notes matured at par, which
was recorded as a securities gain, as a result of the Notes originally being
written-down to their estimated fair value in December 1994 when Orange County
declared bankruptcy.
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 $60.7 million, or 2.33% of total
loans (net of premiums/discounts) at September 30, 1996, compared with $56.5
million, or 2.20% of total loans at December 31, 1995, and $55.4 million, or
2.19% of total loans, at September 30, 1995. The coverage ratio was 451% at
September 30, 1996, 444% at year-end 1995 and 440% at September 30, 1995. The
increase in the coverage ratio from the prior year's periods was the result of
the $5.3 million increase in the reserve for loan losses between 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 $5.4 million at September 30, 1996, level with the
impaired loans balance at December 31, 1995. Collateral dependent loans, which
are measured at the fair value of the collateral, constituted the entire balance
of impaired loans at September 30, 1996.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
ASSET QUALITY, CONTINUED
The following tables present impaired loans:
<TABLE>
<CAPTION>
IMPAIRED LOANS (1)
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- --------------------------------------------- ---------------------- ----------------- ----------------- ---------------
<S> <C> <C>
Domestic:
Real Estate - Commercial/Construction $3,747 $4,696
Foreign 1,618 674
- --------------------------------------------- ---------------------- ----------------- ----------------- ---------------
Total Impaired Loans $5,365 $5,370
</TABLE>
[FN]
(1) There were no specific reserves for impaired loans as of
September 30, 1996 and December 31, 1995.
----------------------------------------------------------
IMPAIRED LOANS
AVERAGE INVESTMENT AND INTEREST RECOGNIZED
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------
AVERAGE INTEREST
(IN THOUSANDS) INVESTMENT RECOGNIZED
- -------------------------------------------------- -------------- --------------- ---- --------------- -----------------
<S> <C> <C>
Domestic:
Real Estate - Commercial/Construction $4,221 $ -
Foreign 1,146 25
- -------------------------------------------------- -------------- --------------- ---- --------------- -----------------
Total $5,367 $ 25
</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 September 30, 1996, increasing
$83.4 million (2.2%) from the September 30, 1995 deposit total. The increase
from the prior year's balance was primarily due to increases in money market
deposits of $320.5 million as well as demand and foreign time deposits, offset
by the decrease in savings and NOW accounts of $255.8 million.
<TABLE>
<CAPTION>
DEPOSITS
SEPTEMBER 30, CHANGE
--------------------------- ----------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- -------------------------------------------------------- ------------- ------------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Demand Deposits $ 833,912 $ 824,106 $ 9,806 1.2 %
Interest-Bearing Deposits:
Savings and NOW Accounts 542,515 798,294 (255,779) (32.0)
Money Market Deposit Accounts 1,265,826 945,372 320,454 33.9
Time Deposits in Domestic Offices 831,800 830,442 1,358 .2
Time Deposits in Foreign Offices 312,135 304,559 7,576 2.5
- -------------------------------------------------------- -------------- ------------- ------ ------------- -------------
Total Interest-Bearing Deposits 2,952,276 2,878,667 73,609 2.6
- -------------------------------------------------------- -------------- ------------- ------ ------------- -------------
Total Deposits $3,786,188 $3,702,773 $ 83,415 2.3 %
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
DEPOSITS, CONTINUED
The large variances in the money market and savings and NOW balances is
partially attributed to a new program started during the third quarter of 1996.
Deposit balances in certain NOW and noninterest checking accounts are
transferred to the money market classification, thereby reducing the level of
deposit reserves required by the Federal Reserve. Based on certain limitations,
funds are periodically transferred back to the checking accounts to cover checks
presented for payment or other forms of withdrawal. As a result of the program,
the Corporation is expecting to increase net average interest-earning assets by
approximately $50 million, resulting in a benefit of approximately $2 million
pretax to net interest income annually under this program. Since this program
began in the third quarter of this year, the impact to net interest income was
immaterial in the current period. Total accounts transferred equaled
approximately $270 million at September 30, 1996.
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 late 1996 or early 1997. 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 six to nine months.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings decreased $86.8 million (23.6%) from the end of the third
quarter of 1995. Short-term borrowings are an additional source of funds that
the Corporation utilizes to meet certain asset/liability and daily cash
management objectives. The decrease in short-term borrowings from September 30,
1995 was primarily due to a $153.7 million reduction in U.S. Treasury notes and
other borrowed funds, the result of decreases in treasury, tax and loan balances
between the periods which are a temporary source of funds for the Corporation,
offset by an increase of $66.9 million in federal funds purchased and
repurchased agreements. Long-term debt decreased by $26.1 million as the
floating-rate subordinated capital notes matured and were paid in September
1996.
<TABLE>
<CAPTION>
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
SEPTEMBER 30, CHANGE
--------------------------- ---------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- ------------------------------------------------------------ ------------- ------------- ------ ------------- -------------
<S> <C> <C> <C> <C>
Federal Funds Purchased and Repurchase Agreements $167,443 $100,534 $ 66,909 66.6 %
U.S. Treasury Notes and Other Borrowed Funds 113,258 266,985 (153,727) (57.6)
- ------------------------------------------------------------ ------------- ------------- ------ ------------- --------------
Total Short-Term Borrowings 280,701 367,519 (86,818) (23.6)
Floating-Rate Subordinated Capital Notes due 1996 - 26,100 (26,100) (100.0)
Subordinated Debentures due 2009 66,525 66,525 - -
Subordinated Notes due 2006 125,000 125,000 - -
- ------------------------------------------------------------ ------------- ------------- ------ ------------- --------------
Total Long-Term Debt 191,525 217,625 (26,100) 12.0
- ------------------------------------------------------------ ------------- ------------- ------ ------------- --------------
Total Short-Term Borrowings and Long-Term Debt $472,226 $585,144 $(112,918) (19.3)%
</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 September 30, 1996, the Corporation's liquid assets, on a
consolidated basis, which include cash and due from banks, securities available
for sale, Federal funds sold, reverse repurchase agreements and time deposits at
other banks, totaled $1.8 billion (38.1% of total assets). This compares with
$1.9 billion (39.7%) at December 31, 1995, and $1.9 billion (39.6%) at September
30, 1995. The decrease in total liquid assets and the percentage of liquid
assets to total assets from September 30, 1995, was the result of the cash
outflows from the decrease in short-term borrowings combined with the decrease
in cash and due from other banks balance. The Corporation expects liquid assets
to remain at approximately the September 30, 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 September 30, 1996. In both instances the
Corporation was well-insulated against interest rates moving significantly in
either direction. At September 30, 1996, the forecasted impact of interest rates
either gradually rising or falling 300 basis points versus a "most likely"
scenario would negatively impact net interest income by less than 3% 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 September 30, 1996 was $412.3 million, up $35.6
million from the year-end 1995 total and $51.4 million from September 30, 1995.
The increase from year-end 1995 was primarily the result of earnings totaling
$54.7 million, partially offset by an increase in net unrealized losses in the
Corporation's securities available for sale portfolio of $8.6 million and
dividends on preferred and common stock of $11.1 million. The increase in
stockholders' equity over the preceding year is mostly attributable to earnings
during the period less dividends paid.
The Corporation's total (combined Tier I and Tier II) and core (Tier I) capital
ratios were 24.26% and 15.71%, respectively, at September 30, 1996, compared
with 21.62% and 13.57% at December 31, 1995 and 21.44% and 13.45% at September
30, 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 8.76%
at September 30, 1996, compared with leverage ratios of 8.03% and 7.81% at
December 31, 1995 and September 30, 1995, respectively. Regulatory capital
ratios do not include the impact of net unrealized losses on the securities
available for sale portfolio totaling $4.8 million at September 30, 1996. The
Corporation's equity to assets ratio, which does include these unrealized
losses, increased to 8.74% at September 30, 1996 compared to 7.96% and 7.67% at
December 31, 1995, and September 30, 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:
<TABLE>
<CAPTION>
CAPITAL RATIOS SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, REQUIRED
1996 1995 1995 MINIMUMS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RIGGS NATIONAL CORPORATION:
Tier I 15.71% 13.57% 13.45% 4.00%
Combined Tier I and Tier II 24.26 21.62 21.44 8.00
Leverage* 8.76 8.03 7.81 4.00
RIGGS BANK N.A.**:
Tier I 19.30 n/a n/a 4.00
Combined Tier I and Tier II 20.56 n/a n/a 8.00
Leverage* 10.74 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 September 30,
1996.
** 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.
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 $38.8 million in
the third quarter of 1996, increasing $568 thousand from the third quarter of
1995. Net interest income on a tax-equivalent basis was $116.7 million for the
first nine months of 1996, compared with $116.0 million for the same period in
1995. The net interest margin (net interest income on a tax-equivalent basis
divided by average earning assets) for the third quarter of 1996 was 3.67% (see
schedule on the following page), an increase of one basis point from 3.66% for
the third quarter of 1995. The net interest margin for the nine month periods
ended September 30, 1996 and 1995 were 3.71% and 3.76%, respectively. The net
interest margin for the nine month period ended September 30, 1996 is down from
the prior period's interest margin 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 68.7% at September 30,
1996, up from the year-end 1995 ratio of 66.2%, the result of a $27.8 million
increase in net loans coupled with the $99.0 million decrease in deposits. The
ratio of average loans to average earning assets was 61.3% for the third quarter
of 1996, compared with a ratio of 60.1% for the second quarter of 1996.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 VS 1995 SEPTEMBER 30, 1996 VS 1995
---------------------------------- ----------------------------------
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) $ (2,467) $ 959 $(1,508) $(2,828) $ 348 $(2,480)
Securities Available for Sale (143) 8,861 8,718 (1,604) 24,250 22,646
Securities Held-to-Maturity - (8,739) (8,739) - (24,308) (24,308)
Time Deposits with Other Banks (712) (695) (1,407) (2,506) (629) (3,135)
Federal Funds Sold and Reverse
Repurchase Agreements (274) 329 55 (945) 2,943 1,998
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Income (3,596) 715 (2,881) (7,883) 2,604 (5,279)
Interest Expense:
Savings and NOW Accounts (418) (1,335) (1,753) (1,154) (1,337) (2,491)
Money Market Deposit Accounts (727) 2,522 1,795 (266) 2,918 2,652
Time Deposits in Domestic Offices (1,635) (271) (1,906) (2,365) (293) (2,658)
Time Deposits in Foreign Offices (409) (16) (425) (1,371) 1,274 (97)
Federal Funds Purchased and
Repurchase Agreements (681) 534 (147) (2,126) 1,440 (686)
U.S. Treasury Demand Notes and Other
Short-Term Borrowings (152) (809) (961) (743) (1,827) (2,570)
Long-Term Debt 8 (60) (52) (110) (45) (155)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Expense (4,014) 565 (3,449) (8,135) 2,130 (6,005)
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 418 $ 150 $ 568 $ 252 $ 474 $ 726
</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
SEPTEMBER 30, 1996 SEPTEMBER 30, 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 $ 383,173 $ 7,530 7.82 % $ 362,319 $ 7,531 8.25 %
Commercial - Tax-Exempt 23,504 573 9.70 30,575 1,136 14.74
Real Estate - Commercial/Construction 326,921 7,264 8.84 328,865 7,886 9.51
Residential Mortgage 1,250,551 22,225 7.07 1,308,967 23,490 7.12
Home Equity 281,120 5,704 8.07 234,154 5,350 9.06
Consumer 76,888 2,352 12.17 75,612 2,333 12.24
Foreign 233,816 4,769 8.11 190,129 4,199 8.76
- ------------------------------------------------------------------------------------------------------------------------------
Total Loans (Including Fees) 2,575,973 50,417 7.79 2,530,621 51,925 8.14
- ------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale (3) 1,212,665 18,074 5.93 616,192 9,356 6.02
Securities Held-to-Maturity - - - 558,943 8,739 6.20
Time Deposits with Other Banks 182,872 2,213 4.81 232,935 3,620 6.17
Federal Funds Sold and Resale Agreements 229,350 3,126 5.42 205,831 3,071 5.92
- ------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 4,200,860 73,830 6.99 4,144,522 76,711 7.34
- ------------------------------------------------------------------------------------------------------------------------------
Less: Reserve for Loan Losses 59,343 100,928
Cash and Due from Banks 178,276 198,515
Premises and Equipment, Net 162,411 151,774
Other Assets 224,185 190,364
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $4,706,389 $4,584,247
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 560,800 $ 3,013 2.14 % $ 802,861 $ 4,766 2.36 %
Money Market Deposit Accounts 1,252,262 10,054 3.19 941,195 8,259 3.48
Time Deposits in Domestic Offices 837,273 9,575 4.55 857,682 11,481 5.31
Time Deposits in Foreign Offices 332,033 4,651 5.57 333,056 5,076 6.05
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 2,982,368 27,293 3.64 2,934,794 29,582 4.00
- ------------------------------------------------------------------------------------------------------------------------------
Borrowed Funds:
Federal Funds Purchased and
Repurchase Agreements 219,671 2,573 4.66 179,601 2,720 6.01
U.S. Treasury Notes and Other Borrowed Funds 36,060 457 5.04 98,290 1,418 5.72
Long-Term Debt 215,355 4,736 8.75 217,625 4,788 8.73
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 3,453,454 35,059 4.04 3,430,310 38,508 4.45
- ------------------------------------------------------------------------------------------------------------------------------
Demand Deposits 799,525 795,170
Other Liabilities 49,570 51,282
Stockholders' Equity 403,840 307,485
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $4,706,389 $4,584,247
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AND SPREAD $38,771 2.95 % $38,203 2.89 %
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN ON EARNING ASSETS 3.67 % 3.66 %
</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>
RIGGS NATIONAL CORPORATION
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 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 $ 349,063 $ 23,097 8.84 % $ 363,364 $ 22,480 8.27 %
Commercial - Tax-Exempt 26,205 1,913 9.75 33,802 2,978 11.78
Real Estate - Commercial/Construction 321,099 21,456 8.93 324,663 23,438 9.65
Residential Mortgage 1,267,088 67,702 7.14 1,320,641 70,673 7.15
Home Equity 269,848 16,705 8.27 229,367 15,447 9.00
Consumer 75,727 6,910 12.19 74,171 6,712 12.10
Foreign 227,349 13,688 8.04 191,061 12,223 8.55
- ------------------------------------------------------------------------------------------------------------------------------
Total Loans (Including Fees) 2,536,379 151,471 7.98 2,537,069 153,951 8.11
- ------------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale (3) 1,165,568 50,934 5.84 612,782 28,288 6.17
Securities Held-to-Maturity - - - 537,636 24,308 6.04
Time Deposits with Other Banks 216,066 8,003 4.95 229,710 11,138 6.48
Federal Funds Sold and Resale Agreements 282,287 11,461 5.42 211,432 9,463 5.98
- ------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 4,200,300 221,869 7.06 4,128,629 227,148 7.36
- ------------------------------------------------------------------------------------------------------------------------------
Less: Reserve for Loan Losses 58,290 98,588
Cash and Due from Banks 199,067 201,192
Premises and Equipment, Net 158,752 150,921
Other Assets 204,998 185,391
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $4,704,827 $4,567,545
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 743,284 $ 11,982 2.15 % $ 823,142 $ 14,473 2.35 %
Money Market Deposit Accounts 1,066,321 26,924 3.37 951,667 24,272 3.41
Time Deposits in Domestic Offices 836,234 29,358 4.69 844,098 32,016 5.07
Time Deposits in Foreign Offices 337,291 13,984 5.54 308,302 14,081 6.11
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 2,983,130 82,248 3.68 2,927,209 84,842 3.88
- ------------------------------------------------------------------------------------------------------------------------------
Borrowed Funds:
Federal Funds Purchased and
Repurchase Agreements 217,905 7,599 4.66 182,634 8,285 6.07
U.S. Treasury Notes and Other Borrowed Funds 33,199 1,073 4.32 84,876 3,643 5.74
Long-Term Debt 216,863 14,244 8.77 217,625 14,399 8.85
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 3,451,097 105,164 4.07 3,412,344 111,169 4.36
- ------------------------------------------------------------------------------------------------------------------------------
Demand Deposits 810,292 813,816
Other Liabilities 49,791 49,157
Stockholders' Equity 393,647 292,228
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $4,704,827 $4,567,545
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AND SPREAD $116,705 2.99 % $115,979 3.00 %
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN ON EARNING ASSETS 3.71 % 3.76 %
</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.
28
<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 $172
thousand and $363 thousand for the nine months ended September 30, 1996 and
1995, respectively. Interest income that would have been earned under the
original terms of these loans was $1.1 million and $2.0 million, respectively,
which reduced the net interest margin by approximately three basis points in
1996 and approximately 5 basis points in 1995.
<TABLE>
<CAPTION>
INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS (1)
NINE MONTHS ENDED
(IN THOUSANDS) SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Interest Income at Original Terms:
Nonaccrual Loans:
Domestic Loans $ 706
Foreign Loans 215
Renegotiated Loans 138
- --------------------------------------------------------------------------------------------------------------
Total $1,059
Actual Interest Income Earned:
Nonaccrual Loans:
Domestic Loans $ 135
Foreign Loans 37
Renegotiated Loans -
- --------------------------------------------------------------------------------------------------------------
Total $ 172
</TABLE>
[FN]
(1) - For loans on nonaccrual and a renegotiated status at September 30, 1996,
the table shows total interest income at original terms and actual income
recognized for the nine months ended September 30, 1996.
NONINTEREST INCOME
Noninterest income for the third quarter of 1996 was $21.2 million, compared
with $25.7 million for the second quarter of 1996 and $18.3 million for the
third quarter of 1995. The $2.9 million increase in noninterest income from the
third quarter of 1995, compared with the current quarter, was due primarily due
to a $1.9 million legal settlement in the United Kingdom recorded as other
noninterest income and a $716 thousand increase in service charges and fees.
Noninterest income for the first nine months of 1996 increased $17.8 million
compared to the same period in 1995. This increase was largely the result of a
$7.0 million increase in securities gains, $5.1 million in interest on tax
receivables, a $2.8 million increase in trust income, and $2.3 million increase
in other noninterest income. The securities gains included $1.2 million
recognized in the second quarter as a the result of a recovery from a prior year
loss related to Orange County notes, which matured at par value in June 1996.
The loss was recognized in December 1994 when Orange County declared bankruptcy.
Securities gains also included $6.0 million from the sale of $732.5 million of
securities in the first quarter of 1996. Additionally, increases in trust income
for the current quarter and the first nine months of 1996 are the result of
increases in advisory income, as well as increases in aggregate trust assets
administered during the period.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST INCOME, CONTINUED
<TABLE>
<CAPTION>
NONINTEREST INCOME THREE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
--------------------- ---------------------- ------------------- ------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT 1996 1995 AMOUNT PERCENT
- ------------------------------------- ---------- --------- ---------- ------------ -- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service Charges $ 9,225 $ 8,509 $ 716 8.4 % $25,935 $25,616 $ 319 1.2 %
Trust Income 7,866 7,518 348 4.6 24,266 21,489 2,777 12.9
International Noncredit Commissions
and Fees 159 209 (50) (23.9) 945 598 347 58.0
Foreign Exchange Income 552 561 (9) (1.6) 1,649 1,692 (43) (2.5)
Interest on Tax Receivables - - - - 5,135 - 5,135 n/a
Other Noninterest Income 3,368 1,393 1,975 141.8 7,395 5,085 2,310 45.4
- ------------------------------------- ---------- --------- ---------- ------------ - ---------- ---------- ----------- -----------
Noninterest Income Excluding
Securities Gains, Net 21,170 18,190 2,980 16.4 65,325 54,480 10,485 19.9
Securities Gains, Net 4 155 (151) (97.4) 7,166 201 6,965 n/a
- ------------------------------------- ---------- --------- ---------- ------------ - ---------- ---------- ----------- -----------
Total Noninterest Income $21,174 $18,345 $ 2,829 15.4 % $72,491 $54,681 $17,810 32.6 %
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 1996 was $44.0 million, an increase
of $116 thousand when compared with the second quarter of 1996 ($43.9 million)
and a decrease of $9.9 million when compared with the third quarter of 1995. The
decrease from the third quarter of 1995 was largely attributable to savings of
$4.2 million in net occupancy expenses, $2.8 million in salaries and benefits,
$2.5 million in other real estate owned expense, net, and $782 thousand in other
noninterest expenses, partially offset by slight increases in data processing
services and furniture and equipment expenses.
Noninterest expense for the first nine months of 1996 decreased $17.0 million
compared with the same period in 1995. This decrease was largely attributable to
savings of $6.6 million in salaries and benefits, $ 4.4 million in net occupancy
expenses, $4.0 million in FDIC insurance expense and $2.1 million in other
noninterest expenses. On September 30, 1996, Congress passed legislation for the
recapitalization of the Savings Association Insurance Fund ("SAIF"). The bill
includes a number of bank-related provisions, the most important of which is the
one-time assessment to institutions with deposits insured by SAIF. As of
September 30, 1996, the Corporation does not have any SAIF insured depositors;
however, this legislation also introduces a new Financing Corporation ("FICO")
sharing formula between the Bank Insurance Fund ("BIF") and SAIF insured
institutions. This assessment is estimated to be 1.3 cents per one hundred
dollars on insured deposits of the Corporation, or approximately $400 thousand
annually, beginning in 1997 (see Note 8--"Regulatory Matters").
The relocation of employees to the new operations center located in Riverdale,
Maryland was complete in August 1996. The Corporation estimates the relocation
of personnel from leased locations to this new facility will result in
annualized savings of $7.0 million, beginning in the fourth quarter of 1996.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST EXPENSE, CONTINUED
<TABLE>
<CAPTION>
NONINTEREST EXPENSE THREE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
--------------------- ---------------------- ----------------------- -----------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT 1996 1995 AMOUNT PERCENT
- ------------------------------------- ---------- --------- ---------- ------------ - ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and Wages $15,299 $17,649 $(2,350) (13.3)% $ 45,066 $ 49,803 $ (4,737) (9.5)%
Pensions and Other Employee
Benefits 3,397 3,828 (431) (11.3) 10,454 12,348 (1,894) (15.3)
- ------------------------------------- ---------- --------- ---------- ------------ - ----------- ----------- ----------- -----------
Total Staff Expense 18,696 21,477 (2,781) (12.9) 55,520 62,151 (6,631) (10.7)
- ------------------------------------- ---------- --------- ---------- ------------ - ----------- ----------- ----------- -----------
Occupancy, Net 5,879 10,101 (4,222) (41.8) 16,918 21,307 (4,389) (20.6)
Data Processing Services 4,626 4,334 292 6.7 13,564 12,718 846 6.7
Furniture and Equipment 1,995 1,886 109 5.8 5,561 5,920 (359) (6.1)
Advertising and Public Relations 1,290 1,303 (13) (1.0) 3,967 3,964 3 .1
FDIC Insurance - 29 (29) (100.0) 4 4,012 (4,008) (99.9)
Other Real Estate Owned
(Income) Expense, Net (18) 2,503 (2,521) (100.7) 165 530 (365) (68.9)
Other Noninterest Expense 11,579 12,361 (782) (6.3) 35,283 37,413 (2,130) (5.7)
- ------------------------------------- ---------- --------- ---------- ------------ - ----------- ----------- ----------- -----------
Total Noninterest Expense $44,047 $53,994 $(9,947) (18.4)% $130,982 $148,015 $(17,033) (11.5)%
</TABLE>
TAXES
The Corporation's provision for income taxes includes Federal, state and foreign
income taxes. Income tax expense totaling $3.1 million was recognized for the
quarter ended September 30, 1996, compared with $64 thousand for the quarter
ended September 30, 1995. Income tax expense totaling $744 thousand was
recognized for the nine month period ending September 30, 1996 compared with the
$255 thousand income tax expense recognized for the same period in 1995. The
1996 and 1995 tax provisions were less than the statutory rate because of the
Corporation's ability to carryforward net operating losses.
31
<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.
RIGGS NATIONAL CORPORATION
Date: November 7, 1996 /s/ TIMOTHY C. COUGHLIN
--------------------------- --------------------------------
Timothy C. Coughlin
President
Date: November 7, 1996 /s/ JOHN L. DAVIS
--------------------------- --------------------------------
John L. Davis
Chief Financial Officer
(Principal Financial and
Accounting Officer)
32
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
DATED SEPTEMBER 30, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 172,626
<INT-BEARING-DEPOSITS> 178,508
<FED-FUNDS-SOLD> 475,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 973,051
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,599,773
<ALLOWANCE> 60,689
<TOTAL-ASSETS> 4,716,755
<DEPOSITS> 3,786,188
<SHORT-TERM> 280,701
<LIABILITIES-OTHER> 46,031
<LONG-TERM> 191,525
<COMMON> 78,160
0
4,000
<OTHER-SE> 330,150
<TOTAL-LIABILITIES-AND-EQUITY> 4,716,755
<INTEREST-LOAN> 150,757
<INTEREST-INVEST> 48,900
<INTEREST-OTHER> 19,464
<INTEREST-TOTAL> 219,121
<INTEREST-DEPOSIT> 82,248
<INTEREST-EXPENSE> 105,164
<INTEREST-INCOME-NET> 113,957
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 7,166
<EXPENSE-OTHER> 130,982
<INCOME-PRETAX> 55,466
<INCOME-PRE-EXTRAORDINARY> 55,466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,722
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
<YIELD-ACTUAL> 3.71
<LOANS-NON> 13,150
<LOANS-PAST> 4,664
<LOANS-TROUBLED> 296
<LOANS-PROBLEM> 1,267
<ALLOWANCE-OPEN> 56,546
<CHARGE-OFFS> 2,126
<RECOVERIES> 6,153
<ALLOWANCE-CLOSE> 60,689
<ALLOWANCE-DOMESTIC> 47,760
<ALLOWANCE-FOREIGN> 12,929
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
