<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] 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 28,256,747 SHARES
----------------------------- -----------------
(Title of Class) (Outstanding at May 4, 1999)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three months ended March 31, 1999 and 1998 3
Consolidated Statements of Condition
March 31, 1999 and 1998, and December 31, 1998 4
Consolidated Statements of Changes in Stockholders' Equity
Three months ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 6
Notes to the Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18-20
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 21
Signatures 21
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARCH 31,
-----------------------------
1999 1998
==================================================================================================================================
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $57,874 $55,260
Interest and Dividends on Securities Available for Sale 14,313 20,885
Interest on Time Deposits with Other Banks 7,234 5,968
Interest on Federal Funds Sold and Reverse Repurchase Agreements 2,106 4,819
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 81,527 86,932
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 687 1,374
Money Market Deposit Accounts 8,356 11,911
Time Deposits in Domestic Offices 10,013 8,998
Time Deposits in Foreign Offices 8,299 7,503
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 27,355 29,786
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Repurchase Agreements and Other Short-Term Borrowings 3,978 5,093
Long-Term Debt 4,368 4,368
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 8,346 9,461
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 35,701 39,247
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 45,826 47,685
Less: Provision for Loan Losses - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 45,826 47,685
NONINTEREST INCOME
Trust and Investment Advisory Income 12,605 11,120
Service Charges and Fees 9,451 9,094
Other Noninterest Income 2,188 2,599
Securities Gains, Net 86 5,324
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 24,330 28,137
NONINTEREST EXPENSE
Salaries and Employee Benefits 22,258 20,639
Occupancy, Net 4,666 4,517
Data Processing Services 4,561 5,266
Furniture and Equipment 2,565 2,562
Other Real Estate Owned Expense (Income), Net 16 (51)
Other Noninterest Expense 16,089 14,475
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 50,155 47,408
- ----------------------------------------------------------------------------------------------------------------------------------
Income before Taxes and Minority Interest 20,001 28,414
Applicable Income Tax Expense 7,298 7,792
Minority Interest in Income of Subsidiaries, Net of Taxes 4,987 4,987
==================================================================================================================================
Net Income 7,716 15,635
Dividends on Preferred Stock - (2,688)
==================================================================================================================================
Net Income Available for Common Stock $ 7,716 $12,947
EARNINGS PER COMMON SHARE- Basic $ .27 $ .42
Diluted .26 .41
DIVIDENDS DECLARED AND PAID PER COMMON SHARE $ .05 $ .05
</TABLE>
-3-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(unaudited)
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1999 1998 1998
==================================================================================================================================
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 131,305 $ 146,698 $ 155,003
Federal Funds Sold and Reverse Repurchase Agreements 136,000 360,000 75,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 267,305 506,698 230,003
Time Deposits with Other Banks 625,464 545,448 696,181
Securities Available for Sale (at Market Value) 1,290,431 1,420,342 970,728
Loans 3,186,352 2,869,245 3,258,135
Reserve for Loan Losses (53,004) (52,180) (54,455)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 3,133,348 2,817,065 3,203,680
Premises and Equipment, Net 202,013 166,364 203,071
Other Real Estate Owned, Net 1,679 4,062 1,680
Other Assets 198,201 176,650 196,988
==================================================================================================================================
Total $5,718,441 $5,636,629 $5,502,331
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 685,052 $ 861,648 $ 732,099
Interest-Bearing Deposits:
Savings and NOW Accounts 390,046 371,084 434,649
Money Market Deposit Accounts 1,508,927 1,382,863 1,414,278
Time Deposits in Domestic Offices 965,778 850,858 917,442
Time Deposits in Foreign Offices 625,938 522,697 646,380
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,490,689 3,127,502 3,412,749
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 4,175,741 3,989,150 4,144,848
Repurchase Agreements and Other Short-Term Borrowings 395,617 453,990 374,380
Other Liabilities 257,732 177,450 48,850
Long-Term Debt 191,525 191,525 191,525
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,020,615 4,812,115 4,759,603
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 - None at March 31, 1999 and December 31,
1998, and 25,000,000 at March 31, 1998:
Liquidation Preference - $25 per share
Shares Issued - Noncumulative Perpetual Series B - None at March 31,
1999 and December 31, 1998, and 4,000,000 at March 31, 1998 -- 4,000 --
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at March 31, 1999 and 1998, and
December 31, 1998
Shares Issued - 31,556,545 at March 31, 1999, 31,481,086 at
March 31, 1998 and 31,555,345 at December 31, 1998 78,891 78,703 78,888
Surplus - Preferred Stock -- 91,192 --
Surplus - Common Stock 160,773 159,315 160,760
Undivided Profits 191,047 164,151 184,794
Accumulated Other Comprehensive Income (11,528) 876 (2,548)
Treasury Stock - 3,300,798 shares at March 31, 1999, 900,798 shares at
March 31, 1998, and 1,175,798 shares at December 31, 1998 (71,357) (23,723) (29,166)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 347,826 474,514 392,728
==================================================================================================================================
Total Liabilities and Stockholders' Equity $5,718,441 $5,636,629 $5,502,331
</TABLE>
-4-
<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, 1997 $ 4,000 $ 78,654 $250,352 $152,732 $ 1,167 $(23,723) $463,182
Comprehensive Income:
Net Income 15,635 $ 15,635
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for
Sale, Net of Reclassification
Adjustments (634) (634)
Foreign Exchange
Translation Adjustments 343 343
---------------
Total Other Comprehensive
Income (Loss) (291)
===============
Total Comprehensive Income $ 15,344
Issuance of Common Stock for
Stock Option Plans, 19,300 Shares 49 155 204
Cash Dividends -
Series B Preferred Stock,
$.671875 per Share (2,688) (2,688)
Common Stock, $.05 per Share (1,528) (1,528)
===================================================================================================================================
Balance, March 31, 1998 $ 4,000 $ 78,703 $250,507 $164,151 $ 876 $(23,723) $474,514
Balance, December 31, 1998 $ -- $ 78,888 $160,760 $184,794 $ (2,548) $(29,166) $392,728
Comprehensive Income:
Net Income 7,716 $ 7,716
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for
Sale, Net of Reclassification
Adjustments (7,881) (7,881)
Foreign Exchange
Translation Adjustments (1,099) (1,099)
---------------
Total Other Comprehensive
Income (Loss) (8,980)
===============
Total Comprehensive Income $ (1,264)
Issuance of Common Stock for
Stock Option Plans, 1,200 Shares 3 13 16
Cash Dividends -
Common Stock, $.05 per Share (1,463) (1,463)
Common Stock Repurchase-
2,125,000 shares (42,191) (42,191)
===================================================================================================================================
Balance, March 31, 1999 $ -- $ 78,891 $160,773 $191,047 $(11,528) $(71,357) $347,826
</TABLE>
(1)-See Notes to the Financial Statements for gross unrealized gains or
losses arising during each period and the tax effect on each item of
comprehensive income.
-5-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(in thousands) THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
==============================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,716 $ 15,635
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Other Real Estate Owned Writedowns -- 300
Depreciation Expense and Amortization of Leasehold Improvements 2,909 2,841
Gains on Sale of Securities Available for Sale (86) (5,324)
Gains on Sale of Other Real Estate Owned -- (276)
Decrease in Other Assets 3,031 18,389
Increase (Decrease) in Other Liabilities 208,882 (13,843)
- ------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 214,736 2,087
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 222,452 17,722
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease (Increase) In Time Deposits with Other Banks 70,717 (303,635)
Principal Collections and Maturities of Securities Available for Sale 1,012,799 1,256,512
Proceeds from Sales of Securities Available for Sale 54,056 652,586
Purchases of Securities Available for Sale (1,398,597) (1,652,712)
Net Decrease in Loans 70,586 14,701
Proceeds from Sale and Other Payments of Other Real Estate Owned -- 991
Net Increase in Premises and Equipment (1,851) (3,828)
Other, Net (253) 225
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (192,543) (35,160)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in:
Demand, NOW, Savings and Money Market Deposit Accounts 2,999 (296,449)
Time Deposits 27,894 (12,319)
Repurchase Agreements and Other Short-Term Borrowings 21,237 101,482
Proceeds from the Issuance of Common Stock 16 204
Dividend Payments - Preferred -- (2,688)
- Common (1,463) (1,528)
Repurchase of Common Shares (42,191) --
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used in) Financing Activities 8,492 (211,298)
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (1,099) 343
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 37,302 (228,393)
Cash and Cash Equivalents at Beginning of Period 230,003 735,091
==============================================================================================================================
Cash and Cash Equivalents at End of Period $ 267,305 $ 506,698
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ -- $ --
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 37,670 $ 40,082
Income Tax Payments -- 5
</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, 1998. Certain reclassifications have
been made to prior-period amounts to conform with the current year's
presentation. The results of operations for the first three months of 1999 are
not necessarily indicative of the results to be expected for the full 1999 year.
NOTE 2. EARNINGS PER COMMON SHARE
Earnings per share computations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
---------------------------------- -----------------------------------
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Income $7,716 $7,716 $15,635 $15,635
Dividends on Preferred Stock -- -- (2,688) (2,688)
----------------- ---------------- ----------------- -----------------
Income Available to Common Shareholders $7,716 $7,716 $12,947 $12,947
Weighted-Average Shares Outstanding 28,994,671 28,994,671 30,571,990 30,571,990
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 633,945 n/a 1,064,840
----------------- ---------------- ----------------- -----------------
Adjusted Weighted-Average Shares Outstanding 28,994,671 29,628,616 30,571,990 31,636,830
Basic EPS $ .27 $ .42
Diluted EPS $ .26 $ .41
</TABLE>
NOTE 3. RESERVE FOR LOAN LOSS
Changes in the reserve for loan losses are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1999 1998
================================================================================================================================
<S> <C> <C>
Balance, beginning of period $ 54,455 $ 52,381
Provision for loan losses -- --
Loan charge-off activity:
Loans charged-off 1,629 824
Recoveries on charged-off loans 432 397
- --------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs (recoveries) 1,197 427
Foreign exchange translation adjustments (254) 226
================================================================================================================================
Balance, end of period $ 53,004 $ 52,180
</TABLE>
-7-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Before- Tax
Tax (Expense) Net-of-Tax
Amount Benefit Amount
================================================================================== ============= ============= ==============
THREE MONTHS ENDED MARCH 31, 1999:
<S> <C> <C> <C>
Foreign Currency Translation Adjustments (1) $ (186) $ (913) $ (1,099)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period (12,038) 4,213 (7,825)
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (86) 30 (56)
- ---------------------------------------------------------------------------------- ------------- ------------- --------------
Net Unrealized Gains (Losses) (12,124) 4,243 (7,881)
================================================================================== ============= ============= ==============
Other Comprehensive Income (Loss) $(12,310) $ 3,330 $ (8,980)
THREE MONTHS ENDED MARCH 31, 1998:
Foreign Currency Translation Adjustments (1) $ (274) $ 617 $ 343
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 4,349 (1,522) 2,827
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (5,324) 1,863 (3,461)
- ---------------------------------------------------------------------------------- ------------- ------------- --------------
Net Unrealized Gains (Losses) (975) 341 (634)
================================================================================== ============= ============= ==============
Other Comprehensive Income (Loss) $ (1,249) $ 958 $ (291)
</TABLE>
(1) Tax (expense) benefit on foreign currency translation adjustments is
calculated on the hedge contracts only. Before-tax amounts include activity on
hedge contracts and the foreign currency translation adjustment.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
<TABLE>
<CAPTION>
Foreign Accumulated
Currency Unrealized Other
Translation Gain(Loss) Comprehensive
Adjustments on Securities Income (Loss)
========================================================================= ================ ============== ==================
THREE MONTHS ENDED MARCH 31, 1999:
<S> <C> <C> <C>
Balance, December 31, 1998 $(1,349) $(1,199) $ (2,548)
Current-Period Change (1,099) (7,881) (8,980)
========================================================================= ================ ============== ==================
Balance, March 31, 1999 $(2,448) $(9,080) $(11,528)
THREE MONTHS ENDED MARCH 31, 1998:
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
Current-Period Change 343 (634) (291)
========================================================================= ================ ============== ==================
Balance, March 31, 1998 $ (529) $ 1,405 $ 876
</TABLE>
-8-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. SEGMENT PROFITABILITY
<TABLE>
<CAPTION>
===================================================================================================================================
INTERN-
ATIONAL RIGGS & RECON- RIGGS NATIONAL
MARCH 31, 1999 BANKING BANKING COMPANY TREASURY OTHER CILIATION CORPORATION
- ------------------------------- -------------- ----------- ------------ ------------- ------------- -------------- ----------------
NET INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 46,458 $ 13,734 $ 2,773 $ 22,905 $ 13,331
Interest Expense 15,098 16,049 3,915 5,577 11,907
Funds Transfer Income 878 9,565 4,235 (15,611) 933
(Expense)
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss), 32,238 7,250 3,093 1,717 2,357
Tax-Equivalent
Tax Equivalent Adjustment (485) -- -- (346) 2
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Net Interest Income (Loss) $ 31,753 $ 7,250 $ 3,093 $ 1,371 $ 2,359 $ -- $ 45,826
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
NONINTEREST INCOME
Noninterest Income-External $ 9,582 $ 714 $ 13,228 $ 397 $ 409
Customers
Intersegment Noninterest -- 979 173 -- 879
Income
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Total Noninterest Income $ 9,582 $ 1,693 $ 13,401 $ 397 $ 1,288 $ (2,031) $ 24,330
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,866 $ 162 $ 224 $ 3 $ 1,802
Direct Expense 14,045 4,878 8,987 380 19,839
Overhead and Support 15,331 2,739 2,960 484 (21,514)
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Total Noninterest Expense $ 31,242 $ 7,779 $ 12,171 $ 867 $ 127 $ (2,031) $ 50,155
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Income (Loss) Before Taxes $ 10,093 $ 1,164 $ 4,323 $ 901 $ 3,520 $ -- $ 20,001
and Minority Interest
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
-------------- ----------- ------------ ------------- ------------- -------------- ----------------
Total Average Assets $2,723,373 $821,400 $206,263 $1,716,607 $1,132,678 $(1,102,471) $5,497,850
===================================================================================================================================
</TABLE>
The Corporation's reportable segments are strategic business units that provide
diverse products and services within the financial services industry. The
Corporation has five reportable segments: Banking, International Banking, Riggs
& Company, Treasury and Other. The Banking segment provides traditional banking
services such as lending and deposit taking to retail, corporate and commercial
customers. The International Banking segment includes the Corporation's
Washington, D.C. based embassy-banking business and the London-based banking
subsidiary, Riggs Bank Europe Limited. The Riggs and Company segment is a
division of the Corporation providing trust and investment management services
to a broad customer base. The Treasury segment is responsible for asset and
liability management throughout the Corporation. "Other" consists of the
Corporation's unallocated parent company income and expense, net interest income
from unallocated equity and foreclosed real estate activities.
The Corporation evaluates segment performance based on net income before taxes
and minority interest. The accounting policies of the segments are substantially
the same as those described in the summary of significant accounting policies.
The Corporation accounts for intercompany transactions as if the transactions
were to third parties under market conditions. Overhead and support expenses are
allocated to each operating segment based on number of employees, service usage
and other factors relevant to the expense incurred.
Reconciliations are provided from the segment totals to the Corporation's
consolidated financial statements. The reconciliations of noninterest income and
noninterest expense offset as these items result from intercompany transactions.
For years in which the Corporation has either no provision for loan losses or a
reduction to the reserve for loan losses, an allocation of loan loss is not
provided to the segments. The reconciliation of total average assets represents
the elimination of intercompany transactions.
-9-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
===================================================================================================================================
INTER- RIGGS
NATIONAL RIGGS & RECON- NATIONAL
MARCH 31, 1998 BANKING BANKING COMPANY TREASURY OTHER CILIATION CORPORATION
- ------------------------------- -------------- ------------ ------------ ------------- ------------- -------------- ---------------
NET INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 45,039 $ 11,391 $ 3,116 $ 31,251 $ 15,926
Interest Expense 18,272 15,662 3,031 8,965 12,284
Funds Transfer Income 5,975 11,529 2,753 (22,051) 1,794
(Expense)
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
Net Interest Income (Loss), 32,742 7,258 2,838 235 5,436
Tax-Equivalent
Tax Equivalent Adjustment (269) -- -- (555) --
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
Net Interest Income (Loss) $ 32,473 $ 7,258 $ 2,838 $ (320) $ 5,436 $ -- $ 47,685
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
NONINTEREST INCOME
Noninterest Income-External $ 9,647 $ 1,081 $ 11,655 $ 6,012 $ (258)
Customers
Intersegment Noninterest -- 982 106 -- 423
Income
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
Total Noninterest Income $ 9,647 $ 2,063 $ 11,761 $ 6,012 $ 165 $ (1,511) $ 28,137
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,770 $ 148 $ 400 $ 3 $ 1,706
Direct Expense 13,518 4,786 7,028 375 19,184
Overhead and Support 16,092 2,415 2,526 376 (21,408)
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
Total Noninterest Expense $ 31,380 $ 7,349 $ 9,954 $ 754 $ (518) $ (1,511) $ 47,408
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
Income (Loss) Before Taxes $ 10,740 $ 1,972 $ 4,645 $ 4,938 $ 6,119 $ -- $ 28,414
and Minority Interest
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
-------------- ------------ ------------ ------------- ------------- -------------- ---------------
Total Average Assets $2,485,622 $614,894 $206,209 $2,172,662 $1,174,947 $(1,153,996) $5,500,338
===================================================================================================================================
</TABLE>
NOTE 6. NEW FINANCIAL ACCOUNTING STANDARDS
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 required 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 Corporation does not anticipate any material impact from the
implementation of SFAS No. 133.
-10-
<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 first quarter of 1999 was $7.7 million compared to net income
of $15.6 million in the first quarter of 1998, a decrease of $7.9 million
primarily due to nonrecurring securities gains and a lower income tax rate in
the first quarter of 1998 combined with the impact of the Corporation's
Preferred Stock redemption in the fourth quarter of 1998. Earnings per share
decreased to $.26 from $.41 in the first quarter of 1998.
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 $46.7 million in
the first quarter of 1999, decreasing $1.8 million from the first quarter of
1998. The decrease from the prior year's quarter was primarily due to funds
expended in redeeming Preferred Stock in the fourth quarter of 1998 and Common
Stock in both the fourth quarter of 1998 and the first quarter of 1999.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
Three Months Ended
MARCH 31, 1999 VS 1998
----------------------------------
DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE
=====================================================================================================================
Interest Income:
<S> <C> <C> <C>
Loans, Including Fees $(3,752) $ 6,582 $ 2,830
Securities Available for Sale (1,249) (5,534) (6,783)
Time Deposits with Other Banks (613) 1,879 1,266
Federal Funds Sold and Reverse
Repurchase Agreements (576) (2,137) (2,713)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Income (6,190) 790 (5,400)
Interest Expense:
Interest-Bearing Deposits (6,109) 3,678 (2,431)
Repurchase Agreements and Other
Short-Term Borrowings (1,093) (22) (1,115)
Long-Term Debt -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Expense (7,202) 3,656 (3,546)
=====================================================================================================================
Net Interest Income $ 1,012 $(2,866) $(1,854)
</TABLE>
(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.
-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>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------------------- ----------------------------------
(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) $3,198,165 $58,352 7.40 % $2,836,563 $55,522 7.94 %
Securities Available for Sale (3) 1,016,963 14,664 5.85 1,396,095 21,447 6.23
Time Deposits with Other Banks 615,598 7,234 4.77 459,421 5,968 5.27
Federal Funds Sold and Reverse Repurchase Agreements 176,341 2,106 4.84 349,729 4,819 5.59
- ------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 5,007,067 82,356 6.67 5,041,808 87,756 7.06
Reserve for Loan Losses (54,213) (52,446)
Cash and Due from Banks 144,799 155,630
Other Assets 400,197 355,346
==============================================================================================================================
Total Assets $5,497,850 $5,500,338
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits $3,517,378 $27,355 3.15 % $3,175,472 $29,786 3.80 %
Repurchase Agreements and Other Short-Term Borrowings 400,953 3,978 4.02 402,697 5,093 5.13
Long-Term Debt 191,525 4,368 9.25 191,525 4,368 9.25
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 4,109,856 35,701 3.52 3,769,694 39,247 4.22
Demand Deposits 621,604 850,627
Other Liabilities 53,122 63,351
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Stockholders' Equity 363,268 466,666
==============================================================================================================================
Total Liabilities, Minority Interest and
Stockholders' Equity $5,497,850 $5,500,338
==============================================================================================================================
NET INTEREST INCOME AND SPREAD $46,655 3.15 % $48,509 2.84 %
==============================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.78 % 3.90 %
</TABLE>
(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.
NONINTEREST INCOME
Noninterest income for 1999, excluding securities gains, totaled $24.2 million,
an increase of $1.4 million from the first quarter of 1998. The increase in
noninterest income was due to a 13% increase in trust and investment advisory
income of Riggs & Company, Riggs' private client services division.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1999 was $50.2 million, up 6% from
the $47.4 million reported in the first quarter of 1998. The increase was due
substantially to added personnel costs during the year, primarily attributable
to increased incentive-based compensation and staff costs associated with new
business initiatives. In addition, Riggs made a contribution of $500 thousand to
a local charitable foundation in the first quarter of 1999.
-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 $1.29 billion at March 31, 1999, compared
to $970.7 million at year-end 1998, and $1.42 billion at March 31, 1998. The
activity for the first three months included purchases of securities available
for sale totaling $1.40 billion, which were partially offset by maturities and
sales/calls of securities available for sale totaling $1.01 billion and $54.0
million, respectively. The weighted-average durations and yields for the
portfolio, adjusted for anticipated prepayments, were approximately 3.6 years
and 5.63%, respectively, at March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998 DECEMBER 31, 1998
------------------------------- ------------------------------ -------------------------------
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 $ 188,397 $ 179,274 $ 404,512 $ 404,382 $ 113,677 $ 111,750
Government Agencies Securities 541,288 541,258 769,245 769,194 391,165 391,344
Mortgage-Backed Securities 532,183 526,516 204,906 204,723 424,152 423,503
Other Securities 42,532 43,383 39,689 42,043 43,577 44,131
================================================================================================================================
Total $1,304,400 $1,290,431 $1,418,352 $1,420,342 $ 972,571 $ 970,728
</TABLE>
LOANS
At March 31, 1999, total loans outstanding amounted to $3.19 billion, decreasing
$71.8 million from the December 31, 1998 total of $3.26 billion. The decrease in
loans from December 31, 1998, was primarily attributed to decreases in
residential mortgage loans of $44.4 million, real estate-commercial/construction
loans of $30.0 million, and foreign loans of $16.7 million, partially offset by
an increase of $22.3 million in commercial and financial loans.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1998
================================================================================================================
<S> <C> <C> <C>
Commercial and Financial $ 691,090 $ 583,733 $ 668,778
Real Estate - Commercial/Construction 379,580 395,464 409,586
Residential Mortgage 1,231,855 1,133,915 1,276,257
Home Equity 309,879 314,451 314,347
Consumer 71,701 66,602 69,419
Foreign 505,335 374,246 522,032
- ----------------------------------------------------------------------------------------------------------------
Total Loans 3,189,440 2,868,411 3,260,419
Net Deferred Loan Fees,
Premiums and Discounts (3,088) 834 (2,284)
================================================================================================================
Loans $3,186,352 $2,869,245 $3,258,135
</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 $30.1 million at March 31,
1999, a $1.3 million (4%) decrease from the year-end 1998 total of $31.4 million
and a $13.6 million (82%) increase from the March 31, 1998 total. The increase
in nonaccrual loans from March 1998 was mainly due to a $25.0 million commercial
loan placed on nonaccrual during the fourth quarter of 1998 partially offset by
repayment of another large nonperforming loan.
PAST-DUE AND POTENTIAL PROBLEM LOANS
Past-due loans consist of residential real estate loans, commercial and
industrial loans, and consumer loans that are in the process of collection and
are accruing interest. Past-due loans decreased $16.3 million during the first
three months of 1999 to $9.0 million, mostly due to repayment of a foreign
government overdraft of $15.8 million.
At March 31, 1999, the Corporation had identified $1.0 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. This balance consisted entirely of residential real estate
and consumer loans. There were no potential problem loans at December 31, 1998.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AND PAST-DUE LOANS
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1998
=======================================================================================================================
NONPERFORMING ASSETS:
<S> <C> <C> <C>
Nonaccrual Loans (1) $26,681 $12,314 $26,831
Renegotiated Loans (2) 1,772 85 2,920
Other Real Estate Owned, Net 1,679 4,062 1,680
=======================================================================================================================
Total Nonperforming Assets $30,132 $16,461 $31,431
PAST-DUE LOANS (3) $ 8,950 $11,412 $25,269
</TABLE>
(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 $6.4 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.
DEPOSITS
Deposits are the primary and most stable source of funds for the Corporation.
Deposits totaled $4.18 billion at March 31, 1999, increasing $30.9 million from
the December 31, 1998 deposit total. The increase from the year-end balance was
due primarily to increases in money market deposit accounts and time deposits in
domestic offices of $94.6 million and $48.3 million, respectively, partially
offset by decreases in demand deposits of $47.0 million and in savings and NOW
accounts of $44.6 million.
-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 $21.2 million, or 6%, from the year-end 1998
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>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1999 1998 1998
====================================================================================================================
<S> <C> <C> <C>
Repurchase Agreements and Other Short-Term Borrowings $395,617 $453,990 $374,380
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 $587,142 $645,515 $565,905
</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 March 31, 1999, the Corporation's liquid assets, on a consolidated
basis, which include cash and due from banks, Government obligations and other
securities, federal funds sold, reverse repurchase agreements and time deposits
at other banks, totaled $2.18 billion (38% of total assets). This compares with
$1.90 billion (34%) at December 31, 1998, and $2.47 billion (44%) at March 31,
1998. At March 31, 1999, $807.5 million of the Corporation's assets were pledged
to secure deposits and other borrowings. This compares with pledged assets of
$727.4 million at December 31, 1998, and $815.8 million at March 31, 1998.
The Corporation's liquidity position is maintained by a stable source of funds
from the Corporation's core deposit relationships. The Corporation has other
sources of funds, such as short-term credit lines available from several Federal
Home Loan Banks and other financial institutions. In addition, the Corporation
had a line of credit available through its membership in the Federal Home Loan
Bank of Atlanta (FHLB Atlanta). At March 31, 1999 and December 31, 1998,
short-term credit lines and the FHLB Atlanta line of credit available totaled
approximately $1.50 billion, and $932 million at March 31, 1998. Of this
availability, $14.5 million, $19.3 million, and $19.1 million were outstanding
at March 31, 1999, December 31, 1998, and March 31, 1998.
STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Total stockholders' equity at March 31, 1999 was $347.8 million, a decrease of
$44.9 million from the year-end 1998 total and down $126.7 million from March
31, 1998. The decreases from both prior periods were primarily the result of the
redemption of Riggs' $100 million 10.75% Noncumulative Perpetual Preferred Stock
on October 1, 1998, and repurchases of Common Stock in the fourth quarter of
1998 and first quarter of 1999. These Common Stock repurchases aggregated
2,400,000 shares for a cost of $47.6 million at March 31, 1999. Book value per
common share was $12.31 as of March 31, 1999 compared to $12.93 at year-end 1998
and $12.40 at March 31, 1998. On the following page are the capital ratios of
the Corporation and its banking subsidiary, Riggs Bank National Association
(Riggs Bank N.A.) at March 31, 1999 and 1998, and December 31, 1998.
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, REQUIRED
1999 1998 1998 MINIMUMS
================================================================================================================
RIGGS NATIONAL CORPORATION:
<S> <C> <C> <C> <C>
Tier I 13.30% 18.91% 14.63% 4.00%
Combined Tier I and Tier II 26.59 31.84 27.51 8.00
Leverage 8.51 11.33 9.33 4.00
RIGGS BANK N.A.:
Tier I 12.64 13.02 12.17 4.00
Combined Tier I and Tier II 13.89 14.28 13.43 8.00
Leverage 8.51 8.08 8.26 4.00
</TABLE>
YEAR 2000 READINESS DISCLOSURE
GENERAL
Advances and changes in technology can have a significant impact on the
Corporation's business. Financial institutions are dependent on information
systems and also have many external interdependencies with other companies. Many
computer programs were designed to recognize calendar years by their last two
digits. Calculations performed using these digits may not work properly with
dates beginning in the Year 2000 and beyond. The Year 2000 issue creates risk
for the Corporation from unforeseen problems in its computer systems and from
Year 2000 issues with the Corporation's vendors, service providers and
customers.
APPROACH AND RISKS
The Corporation began to identify the risks associated with the Year 2000 in
1995. Management established a corporate oversight structure to ensure timely
risk assessments, remediation plans, systems testing, conversions, and
centralized management of the project. The structure of the effort entails a
number of groups, each addressing a different aspect of the project, and
reporting to the Year 2000 Program Manager. Oversight of the entire project is
performed by the Year 2000 Advisory Group. This is a management committee
appointed by the Board of Directors that reports to the Board on a quarterly
basis.
Management determined that an enterprise-wide business risk-assessment approach
is most appropriate for addressing and remediating Year 2000 problems. This
included an assessment of the information technology resources of each of the
functional areas in the Corporation, as well as separate assessments of
information technology vendors and suppliers, mainframe applications, third
party suppliers, alternative platforms, and non-information technology and
facilities risks.
In addition to systems-related risks, the Corporation undertook a review of
risks created by potential business interruptions suffered by the Corporation's
major business counterparties, both domestic and foreign. The Corporation
divided its business counterparties into three broad categories: Funds Takers
(primarily borrowers), Funds Providers (depositors and other funding sources)
and Capital Markets partners (trading counterparties and fiduciary
relationships). For those business partners that would have a significant impact
on the Corporation's liquidity, income, or capital markets activities, should
they encounter significant business interruption due to the Year 2000,
management has worked through the functional areas involved to assess readiness
and contingency plans for recovering from an abrupt interruption.
After the assessment phase, Year 2000 efforts have focused on remediation and
verification. The Corporation has developed detailed action plans to address
mainframe systems, third party servicers, embedded technology and facilities and
non-information technology issues. For purchased systems and software and third
party servicers, the Year 2000 efforts have involved contacting the vendors or
suppliers and determining the Year 2000 status of the various systems and of the
plans to bring the systems into compliance. For in-house systems, the Year 2000
efforts include correction of the programs to ensure proper data processing. The
Corporation's action plans also include testing mission-critical systems to
verify the remediation efforts. Riggs records and tracks information to keep
management aware of the status of the Corporation's information technology
systems. The Program Manager is working with the functional areas of the
Corporation to develop contingency plans for a variety of situations, such as
the failure of a vendor to remediate Year 2000 issues by a particular date or a
system not being available for processing.
-16-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Inherent in the Year 2000, the failure to correct a material problem could
result in an interruption in or failure of certain business operations. Year
2000 risks and uncertainties include increased credit losses, service delays,
funding delays, counterparty failures, inaccurate information processing, ATM
failures, and problems with international accounts. There can be no assurance
that the Year 2000 issue will not have a material adverse impact on the
Corporation's financial position, results of operations, or relationships with
customers, vendors, or others.
STATE OF READINESS
While there is general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the readiness of third party vendors and
customers, the Corporation's progress toward completing the enterprise-wide risk
assessment and remediating Year 2000 problems is on target. The Corporation
completed remediation and verification of all mission critical internal systems
by December 31, 1998. Mission-critical third party service providers completed
their remediations by December 31, 1998, and Riggs substantially completed its
verification of these systems at March 31, 1999. This is in accordance with
guidelines established by Bank regulatory authorities. Verification of
non-mission critical system changes, including non-information technology
issues, will be performed throughout 1999. The Corporation presently believes
that the Year 2000 issue will not cause significant operational problems.
COSTS
The total cost to become Year 2000 compliant is not expected to be material to
the Corporation's financial position. The Corporation estimates the total cost
of the Year 2000 project will be approximately $7.7 million, with funds provided
from operating cash flows. As of March 31, 1999 the total amount expended was
$4.4 million, with $759 thousand of this expense incurred in the first three
months of 1999. The future cost of completing the Year 2000 project is estimated
to be $3.3 million. The most significant components of the total estimated cost
consist of 65% for personnel costs, including consultants and special Year 2000
incentives, and 26% for data processing services. The Corporation does not
separately track all internal costs incurred for the Year 2000 project. Internal
costs are principally the payroll-related costs for the information systems
group.
The Year 2000 expense represents approximately 10% of the Corporation's total
actual information technology expenditures for the first three months of 1999.
Other significant or critical non-Year 2000 information technology efforts have
not been materially delayed or impacted by Year 2000 initiatives.
CONTINGENCY PLANS
To prepare for the possibility that certain information systems or third party
vendors and servicers will not be Year 2000 compliant, the Corporation developed
detailed contingency plans. The Corporation has two types of contingency plans,
remediation plans and business resumption plans.
The remediation plans addressed those information systems the Corporation had
determined were not Year 2000 compliant through our testing. These plans
described and scheduled alternative provisions, including, if necessary, the
replacement of vendors or third party servicers to ensure compliance. The
remediation plans are complete; however, implementation of these plans is not
expected to be necessary because of the Corporation's state of readiness.
The business resumption plans address how the Corporation will continue
operations in the event a Year 2000 related interruption occurs. The
business-resumption plans for its mission-critical systems and third-party
servicers are scheduled to be complete by June 30, 1999. While implementation of
the business resumption plans is not expected to be necessary, it will ensure
the Corporation has the ability to process transactions and serve its customers
under circumstances where a Year 2000 problem actually occurs.
The discussion of the Corporation's efforts and expectations related to Year
2000 compliance are forward-looking statements which should be read in
conjunction with the Corporation's disclosures under the "Safe Harbor"
provisions as discussed in this Form 10-Q following Item 3. The Corporation's
ability to achieve Year 2000 compliance and the associated costs could be
adversely impacted by, among other things, the availability of programming and
verification resources, vendors' ability to modify proprietary software, and
problems identified in the ongoing project plan.
-17-
<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 March 31, 1999 and 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 over a 12-month time
period and a 300 basis point (3%) gradual increase or decrease in rates over a
36-month time period.
INTEREST-RATE SENSITIVITY ANALYSIS (1)
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM MARCH 31, 1999
============================================================================================================================
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) (.6)% (0.1)% .5 % (1.6)%
Net Interest Income Increase/(Decrease) $(1,177) $ (173) $ 3,107 $(9,356)
</TABLE>
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM MARCH 31, 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) 1.8 % (1.0)% 5.4 % (1.6)%
Net Interest Income Increase/(Decrease) $ 3,340 $(1,791) $31,029 $(9,255)
</TABLE>
(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.
-18-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
At March 31, 1999, 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 1%. 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 2%. The results of the simulation for March
31, 1999 indicated that the Corporation maintained a fairly neutral position
over the 12-month horizon, and was asset sensitive in the 36-month time horizon.
The Corporation was within guidelines for 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. 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 derivative
instruments are considered off-balance-sheet, as they do not materially affect
the level of assets or liabilities of the Corporation. Along with financial
derivative instruments, 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.
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, 1998.
COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at March 31, 1999 and 1998, and December 31,
1998 are detailed in the table below. At December 31, 1998, the Corporation's
financial derivative instruments included a $25 million (notional amount)
interest rate swap, which converted a portion of the fixed rate real estate
mortgage loan portfolio into a floating rate asset. This swap matured in January
1999.
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL VALUE
-----------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
1999 1998 1998
===========================================================================================================
<S> <C> <C> <C>
Commitments to Extend Credit $1,196,279 $959,673 $1,169,670
Letters of Credit 122,556 147,977 116,734
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $ 137,281 $130,009 $ 138,727
Commitments to Sell 224,439 211,092 225,846
Interest-Rate Swap Agreements 100,002 87,572 115,343
</TABLE>
-19-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
The Corporation's interest-rate swap activity for the three months ended March
31, 1999, is as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, MARCH 31,
1998 ADDITIONS MATURITIES TERMINATIONS 1999
============================================================================================================================
Interest-Rate Swaps:
<S> <C> <C> <C> <C> <C>
Receive fixed/pay variable $ -- $ -- $ -- $ -- $ --
Receive variable/pay fixed 25,000 -- 25,000 -- --
Riggs Bank Europe Limited 90,343 9,659 -- -- 100,002
============================================================================================================================
Total $115,343 $ 9,659 $25,000 $ -- $100,002
</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.
-20-
<PAGE>
RIGGS NATIONAL CORPORATION
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
--------
The exhibits listed on pages 22 through 23 are incorporated
by reference or filed herewith in response to this item.
(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: May 10, 1999 /s/ TIMOTHY C. COUGHLIN
------------------- --------------------------
Timothy C. Coughlin
President
Date: May 10, 1999 /s/ JOHN L. DAVIS
-------------------- --------------------------
John L. Davis
Chief Financial Officer
(Principal Financial Officer)
Date: May 10, 1999 /s/ ELEANOR L. RUTLAND
---------------------- --------------------------
Eleanor L. Rutland
Comptroller
(Principal Accounting Officer)
-21-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGES
=============================================================================================================
<S> <C>
(3.1) Certificate of Amendment of Certificate of Incorporation of
Riggs National Corporation (Incorporated by reference to the
Registrant's Form 10-K for the year ended December 31, 1998,
SEC File No. 0-9756.), and Certificate of Incorporation as
Amended (Incorporated by reference to the Registrant's Form
10-Q for the quarter ended September 30, 1989, SEC File No.
0-9756.)
(3.2) By-laws of the Registrant with amendments through April 10,
1996 (Incorporated by reference to the Registrant's Form 10-K
for the year ended December 31, 1998, SEC File No. 09756.)
(4.1) Indenture dated June 1, 1989 with respect to $100 million 9.65%
Subordinated Debentures due 2009 (Incorporated by reference to
the Registrant's Form 8-K dated June 20, 1989, SEC File No.
09756.)
(4.2) Indenture dated January 1, 1994 with respect to $125 million,
8.5% Subordinated Debentures due 2006 (Incorporated by
reference to the Registrant's Form 10-Q for the quarter ended
March 31, 1994. SEC File No.
09756.)
(4.3) Indenture dated December 13, 1996 with respect to $150 million,
8.625% Trust Preferred Securities, Series A due 2026
(Incorporated by reference to the Registrant's S-3 dated
February 6, 1997, SEC File No. 333-21297.)
(4.4) Indenture dated March 12, 1997, with respect to $200 million,
8.875% Trust Preferred Securities, Series C due 2027
(Incorporated by reference to the Registrant's S-3 dated May 2,
1997, SEC File No. 333-26447.)
(10.1) Split Dollar Life Insurance Plan Agreements (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.2) The 1993 Stock Option Plan, the 1994 Stock Option Plan, and the
1996 Stock Option Plan, as amended April 15, 1998, and the 1997
Non-Employee Directors Stock Option Plan (Incorporated by
reference to the Registrant's Annual Meeting Proxy Statement
filed March 18, 1998.)
(10.3) Deferred Compensation Plan for Directors (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.4) Description of the 1998 General Incentive Plan (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS, CONTINUED
EXHIBIT NO. DESCRIPTION PAGES
=============================================================================================================
<S> <C> <C>
(10.5) Description of the 1999 General Incentive Plan (Incorporated by
reference to the Registrant's Form 10-K for the year ended
December 31, 1998, SEC File No.
09756.)
(10.6) Supplemental Executive Retirement Plan, as amended and restated
July 12, 1995 (Incorporated by reference to the Registrant's
Form 10-K for the year ended December 31, 1998, SEC File No.
09756.)
(10.7) Trust Agreement, dated July 12, 1995, for the Supplemental
Executive Retirement Plan and the Split Dollar Life Insurance
and Supplemental Death Benefit Plans (Incorporated by reference
to the Registrant's Form 10-K for the year ended December 31,
1998, SEC File No. 09756.)
(27) Financial Data Schedule Exhibit 27
</TABLE>
(Exhibits omitted are not required or not applicable.)
-23-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q DATED MARCH 31, 1999 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 131,305
<INT-BEARING-DEPOSITS> 625,464
<FED-FUNDS-SOLD> 136,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,290,431
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,186,352
<ALLOWANCE> 53,004
<TOTAL-ASSETS> 5,718,441
<DEPOSITS> 4,175,741
<SHORT-TERM> 395,617
<LIABILITIES-OTHER> 257,732
<LONG-TERM> 191,525
<COMMON> 78,891
0
0
<OTHER-SE> 268,935
<TOTAL-LIABILITIES-AND-EQUITY> 5,718,441
<INTEREST-LOAN> 57,874
<INTEREST-INVEST> 14,313
<INTEREST-OTHER> 9,340
<INTEREST-TOTAL> 81,527
<INTEREST-DEPOSIT> 27,355
<INTEREST-EXPENSE> 35,701
<INTEREST-INCOME-NET> 45,826
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 86
<EXPENSE-OTHER> 50,155
<INCOME-PRETAX> 20,001
<INCOME-PRE-EXTRAORDINARY> 20,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,716
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
<YIELD-ACTUAL> 3.78
<LOANS-NON> 26,681
<LOANS-PAST> 8,950
<LOANS-TROUBLED> 1,772
<LOANS-PROBLEM> 1,031
<ALLOWANCE-OPEN> 54,455
<CHARGE-OFFS> 1,628
<RECOVERIES> 432
<ALLOWANCE-CLOSE> 53,004
<ALLOWANCE-DOMESTIC> 43,444
<ALLOWANCE-FOREIGN> 9,560
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
