<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 JUNE 30, 1998
[ ] 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 30,643,547 SHARES
----------------------------- -------------------------------
(Title of Class) (Outstanding at August 4, 1998)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three and six months ended June 30, 1998 and 1997 3
Consolidated Statements of Condition
June 30, 1998 and 1997, and December 31, 1997 4
Consolidated Statements of Changes in Stockholders' Equity
Six months ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 6
Notes to the Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16-17
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 18-19
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30,
-----------------------------------------------------------
1998 1997 1998 1997
==================================================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 57,136 $ 51,148 $112,396 $101,352
Interest on Securities Available for Sale 17,926 22,102 38,811 40,162
Interest on Money Market Assets:
Time Deposits with Other Banks 8,648 2,094 14,616 4,112
Federal Funds Sold and Reverse Repurchase Agreements 3,358 7,776 8,177 14,563
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Money Market Assets 12,006 9,870 22,793 18,675
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 87,068 83,120 174,000 160,189
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 1,361 1,625 2,735 3,344
Money Market Deposit Accounts 10,179 12,887 22,090 25,145
Time Deposits in Domestic Offices 10,213 8,662 19,211 17,539
Time Deposits in Foreign Offices 8,479 6,608 15,982 12,133
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 30,232 29,782 60,018 58,161
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 4,845 3,122 9,721 5,817
U.S. Treasury Demand Notes and Other Short-Term Borrowings 261 255 478 465
Long-Term Debt 4,368 4,368 8,736 8,736
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 9,474 7,745 18,935 15,018
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 39,706 37,527 78,953 73,179
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 47,362 45,593 95,047 87,010
Less: Provision for Loan Losses - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 47,362 45,593 95,047 87,010
NONINTEREST INCOME
Trust and Investment Advisory Income 11,904 8,788 23,024 17,434
Service Charges and Fees 9,663 9,329 18,757 18,017
Other Noninterest Income 2,203 2,815 4,802 5,120
Securities Gains, Net 1,457 157 6,781 159
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 25,227 21,089 53,364 40,730
NONINTEREST EXPENSE
Salaries and Employee Benefits 21,076 18,673 41,715 37,450
Occupancy, Net 4,361 5,002 8,878 9,418
Data Processing Services 3,891 4,710 9,157 9,338
Furniture and Equipment 2,462 2,328 5,024 4,489
Other Real Estate Owned Expense (Income), Net 13 107 (38) (40)
Other Noninterest Expense 15,267 14,840 29,742 28,817
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 47,070 45,660 94,478 89,472
- ----------------------------------------------------------------------------------------------------------------------------------
Income before Taxes and Minority Interest 25,519 21,022 53,933 38,268
Applicable Income Tax Expense 5,987 5,454 13,779 9,523
Minority Interest in Income of Subsidiaries, Net of Taxes 4,986 4,932 9,973 7,643
==================================================================================================================================
NET INCOME 14,546 10,636 30,181 21,102
Dividends on Preferred Stock (2,687) (2,687) (5,375) (5,375)
==================================================================================================================================
Net Income Available for Common Stock $ 11,859 $ 7,949 $ 24,806 $ 15,727
EARNINGS PER COMMON SHARE-Basic $ .39 $ .26 $ .81 $ .52
Diluted $ .37 .25 .78 .50
DIVIDENDS DECLARED AND PAID PER COMMON SHARE $ .05 $ .05 $ .10 $ .10
</TABLE>
-3-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED) JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1998 1997 1997
===================================================================================================================================
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 151,348 $ 168,989 $ 186,091
Money Market Assets:
Time Deposits with Other Banks 745,385 182,797 241,813
Federal Funds Sold and Reverse Repurchase Agreements 265,000 620,000 549,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Money Market Assets 1,010,385 802,797 790,813
Securities Available for Sale (at Market Value) 1,163,627 1,439,878 1,672,550
Loans 3,149,932 2,650,965 2,884,373
Reserve for Loan Losses (52,235) (63,856) (52,381)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Loans 3,097,697 2,587,109 2,831,992
Premises and Equipment, Net 183,878 166,358 165,377
Accrued Interest Receivable 39,239 37,631 38,209
Other Real Estate Owned, Net 2,569 23,504 5,076
Other Assets 143,520 139,744 156,318
==================================================================================================================================
Total $5,792,263 $5,366,010 $5,846,426
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 943,011 $ 912,304 $ 982,865
Interest-Bearing Deposits:
Savings and NOW Accounts 339,385 391,193 436,337
Money Market Deposit Accounts 1,331,041 1,471,785 1,492,842
Time Deposits in Domestic Offices 1,050,904 809,258 867,772
Time Deposits in Foreign Offices 599,340 478,123 518,102
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,320,670 3,150,359 3,315,053
- ---------------------------------------------------------------------------------------------------------------------------------
Total Deposits 4,263,681 4,062,663 4,297,918
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 423,678 253,520 327,579
U.S. Treasury Demand Notes and Other Short-Term Borrowings 27,014 26,522 24,929
- ---------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Borrowings 450,692 280,042 352,508
Other Liabilities 49,916 46,136 191,293
Long-Term Debt 191,525 191,525 191,525
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,955,814 4,580,366 5,033,244
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES 350,000 350,000 350,000
- ---------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock-$1.00 Par Value
Shares Authorized - 25,000,000 at June 30, 1998 and 1997, and
December 31, 1997; Liquidation Preference - $25 per share
Shares Issued - Noncumulative Perpetual Series B - 4,000,000 shares
at June 30, 1998 and 1997, and December 31, 1997 4,000 4,000 4,000
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at June 30, 1998 and 1997, and
December 31, 1997
Shares Issued - 31,523,544 at June 30, 1998, 31,316,811 at
June 30, 1997 and 31,461,786 at December 31, 1997 78,809 78,292 78,654
Surplus - Preferred Stock 91,192 91,192 91,192
Surplus - Common Stock 159,956 157,382 159,160
Undivided Profits 174,481 131,372 152,732
Accumulated Other Comprehensive Income (Loss) 1,734 (2,871) 1,167
Treasury Stock - 900,798 shares at June 30, 1998 and 1997, and
December 31, 1997 (23,723) (23,723) (23,723)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 486,449 435,644 463,182
===================================================================================================================================
Total $5,792,263 $5,366,010 $5,846,426
</TABLE>
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<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED COMMON ACCUMULATED
STOCK STOCK OTHER TOTAL
$1.00 $2.50 UNDIVIDED COMPREHENSIVE TREASURY STOCKHOLDERS'
PAR PAR SURPLUS PROFITS INCOME (LOSS) STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 4,000 $ 78,183 $248,252 $118,682 $ 382 $(23,723) $425,776
Comprehensive Income:
Net Income 21,102 $ 21,102
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Loss on Securities
Available for Sale, Net of
Reclassification Adjustments (1,909) (1,909)
Foreign Exchange
Translation Adjustments (1,344) (1,344)
-----------------
Total Other Comprehensive
Income (Loss) (3,253)
=================
Total Comprehensive Income $ 17,849
Issuance of Common Stock for
Stock Option Plans, 43,467 Shares 109 322 431
Cash Dividends -
Series B Preferred Stock,
$1.34375 per Share (5,375) (5,375)
Common Stock, $.10 per Share (3,037) (3,037)
===================================================================================================================================
Balance, June 30, 1997 $ 4,000 $ 78,292 $248,574 $131,372 $ (2,871) $(23,723) $435,644
Balance, December 31, 1997 $ 4,000 $ 78,654 $250,352 $152,732 $ 1,167 $(23,723) $463,182
Comprehensive Income:
Net Income 30,181 $ 30,181
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain on Securities
Available for Sale, Net of
Reclassification Adjustments 581 581
Foreign Exchange
Translation Adjustments (14) (14)
-----------------
Total Other Comprehensive
Income (Loss) 567
=================
Total Comprehensive Income $ 30,748
Issuance of Common Stock for
Stock Option Plans, 61,758 Shares 155 796 951
Cash Dividends -
Series B Preferred Stock,
$1.34375 per Share (5,375) (5,375)
Common Stock, $.10 per Share (3,057) (3,057)
===================================================================================================================================
Balance, June 30, 1998 $ 4,000 $ 78,809 $251,148 $174,481 $ 1,734 $(23,723) $486,449
</TABLE>
[FN]
(1) - See Note 3, "New Financial Accounting Standards," for gross unrealized
gains or losses arising during each period and the tax effect on each
item of comprehensive income.
</FN>
-5-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS) SIX MONTHS ENDED
JUNE 30,
-----------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1998 1997
=============================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 30,181 $ 21,102
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses - -
Provision for Other Real Estate Owned Writedowns 500 282
Depreciation Expense and Amortization of Leasehold Improvements 5,684 5,751
Gains on Sale of Securities Available for Sale (6,781) (159)
Gains on Sale of Other Real Estate Owned (434) (199)
Increase in Accrued Interest Receivable (1,030) (7,589)
Decrease in Other Assets 12,485 4,042
Decrease in Other Liabilities (141,377) (15,746)
- -----------------------------------------------------------------------------------------------------------------------------
Total Adjustments (130,953) (13,618)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Operating Activities (100,772) 7,484
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease In Time Deposits with Other Banks (503,572) 98,329
Principal Collections and Maturities of Securities Available for Sale 2,567,232 3,299,265
Proceeds from Sales of Securities Available for Sale 937,074 99,898
Purchases of Securities Available for Sale (2,987,708) (3,679,332)
Net Increase in Loans (265,858) (13,431)
Proceeds from Sale and Other Payments of Other Real Estate Owned 2,442 4,600
Net Increase in Premises and Equipment (24,185) (6,035)
Other, Net 152 (396)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (274,423) (197,102)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in:
Demand, NOW, Savings and Money Market Deposit Accounts (298,607) (78,667)
Time Deposits 264,370 90,647
Federal Funds Purchased and Repurchase Agreements 96,099 16,354
U.S. Treasury Demand Notes and Other Short-Term Borrowings 2,085 8,454
Proceeds from the Issuance of Common Stock 951 431
Proceeds from Preferred Stock of Subsidiaries - 200,000
Dividend Payments - Preferred (5,375) (5,375)
- Common (3,057) (3,037)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 56,466 228,807
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (14) (1,344)
- -----------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (318,743) 37,845
Cash and Cash Equivalents at Beginning of Period 735,091 751,144
=============================================================================================================================
Cash and Cash Equivalents at End of Period $ 416,348 $ 788,989
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ - $ 82
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 77,249 $ 72,517
Income Tax Payments 8,067 3,790
</TABLE>
-6-
<PAGE>
RIGGS NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
contain all normal recurring adjustments necessary for a fair presentation of
the interim period results, in conformity with generally accepted accounting
principles applied on a consistent basis and which require the use of management
estimates. These statements should be read in conjunction with the financial
statements and accompanying notes included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997. Certain reclassifications have
been made to prior-period amounts to conform with the current year's
presentation. The results of operations for the first six months of 1998 are not
necessarily indicative of the results to be expected for the full 1998 year.
NOTE 2. EARNINGS PER COMMON SHARE
In March 1997, Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" was issued and supersedes Accounting Principles Board
Opinion ("APB") No. 15. Basic earnings per share is calculated by dividing net
income, after deduction for preferred stock dividends, by the weighted-average
number of shares of common stock. Diluted earnings per share is calculated by
dividing net income, after deduction for preferred stock dividends, by the
weighted-average number of shares of common stock and common stock equivalents,
unless determined to be anti-dilutive.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------------------------- ----------------------------------
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Income $30,181 $30,181 $21,102 $21,102
Dividends on Preferred Stock (5,375) (5,375) (5,375) (5,375)
----------------- ---------------- ----------------- ----------------
Income Available to Common Shareholders $24,806 $24,806 $15,727 $15,727
Weighted-Average Shares Outstanding 30,581,020 30,581,020 30,376,884 30,376,884
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 1,111,997 n/a 1,080,191
----------------- ---------------- ----------------- ----------------
Adjusted Weighted-Average Shares Outstanding 30,581,020 31,693,017 30,376,884 31,457,075
BASIC EPS $ .81 $ .52
DILUTED EPS $ .78 $ .50
</TABLE>
NOTE 3. NEW FINANCIAL ACCOUNTING STANDARDS
In June 1997, SFAS Nos. 130 and 131 were issued--"Reporting Comprehensive
Income" and "Disclosures about Segments of an Enterprise and Related
Information," respectively. SFAS No. 130 requires that certain financial
activity typically disclosed in stockholders' equity be reported in the
financial statements as an adjustment to net income in determining comprehensive
income. Items applicable to the Corporation include activity in foreign exchange
translation adjustments and gain/loss on securities available for sale. Items
identified as comprehensive income are reported in the statement of condition
and the statement of changes in stockholders' equity, under separate captions.
The table on the following page specifies the tax (provision)/benefit related to
each component of comprehensive income along with the unrealized gains/(losses)
arising during the period. SFAS No. 130 was effective for the Corporation on
January 1, 1998, including the restatement of prior periods reported consistent
with this pronouncement. The Corporation did not experience any material effect
on its financial position or results of operations from the implementation of
SFAS No. 130.
-7-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. NEW FINANCIAL ACCOUNTING STANDARDS, CONTINUED
OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
BEFORE-TAX TAX
AMOUNT (EXPENSE)/ NET-OF-TAX
BENEFIT AMOUNT
================================================================================ ============== ============= =============
SIX MONTHS ENDED JUNE 30, 1998:
<S> <C> <C> <C>
Foreign Currency Translation Adjustments $ (22) $ 8 $ (14)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 7,675 (2,686) 4,989
Reclassification Adjustment for (Gains) Losses Realized in Net Income (6,781) 2,373 (4,408)
- --------------------------------------------------------------------------------- ------------- ------------- -------------
Net Unrealized Gains (Losses) 894 (313) 581
================================================================================= ============= ============= =============
Other Comprehensive Income (Loss) $ 872 $ (305) $ 567
SIX MONTHS ENDED JUNE 30, 1997:
Foreign Currency Translation Adjustments $(2,068) $ 724 $ (1,344)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period (2,778) 972 (1,806)
Reclassification Adjustment for (Gains) Losses Realized in Net Income (159) 56 (103)
- --------------------------------------------------------------------------------- ------------- ------------- -------------
Net Unrealized Gains (Losses) (2,937) 1,028 (1,909)
================================================================================= ============= ============= =============
Other Comprehensive Income (Loss) $(5,005) $ 1,752 $ (3,253)
</TABLE>
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN/(LOSS) OTHER
TRANSLATION ON COMPREHENSIVE
ADJUSTMENTS SECURITIES INCOME (LOSS)
======================================================================== ================ ============== ==================
SIX MONTHS ENDED JUNE 30, 1998:
<S> <C> <C> <C>
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
Current-Period Change (14) 581 567
======================================================================== ================ ============== ==================
Balance, June 30, 1998 $ (886) $ 2,620 $ 1,734
SIX MONTHS ENDED JUNE 30, 1997:
Balance, December 31, 1996 $ 1,111 $ (729) $ 382
Current-Period Change (1,344) (1,909) (3,253)
======================================================================= ================ =============== =================
Balance, June 30, 1997 $ (233) $(2,638) $(2,871)
</TABLE>
SFAS No. 131 requires the reporting of selected segmented information in
quarterly and annual reports. Information from operating segments is derived
from methods used by the Corporation's management to allocate resources and
measure performance. The Corporation is required to disclose profit/loss,
revenues and assets for each segment identified, including reconciliations of
these items to consolidated totals. The Corporation is also required to disclose
the basis for identifying the segments and the types of products and services
within each segment. SFAS No. 131 is effective for the Corporation for the year
ended December 31, 1998, and quarterly beginning in 1999, including the
restatement of prior periods reported consistent with this pronouncement, if
practical. The Corporation does not anticipate any material impact from the
implementation of SFAS No. 131.
-8-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. NEW FINANCIAL ACCOUNTING STANDARDS, CONTINUED
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits-an amendment of FASB Statements No. 87, 88,
and 106" was issued. SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits and requires
additional information on changes in the benefit obligations and fair
values of plan assets in the Corporation's 1998 year-end financial
statements. SFAS No. 132 also eliminates certain disclosures which were
required by SFAS Nos. 87, "Employers' Accounting for Pensions," No. 88,
"Employers' Accounting for Settlement and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." SFAS No. 132
was effective for the Corporation on January 1, 1998. The Corporation did
not experience any material impact from the implementation of SFAS No. 132.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. SFAS No. 133 will require the Corporation to record
derivative instruments, such as interest-rate swap agreements on the
Consolidated Statement of Condition as assets or liabilities, measured at fair
value. Currently the Corporation treats such instruments as off-balance-sheet
items. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the specific use of each derivative
instrument and whether it qualifies for hedge accounting treatment as stated in
the standard. SFAS No. 133 will be effective for the Corporation on January 1,
2000. The impact to the Corporation's financial position of implementing SFAS
No. 133 has yet to be determined.
-9-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the second quarter of 1998 was $14.5 million compared with the
prior year's second quarter net income of $10.6 million, an increase of $3.9
million. Earnings per diluted share increased by $.12 to $.37 from $.25 for the
same period. Second quarter results in 1998 were favorably impacted by $1.5
million of nonrecurring securities gains.
For the first half of 1998, the Corporation had net income of $30.2 million, or
$.78 per diluted share, compared with net income of $21.1 million, or $.50 per
diluted share, for the first half of 1997. The increase was due to $8.0 million
of increased net interest income in the first half of 1998 from increased loan
volume, a $5.6 million increase in trust and investment advisory income, and
$6.8 million of nonrecurring securities gains realized in 1998. These increases
were partially offset by $5.0 million of increased noninterest expense and a
$4.3 million increase in income tax expense.
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 $48.1 million in
the second quarter of 1998, increasing $1.5 million from the second quarter of
1997. Net interest income on a tax-equivalent basis was $96.6 million for the
first half of 1998, compared with $88.9 million for the same period in 1997. The
increases from the prior year's quarter and the year-to-date period were
primarily the result of favorable increases in average earning assets over
increases in average interest-bearing funds between the periods. The increase in
average loans outstanding for the second quarter of 1998 versus the same period
in 1997 was the primary factor for the increase in average earning assets in the
second quarter of 1998 over the prior year's second quarter. The increase in
average earning assets over increases in average interest-bearing funds between
the six months ended June 30, 1998 and 1997 was enhanced by the $200 million in
proceeds received from Trust Preferred Securities issued and sold in March 1997.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 VS 1997 JUNE 30, 1998 VS 1997
---------------------------------- ----------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
=====================================================================================================================
Interest Income:
<S> <C> <C> <C> <C> <C> <C>
Loans, Including Fees $(1,347) $ 7,313 $ 5,966 $ (661) $11,677 $11,016
Securities Available for Sale (286) (4,169) (4,455) 591 (2,235) (1,644)
Time Deposits with Other Banks 258 6,296 6,554 453 10,051 10,504
Federal Funds Sold and Reverse
Repurchase Agreements 14 (4,432) (4,418) 296 (6,682) (6,386)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Income (1,361) 5,008 3,647 679 12,811 13,490
Interest Expense:
Interest-Bearing Deposits 551 (101) 450 1,385 472 1,857
Federal Funds Purchased and
Repurchase Agreements (119) 1,842 1,723 (44) 3,948 3,904
U.S. Treasury Demand Notes and Other
Short-Term Borrowings 3 3 6 9 4 13
Long-Term Debt - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Expense 435 1,744 2,179 1,350 4,424 5,774
=====================================================================================================================
Net Interest Income $(1,796) $ 3,264 $ 1,468 $ (671) $ 8,387 $ 7,716
</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.
</FN>
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------------------------- -----------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
==============================================================================================================================
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans, Including Fees (2) $2,972,175 $57,397 7.75 % $2,595,627 $51,431 7.95 %
Securities Available for Sale (3) 1,208,352 18,412 6.11 1,480,941 22,867 6.19
Time Deposits with Other Banks 621,730 8,648 5.58 167,154 2,094 5.02
Federal Funds Sold and Reverse Repurchase Agreements 240,512 3,358 5.60 557,822 7,776 5.59
- ------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 5,042,769 87,815 6.98 4,801,544 84,168 7.03
Reserve for Loan Losses (52,295) (63,675)
Cash and Due from Banks 148,046 158,559
Other Assets 354,789 362,296
==============================================================================================================================
Total Assets $5,493,309 $5,258,724
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits $3,151,605 $30,232 3.85 % $3,162,643 $29,782 3.78 %
Federal Funds Purchased and Repurchase Agreements 396,418 4,845 4.90 246,040 3,122 5.09
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 20,054 261 5.22 19,826 255 5.16
Long-Term Debt 191,525 4,368 9.15 191,525 4,368 9.15
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 3,759,602 39,706 4.24 3,620,034 37,527 4.16
Demand Deposits 835,962 807,381
Other Liabilities 71,328 55,339
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Stockholders' Equity 476,417 425,970
===============================================================================================================================
Total Liabilities, Minority Interest and
Stockholders' Equity $5,493,309 $5,258,724
===============================================================================================================================
NET INTEREST INCOME AND SPREAD $48,109 2.74 % $46,641 2.87 %
===============================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.83 % 3.90 %
</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.
</FN>
NONINTEREST INCOME
Noninterest income for the second quarter of 1998 totaled $25.2 million, a 19%
increase of $4.1 million from $21.1 for the same period a year earlier.
Excluding the $1.5 million of securities gains, noninterest income during the
second quarter of 1998 was $23.7 million, up $2.8 million or 14% from a year
ago, due primarily to continued growth in income related to trust and investment
advisory services.
Noninterest income for the first six months of 1998 totaled $53.4 million, a 31%
increase of $12.7 million above $40.7 million for the same period a year
earlier. Excluding $6.8 million of nonrecurring securities gains, noninterest
income for the six months ended June 30, 1998 was $46.6 million, up $6.0 million
or 15% from a year ago, due primarily to the aforementioned growth in income
from trust and investment advisory services.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------------------------- -----------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
==============================================================================================================================
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans, Including Fees (2) $2,904,744 $112,921 7.84 % $2,602,923 $101,905 7.89 %
Securities Available for Sale (3) 1,301,705 39,874 6.18 1,375,174 41,518 6.09
Time Deposits with Other Banks 541,023 14,616 5.45 167,455 4,112 4.95
Federal Funds Sold and Reverse Repurchase Agreements 294,819 8,177 5.59 536,306 14,563 5.48
- -------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 5,042,291 175,588 7.02 4,681,858 162,098 6.98
Reserve for Loan Losses (52,370) (63,679)
Cash and Due from Banks 151,817 161,242
Other Assets 355,066 361,692
===============================================================================================================================
Total Assets $5,496,804 $5,141,113
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits $3,163,472 $ 60,018 3.83 % $3,138,935 $ 58,161 3.74 %
Federal Funds Purchased and Repurchase Agreements 391,117 9,721 5.01 232,289 5,817 5.05
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 18,506 478 5.21 18,357 465 5.11
Long-Term Debt 191,525 8,736 9.20 191,525 8,736 9.20
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 3,764,620 78,953 4.23 3,581,106 73,179 4.12
Demand Deposits 843,254 809,355
Other Liabilities 67,362 52,768
Minority Interest in Preferred Stock of Subsidiaries 350,000 272,652
Stockholders' Equity 471,568 425,232
===============================================================================================================================
Total Liabilities, Minority Interest and
Stockholders' Equity $5,496,804 $5,141,113
===============================================================================================================================
NET INTEREST INCOME AND SPREAD $ 96,635 2.79 % $ 88,919 2.86 %
===============================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.86 % 3.83 %
</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.
</FN>
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1998 was $47.1 million, up 3% from
the $45.7 million reported in the second quarter of 1997. The increase was due
primarily to an increase in performance-based compensation expense. Noninterest
expense for the six months ended June 30, 1998 was $94.5 million compared to
$89.5 million reported in the first six months of 1997, a $5.0 million increase
due primarily to additional salary and performance-based compensation expense
and costs associated with improvements in the Corporation's information
technologies.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
FINANCIAL CONDITION
SECURITIES
Securities available for sale totaled $1.16 billion at June 30, 1998, compared
to $1.67 billion at year-end 1997, and $1.44 billion at June 30, 1997. The
activity for the first six months included purchases of securities available for
sale totaling $2.99 billion, which were more than offset by maturities and sales
of securities available for sale totaling $2.57 billion and $937.1 million,
respectively. The weighted-average maturities and yields for the portfolio,
adjusted for anticipated prepayments, were approximately 2.1 years and 5.86%,
respectively, at June 30, 1998.
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997 DECEMBER 31, 1997
-------------------------------- ------------------------------ --------------------------------
AMORTIZED MARKET/ AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE COST BOOK VALUE
================================================================================================================================
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 403,306 $ 404,736 $ 685,010 $ 681,779 $ 504,990 $ 506,721
Government Agencies Securities 705,483 705,454 724,408 723,590 966,277 966,456
Mortgage-Backed Securities 7,514 7,566 1,891 1,882 156,997 157,026
Other Securities 43,294 45,871 32,627 32,627 41,150 42,347
=============================================================== ============================== =================================
Total $1,159,597 $1,163,627 $1,443,936 $1,439,878 $1,669,414 $1,672,550
</TABLE>
LOANS
At June 30, 1998, total loans outstanding amounted to $3.15 billion, increasing
$265.6 million from the December 31, 1997 total of $2.88 billion. The increase
in loans from December 31, 1997, was primarily attributed to increases in
commercial and financial loans of $63.1 million, residential mortgage loans of
$160.2 million, and foreign loans of $47.3 million, partially offset by a
decrease of $11.8 million in consumer loans. The increase in residential
mortgage loans was due primarily to the purchase of $202.8 million of mortgage
loans, partially offset by principal repayments.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1998 1997 1997
================================================================================================================
<S> <C> <C> <C>
Commercial and Financial $ 593,024 $ 423,249 $ 529,894
Real Estate - Commercial/Construction 412,141 353,102 410,011
Residential Mortgage 1,316,741 1,200,297 1,156,493
Home Equity 324,973 301,552 317,669
Consumer 67,114 74,611 78,932
Foreign 436,941 295,800 389,632
- ----------------------------------------------------------------------------------------------------------------
Loans 3,150,934 2,648,611 2,882,631
(Unearned Discount/Net Deferred Fees)
Unamortized Premium (1,002) 2,354 1,742
================================================================================================================
Total Loans $3,149,932 $2,650,965 $2,884,373
</TABLE>
-13-
<PAGE>
ITEM 2. 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 $15.1 million at June 30,
1998, a $6.1 million (68%) increase from the year-end 1997 total of $9.0 million
and a $14.9 million (50%) decrease from the June 30, 1997 total. The increase
from year-end 1997 was primarily due to additions of $10.3 million, partially
offset by paydowns and sales of $3.5 million and charge-offs of $583 thousand.
The increase in nonaccrual loans from year-end was due to the addition of a
commercial real estate loan for $9.8 million, along with other additions of $455
thousand, partially offset by paydowns of $1.5 million. The decrease in other
real estate owned, net of reserves, during the first six months of 1998 was the
result of paydowns and sales of $2.0 million and charge-offs of $500 thousand.
PAST-DUE LOANS
Past-due loans consist of residential real estate loans, consumer loans and
foreign overdrafts that are in the process of collection and are accruing
interest. Past-due loans increased $11.9 million during the first six months of
1998 to $19.2 million, and increased $12.8 million from June 30, 1997. These
increases were mainly due to foreign overdrafts totaling $9.8 million, $8.8
million of which became current in July.
NONPERFORMING ASSETS AND PAST-DUE LOANS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1998 1997 1997
=================================================================================== ================ =================
NONPERFORMING ASSETS:
<S> <C> <C> <C>
Nonaccrual Loans (1) $12,477 $ 6,388 $ 3,793
Renegotiated Loans (2) 90 115 101
Other Real Estate Owned, Net 2,569 23,504 5,076
=================================================================================== ================ =================
Total Nonperforming Assets $15,136 $30,007 $ 8,970
PAST-DUE LOANS (3) $19,166 $ 6,355 $ 7,279
</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. Renegotiated loans do not include $9.6 million
in loans renegotiated at market terms that have performed in accordance
with their respective renegotiated terms.
(3) - Loans contractually past due 90 days or more in principal or interest that
are well-secured and in the process of collection.
</FN>
DEPOSITS
Deposits are the primary and most stable source of funds for the Corporation.
Deposits totaled $4.26 billion at June 30, 1998, decreasing $34.2 million from
the December 31, 1997 deposit total. The decrease from the year-end balance was
due to decreases in money market deposit accounts of $161.8 million, savings and
NOW accounts of $97.0 million, and demand deposit accounts of $39.9 million,
mostly offset by increases in domestic and foreign time deposits of $264.4
million in the aggregate.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings increased by $98.2 million, or 28%, from the year-end 1997
balance. Short-term borrowings are an additional source of funds that the
Corporation has utilized to meet certain asset/liability and daily cash
management objectives. The increase in short-term borrowings from year-end was
primarily due to increases in repurchase agreements, which are a funding vehicle
for the Corporation. Short-term borrowings are used to help the Corporation
generate cash and maintain adequate levels of liquidity.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1998 1997 1997
============================================================ ============= ==== =============== === ================
<S> <C> <C> <C>
Federal Funds Purchased and Repurchase Agreements $423,678 $253,520 $327,579
U.S. Treasury Demand Notes and Other Borrowed Funds 27,014 26,522 24,929
- ------------------------------------------------------------ ------------- ---- --------------- --- ----------------
Total Short-Term Borrowings 450,692 280,042 352,508
Subordinated Debentures due 2009 66,525 66,525 66,525
Subordinated Notes due 2006 125,000 125,000 125,000
- ------------------------------------------------------------ ------------- ---- --------------- --- ----------------
Total Long-Term Debt 191,525 191,525 191,525
============================================================ ============= ==== =============== === ================
Total Short-Term Borrowings and Long-Term Debt $642,217 $471,567 $544,033
</TABLE>
LIQUIDITY
The Corporation seeks to maintain sufficient liquidity to meet the needs of
depositors, borrowers and creditors at a reasonable cost and without undue
stress on the operations of the Corporation and its banking subsidiaries. The
Corporation's Asset/Liability Committee actively analyzes and manages liquidity
in coordination with other areas of the organization (see "Sensitivity to Market
Risk"). At June 30, 1998, the Corporation's liquid assets, on a consolidated
basis, which include cash and due from banks, U.S. Treasury securities,
Government obligations and other securities, federal funds sold, reverse
repurchase agreements and time deposits at other banks, totaled $2.33 billion
(40% of total assets). This compares with $2.65 billion (45%) at December 31,
1997, and $2.41 billion (45%) at June 30, 1997. This consistent liquidity
position is maintained by a stable source of funds from the Corporation's core
deposit relationships. 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.
STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Total stockholders' equity at June 30, 1998 was $486.4 million, an increase of
$23.3 million from the year-end 1997 total and up $50.8 million from June 30,
1997. The increase from year-end 1997 was the result of net earnings of $30.2
million, partially offset by dividends on preferred and common stock of $8.4
million in the aggregate. Book value per common share was $12.78 as of June 30,
1998 compared to $12.04 at year-end 1997 and $11.19 at June 30, 1997. Below are
the capital ratios of the Corporation and its banking subsidiary, Riggs Bank
National Association (Riggs Bank N.A.) at June 30, 1998 and 1997, and December
31, 1997.
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, REQUIRED
1998 1997 1997 MINIMUMS
==================================================================================================================
RIGGS NATIONAL CORPORATION:
<S> <C> <C> <C> <C>
Tier I 17.82% 19.82% 18.45% 4.00%
Combined Tier I and Tier II 29.73 34.75 31.52 8.00
Leverage 11.60 10.96 11.15 4.00
RIGGS BANK N.A.:
Tier I 12.50 15.08 14.35 4.00
Combined Tier I and Tier II 13.76 16.34 15.60 8.00
Leverage 8.78 8.30 8.64 4.00
</TABLE>
-15-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SENSITIVITY TO MARKET RISK
The Corporation is exposed to various market risks. It has determined that
interest-rate risk has a material impact on the Corporation's financial
performance, and as such has established the Asset/Liability Committee ("ALCO")
to manage interest-rate risk. The role of this committee is to prudently manage
the asset/liability mix of the Corporation to provide a stable net interest
margin while maintaining liquidity and capital. This entails the management of
the overall risk of the Corporation in conjunction with the acquisition and
deployment of funds based upon the Committee's view of both current and
prospective market and economic conditions.
The Corporation manages its interest-rate risk through the use of an income
simulation model, which forecasts the impact on net interest income of a variety
of different interest rate scenarios. A "most likely" interest rate scenario is
forecasted based upon an analysis of current market conditions and expectations.
The model then evaluates the impact on net interest income of rates moving
significantly higher or lower than the "most likely" scenario. The results are
compared to risk tolerance limits set by corporate policy. The model's results
as of June 30, 1998 are shown in the table below. Current policy establishes
limits for possible changes in net interest income for 12 and 36 month horizons.
The interest rate scenarios monitored by ALCO are based upon a 100 basis point
(1%) gradual increase or decrease in rates (versus the "most likely" scenario)
over a 12-month time period and a 300 basis point (3%) gradual increase or
decrease in rates (versus the "most likely" scenario) over a 36-month time
period.
At June 30, 1998, the forecasted impact of rates rising or falling 100 basis
points versus the "most likely" scenario over a 12-month time period was a
change in net interest income not exceeding 2%. For a 300 basis point movement
in rates versus the "most likely" scenario over a 36-month period, the impact on
net interest income did not exceed 5%. The results of the simulation for June
30, 1998 indicated that the Corporation maintained an asset sensitive position,
and was well insulated against interest rates moving significantly in either
direction.
In managing the Corporation's interest-rate risk, ALCO uses financial derivative
instruments, such as interest-rate swaps, caps, floors, collars, futures, and
options. Financial derivatives are employed to assist in the management and/or
reduction of the interest-rate risk of the Corporation, and can effectively
alter the sensitivity of segments of the statement of condition for specified
periods of time. All of these instruments are considered off-balance-sheet, as
they do not materially affect the level of assets or liabilities of the
Corporation. Along with the financial derivative instruments mentioned above,
the income simulation model includes short-term financial instruments,
investment securities, loans, deposits, and other borrowings. Interest-rate risk
management strategies are discussed and approved by ALCO prior to
implementation.
INTEREST-RATE SENSITIVITY ANALYSIS (1)
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM JUNE 30, 1998
==========================================================================================================================
SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- --------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) +100BP -100BP +300BP -300BP
- --------------------------------------------------------------------------------------------------------------------------
Simulated Impact Compared With a
"Most Likely" Scenario:
<S> <C> <C> <C> <C>
Net Interest Income Increase/(Decrease) 1.3 % (0.4)% 4.3 % 0.5 %
Net Interest Income Increase/(Decrease) $ 2,425 $ (763) $ 24,835 $ 2,799
</TABLE>
[FN]
(1)-Key Assumptions:
Assumptions with respect to the model's projections of the effect of changes
in interest rates on Net Interest Income include:
1. Target balances for various asset and liability classes, which are
solicited from the management of the various units of the Corporation.
2. Interest rate scenarios which are generated by ALCO for the "most likely"
scenario and are dictated by policy for the alternative scenarios.
3. Spread relationships between various interest rate indices, which are
generated by the analysis of historical relationships and ALCO consensus.
4. Assumptions about the effect of embedded options and prepayment speeds:
instruments that are callable are assumed to be called at the first
opportunity if an interest rate scenario makes it advantageous for the
owner of the call to do so. Prepayment assumptions for mortgage products
are derived from accepted industry sources.
5. Reinvestment rates for funds replacing assets or liabilities that are
assumed (through early withdrawal, prepayment,calls, etc.) to run off the
balance sheet, which are generated by the spread relationships.
6. Maturity strategies with respect to assets and liabilities, which are
solicited from the management of the various units of the Corporation.
</FN>
-16-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
SENSITIVITY TO MARKET RISK, CONTINUED
Management finds that the methodologies discussed on the previous page provide a
meaningful representation of the Corporation's interest-rate and market risk
sensitivity, though factors other than changes in the interest rate environment,
such as levels of non-earning assets, and changes in the composition of earning
assets, may affect net interest income. Management believes its current
interest-rate sensitivity level is appropriate, considering the Corporation's
economic outlook and conservative approach taken in the review and monitoring of
the Corporation's sensitivity position. No material changes have taken place
since December 31, 1997.
COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at June 30, 1998 and 1997, and December 31,
1997 are detailed in the table below. At December 31, 1997, the Corporation's
financial derivative instruments included a $200 million (notional principal
balance) interest-rate swap agreement, entered into in July 1993, to hedge money
market assets against the possibility of declining interest rates that entailed
the receipt of a fixed rate and payment of a floating rate. This swap agreement,
which was due to mature in July 1998, was terminated by the Corporation in March
1998 with an aggregate net interest expense of $368 thousand recognized in 1998.
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL VALUE
----------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1997
=========================================================================================================
<S> <C> <C> <C>
Commitments to Extend Credit $1,152,470 $792,252 $873,794
Letters of Credit 142,776 123,156 132,770
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $ 88,117 $ 96,684 $111,215
Commitments to Sell 169,390 196,844 190,324
Interest-Rate Swap Agreements 89,609 326,441 351,489
Interest-Rate Option Contracts 651 649 642
</TABLE>
The Corporation's interest-rate swap and options contract activity for the six
months ended June 30, 1998, is as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, JUNE 30,
1997 ADDITIONS MATURITIES TERMINATIONS 1998
================================= ==== === ================ ============= ============= ================= =============
Interest-Rate Swaps:
<S> <C> <C> <C> <C> <C>
Receive fixed/pay variable $250,000 $ -- $ -- $250,000 $ --
Receive variable/pay fixed 50,000 -- 25,000 -- 25,000
For Customers 52,131 13,129 -- -- 65,260
================================= ===== === =============== ============= ============= ================= =============
Total $352,131 $ 13,129 $ 25,000 $250,000 $ 90,260
</TABLE>
------------------------------------------------------
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING THE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AND THE QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTAINS FORWARD-LOOKING
STATEMENTS, AS DEFINED IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
THAT INVOLVE RISK AND UNCERTAINTY. IN ORDER TO COMPLY WITH THE TERMS OF THE SAFE
HARBOR, THE CORPORATION NOTES THAT A VARIETY OF FACTORS COULD CAUSE THE
CORPORATION'S ACTUAL RESULTS AND EXPERIENCES TO DIFFER MATERIALLY FROM THE
ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE CORPORATION'S
FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO,
CERTAIN RISKS AND UNCERTAINTIES THAT MAY AFFECT THE OPERATIONS, PERFORMANCE,
DEVELOPMENT, GROWTH PROJECTIONS AND RESULTS OF THE CORPORATION'S BUSINESS SUCH
AS, THE GROWTH OF THE ECONOMY, INTEREST RATE MOVEMENTS, TIMELY DEVELOPMENT BY
THE CORPORATION OF TECHNOLOGY ENHANCEMENTS FOR ITS PRODUCTS AND OPERATING
SYSTEMS, THE IMPACT OF COMPETITIVE PRODUCTS, SERVICES AND PRICING, CUSTOMER
BUSINESS REQUIREMENTS, CONGRESSIONAL LEGISLATION AND SIMILAR MATTERS. READERS OF
THIS REPORT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING
STATEMENTS WHICH ARE SUBJECT TO INFLUENCE BY THE NAMED RISK FACTORS AND
UNANTICIPATED FUTURE EVENTS. ACTUAL RESULTS, ACCORDINGLY, MAY DIFFER MATERIALLY
FROM MANAGEMENT EXPECTATIONS.
-17-
<PAGE>
RIGGS NATIONAL CORPORATION
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the shareholders of the Corporation was
held on April 15, 1998, in Washington, D.C. Chairman of the Board
Joe L. Allbritton presided and 27,610,925 of the 30,575,788
shares outstanding as of the record date of February 27, 1998,
were represented at the meeting in person or by proxy.
1-Elections of Directors
----------------------
Nominees for membership on the Board of Directors of the
Corporation, listed below, were elected by the shareholders. The
following schedule lists the number of shares cast for each
nominee:
<TABLE>
<CAPTION>
Total Total
Votes For Votes Withheld
------------------------------ -------------------------------
<S> <C> <C>
Joe. L. Allbritton 25,661,384 1,691,919
Robert L. Allbritton 25,653,201 1,691,919
Timothy C. Coughlin 25,790,377 1,691,919
John M. Fahey, Jr. 25,781,925 1,691,919
Lawrence I. Hebert 25,699,282 1,691,919
Steven B. Pfeiffer 25,789,240 1,691,919
Robert L. Sloan 24,894,246 1,691,919
Jack Valenti 25,549,714 1,691,919
Eddie N. Williams 25,774,166 1,691,919
</TABLE>
2-Amendments to the 1993, 1994, and 1996 Stock Option Plans
---------------------------------------------------------
By a vote of 25,422,520 For, to 2,003,924 Against, with 184,281
Abstaining, the Corporation's shareholders approved a management
proposal to amend certain administrative provisions in all three
Plans.
3-Amendments to the 1996 Stock Option Plan and Ratification of
------------------------------------------------------------
the Waiver of Associated Preemptive Rights
------------------------------------------
By a vote of 21,945,460 For, to 5,495,841 Against, with 169,417
Abstaining, the Corporation's shareholders approved a management
proposal to amend the 1996 Stock Option Plan to expand the
definition of "Key Employees" eligible for grants under the plan,
increase the number of shares of the Corporation's common stock
available for stock option awards from two million to four
million shares, and ratify the waiver by the Board of Directors
of the shareholders' preemptive rights to any stock issuances by
the Corporation.
4-Approval of the 1997 Non-Employee Directors Stock Option Plan
-------------------------------------------------------------
and Ratification of the Waiver of the Associated Preemptive
-----------------------------------------------------------
Rights
------
By a vote of 24,084,362 For, to 3,365,057 Against, with 161,306
Abstaining, the Corporation's shareholders approved a management
proposal to adopt the 1997 Non-Employee Directors Stock Option
Plan to authorize the grant of an aggregate maximum of 350,000
shares of the Corporation's common stock to eligible members of
the Board of Directors, and to ratify the waiver by the Board of
Directors of the shareholders' preemptive rights to any stock
issuances by the Corporation.
5-Amendment to Article Ninth of the Corporation's Certificate of
--------------------------------------------------------------
Incorporation
-------------
By a vote of 26,447,177 For, to 1,000,854 Against, with 162,693
Abstaining, the Corporation's shareholders approved a management
proposal to amend the language regarding the waiver by the Board
of Directors of the shareholders' preemptive rights in the
Corporation's Certificate of Incorporation that requires "at
least ten Directors voting" and replace it with "at least a
majority of the Directors voting," which will conform the
Certificate of Incorporation to a change in the number of
directors.
-18-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED
6-Shareholder Proposal to Elect the Corporation's Independent
-----------------------------------------------------------
Accountants Each Year
---------------------
By a vote of 4,142,899 For, to 17,777,513 Against, with 407,613
Abstaining, the Corporation's shareholders rejected a shareholder
proposal to implement procedures to have the shareholders elect
the Corporation's independent accountants each year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
--------
The following exhibit is furnished to this Form 10-Q:
(27) Financial Data Schedule
(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: August 6, 1998 /s/ TIMOTHY C. COUGHLIN
----------------- ------------------------------
Timothy C. Coughlin
President
Date: August 6, 1998 /s/ JOHN L. DAVIS
------------------ ------------------------------
John L. Davis
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-19-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
==============================================================================
(27) Financial Data Schedule
Exhibits omitted are not required or not applicable.
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q DATED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000350847
<NAME> RIGGS NATIONAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 151,348
<INT-BEARING-DEPOSITS> 745,385
<FED-FUNDS-SOLD> 265,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,163,627
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,149,932
<ALLOWANCE> 52,235
<TOTAL-ASSETS> 5,792,263
<DEPOSITS> 4,263,681
<SHORT-TERM> 450,692
<LIABILITIES-OTHER> 49,916
<LONG-TERM> 191,525
<COMMON> 78,809
0
4,000
<OTHER-SE> 403,640
<TOTAL-LIABILITIES-AND-EQUITY> 5,792,263
<INTEREST-LOAN> 112,396
<INTEREST-INVEST> 38,811
<INTEREST-OTHER> 22,793
<INTEREST-TOTAL> 174,000
<INTEREST-DEPOSIT> 60,018
<INTEREST-EXPENSE> 78,953
<INTEREST-INCOME-NET> 95,047
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 6,781
<EXPENSE-OTHER> 94,478
<INCOME-PRETAX> 53,933
<INCOME-PRE-EXTRAORDINARY> 53,933
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,181
<EPS-PRIMARY> .81
<EPS-DILUTED> .78
<YIELD-ACTUAL> 3.86
<LOANS-NON> 12,477
<LOANS-PAST> 19,166
<LOANS-TROUBLED> 90
<LOANS-PROBLEM> 100
<ALLOWANCE-OPEN> 52,381
<CHARGE-OFFS> 1,379
<RECOVERIES> 1,080
<ALLOWANCE-CLOSE> 52,235
<ALLOWANCE-DOMESTIC> 41,407
<ALLOWANCE-FOREIGN> 10,828
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
