UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
(X) SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 52-1217953
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(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
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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None None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class Name of each exchange on which registered
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Common Stock, par value The NASDAQ Stock Market
$2.50 per share
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 for 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X ]
The aggregate market value of the Corporation's voting stock held by
non-affiliates of the registrant as of February 29, 2000, was
$183,899,130.
The number of shares outstanding of the registrant's common stock, as of
February 29, 2000, was 28,316,197.
DOCUMENT INCORPORATED BY REFERENCE
Portions of Riggs National Corporation's definitive Proxy Statement
dated March 10, 2000 to Shareholders are incorporated by reference into Part
III of this Form 10-K. Portions of Riggs National Corporation's 1999 Annual
Report to Shareholders mailed with such Proxy Statement are incorporated
by reference into Parts I and II of this Form 10-K. With the exception of the
portions of the Proxy Statement and Annual Report specifically
incorporated herein by reference, the Proxy Statement and Annual Report are
not deemed to be filed as part of this Form 10-K.
<PAGE>
Form
10-K INDEX
PART I Page(s)
Item 1--Business 3
Item 2--Properties 4
Item 3--Legal Proceedings 4
Item 4--Submission of Matters to a Vote of Security Holders 4
PART II
Item 5--Market for Registrant's Common Equity
and Related Shareholder Matters 5
Item 6--Selected Consolidated Financial Data 5
Item 7--Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
Item 7A--Quantitative & Qualitative Disclosures about Market Risk 5
Item 8--Financial Statements and Supplementary Data 5
Item 9--Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 5
PART III
Item 10--Directors and Executive Officers of the Registrant 6
Item 11--Executive Compensation 8
Item 12--Security Ownership of Certain Beneficial Owners and Management 8
Item 13--Certain Relationships and Related Transactions 8
PART IV
Item 14--Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 8
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<PAGE>
PART I
ITEM 1.
BUSINESS
Riggs National Corporation
Riggs National Corporation is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and incorporated in the
State of Delaware. Founded in 1980, we engage in a variety of banking-related
activities through our bank and non-bank subsidiaries. We currently have banking
operations or separate subsidiaries in the Washington, D.C., metropolitan area;
New Haven, Connecticut; Miami, Florida; London, England; Berlin, Germany; and
Nassau, Bahamas. At December 31, 1999, we had 1,589 full-time equivalent
employees.
Additional information concerning our business is incorporated by reference to
pages 69-77, 127-128 and 131-133 of our 1999 Annual Report.
Supervision and Regulation
Our company and Riggs Bank N.A. are subject to the supervision of and regulation
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Our national banking subsidiaries and certain of their subsidiaries are
subject to the supervision of and regulation by the Office of the Comptroller of
the Currency (the "OCC"). Other federal, state and foreign laws govern many
aspects of the businesses of our company and our subsidiaries.
Under the BHCA, bank holding companies may not directly or indirectly acquire
the ownership or control of five percent or more of the voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. The BHCA also restricts the types
of businesses and activities in which a bank holding company and its
subsidiaries may engage. Generally, activities are limited to banking and
activities found by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto.
We are required to maintain minimum levels of qualifying capital under Federal
Reserve Board risk-based capital guidelines. For full discussion of these
guidelines, see "Management's Discussion and Analysis--Capital Resources" and
"Notes to Consolidated Financial Statements-Note 10."
Under Federal Deposit Insurance Corporation ("FDIC") regulations, the assessment
rate for an insured depository institution varies according to the level of risk
incurred in its activities. An institution's risk category is based partly upon
whether the institution is assigned to one of the following "supervisory
subgroups": "healthy"; "supervisory concern"; or "substantial supervisory
concern."
The OCC must take "prompt corrective action" in respect of depository
institutions that do not meet minimum capital requirements. The OCC has
established levels at which an insured institution would be considered "well
capitalized,""adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
Riggs Bank N.A. exceeds current minimum regulatory capital requirements and
qualifies as "well capitalized." Additional information concerning our capital
adequacy can be found on pages 115 and 116 of our 1999 Annual Report, which is
incorporated herein by reference.
A depository institution may not make any capital distribution (including
payment of a dividend) or pay any management fee to its holding company if the
depository institution would thereafter be undercapitalized. Undercapitalized
depository institutions are subject to increased regulatory monitoring and
growth limitations and are required to submit capital restoration plans.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
the Interstate Act authorized a bank to merge with a bank in another state as
long as neither of the states had opted out of interstate branching between the
date of enactment of the Interstate Act and May 31, 1997. A bank may establish
and operate a de novo branch in a state in which the bank does not maintain a
branch if that state expressly permits de novo branching. Once a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger transaction could have
established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through de novo branching may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or de novo.
Effective June 1995, coinciding with the mandatory 1.25% funding of the Bank
Insurance Fund ("BIF") reserve, insurance rates were reduced from a range of
$.23 to $.26 per $100 in deposits insured to a range of $.04 to $.07 per $100 in
deposits insured. Further, in November 1995, based on the continuing increase in
reserves with BIF, the FDIC announced an additional reduction of insurance rates
to zero percent, however, banks must pay a mandatory minimum of $2 thousand per
year.
On September 30, 1996, Congress passed and the President signed an omnibus
funding bill which included legislation for the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC. This
legislation included a provision requiring the merger in 1999 of the BIF, which
was also administered by the FDIC, and SAIF assuming that bank charters and
thrift charters were combined by that time. The legislation provided for a new
Financing Corporation ("FICO") sharing formula between BIF and SAIF
insured institutions, which imposes a surcharge of 1.3 cents per one-hundred
dollars of BIF-insured deposits. We were subject to the FICO surcharge and were
required to pay one-fifth of the rate that SAIF institutions pay for three
years, ending in 1999.
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<PAGE>
There are legal restrictions on the extent to which we and our non-bank
subsidiaries may borrow or otherwise obtain credit from Riggs Bank N.A. Subject
to certain limited exceptions, a bank subsidiary may not extend credit to us or
to any other affiliate (as defined) in an amount which exceeds 10% of our
capital stock and surplus and may not extend credit in the aggregate to such
affiliates in an amount which exceeds 20% of its capital stock and surplus.
Further, there are legal requirements as to the type, amount and quality of
collateral which must secure such extensions of credit by each bank subsidiary
to us or to other affiliates. Finally, extensions of credit and other
transactions between a bank subsidiary and our company or other affiliates must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to such a bank subsidiary as
those prevailing at the time for comparable transactions with non-affiliated
companies.
Under Federal Reserve Board policy, bank holding companies are expected to act
as a source of financial strength to their subsidiary banks and to commit
resources to support such banks in circumstances where a bank holding company
might not do so absent such policy. In addition, any capital loans by a bank
holding company to any of its subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary bank.
In the event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Our subsidiaries face substantial competition in their operations from banking
and nonbanking institutions, including savings and loan associations, credit
unions, money market funds and other investment vehicles, mutual fund advisory
companies, brokerage firms, insurance companies, mortgage banking companies,
finance companies and other types of financial services providers.
ITEM 2.
PROPERTIES
We own properties located in Washington, D.C. which house our executive offices,
15 of our branches, and certain operational units of Riggs Bank N.A. We also own
an office building in Maryland, where additional operational units of Riggs Bank
N.A. are located. Further, we own an office building in London, England, and
lease various properties in Washington, D.C.; London, England; Berlin, Germany;
Miami, Florida; New Haven, Connecticut; northern Virginia and Maryland.
Additional information concerning our facilities can be found on pages 70, 74
- -75 and 77 of our 1999 Annual Report, which information is incorporated herein
by reference.
ITEM 3.
LEGAL PROCEEDINGS
Incorporated by reference to page 114 of our 1999 Annual Report.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth quarter
of 1999.
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<PAGE>
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock of Riggs National Corporation is traded on The Nasdaq Stock
Market under the symbol:"RIGS."
A history of the Corporation's stock prices and dividends is incorporated by
reference to page 138 of our 1999 Annual Report.
As of February 29, 2000, there were 2,241 shareholders of record.
Other information required by this item is incorporated by reference to pages
115-117 of our 1999 Annual Report.
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
Incoporated by reference to page 77 of our 1999 Annual Report.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Incorporated by reference to pages 77-96 of our 1999 Annual Report.
ITEM 7 A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference to pages 82-83 and 96 of our 1999 Annual Report.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to pages 97-139 of our 1999 Annual Report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
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<PAGE>
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item pertaining to directors of our company is
included in our proxy statement for our 2000 Annual Meeting of Shareholders (the
"2000 Proxy Statement"), which is incorporated by reference. The information
required by this Item pertaining to executive officers of our company is as
follows:
<TABLE>
<CAPTION>
Executive Officer* Position Age
<S> <C> <C>
Joe L. Allbritton Chairman of the Board and Chief Executive Officer of the Corporation since 1981,
Chairman of the Board of Riggs Bank N.A. since 1983 and Chief Executive
Officer of Riggs Bank N.A. since 1997 75
Timothy C. Coughlin President of the Corporation since 1992 57
John L. Davis Chief Financial Officer, Treasurer and Comptroller of the Corporation and
Executive Vice President and Chief Financial Officer of Riggs Bank N.A. since 1993 58
Joseph W. Barr Executive Vice President of Riggs Bank N.A.
Community Banking since 1993 50
Joseph M. Cahill Executive Director of Legal Affairs, Riggs Bank N.A. since 1998 46
Henry A. Dudley, Jr. Executive Vice President and Chief Trust Officer of Riggs Bank N.A. since 1994 53
Raymond M. Lund Executive Vice President of Riggs Bank N.A.
International Banking Group since 1996 38
Robert C. Roane Executive Vice President and Chief Operating Officer of Riggs Bank N.A. since 1999 44
W. E. Tige Savage Executive Vice President of Riggs Bank N.A. since 1998 31
David W. Scott Executive Vice President and Chief Credit Officer of Riggs Bank N.A. since 1995 38
Alfred J. Serafino Executive Vice President of Riggs Bank N.A.
Relationship Banking since 1993 51
</TABLE>
*Executive officers of Riggs National Corporation, including certain executive
officers of Riggs Bank N.A., as of March 1, 2000.
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<PAGE>
EXPERIENCE OF MANAGEMENT
JOE L. ALLBRITTON has been Chairman of the Board and Chief Executive Officer of
the Corporation since 1981. He has served as Chairman of the Board of Riggs Bank
N.A. since 1983 and has served as Chief Executive Officer of Riggs Bank N.A.
since 1997. Mr. Allbritton is the beneficial owner of approximately 42% of the
Common Stock of the Corporation as of February 29, 2000. He also serves as
Chairman of the Board of, and is the owner of, Westfield News Advertiser, Inc.,
and Perpetual Corporation, indirect owner of Allbritton Communications Company.
TIMOTHY C. COUGHLIN has served as President of the Corporation since 1992. He
has been a Director of the Corporation since 1988 and was a Director of Riggs
Bank N.A. from 1983 to 1996.
JOHN L. DAVIS has served as Chief Financial Officer of the Corporation and
Executive Vice President and Chief Financial Officer of Riggs Bank N.A. since
June 1993.
JOSEPH W. BARR has served as Executive Vice President in charge of Community
Banking since July 1993.
JOSEPH M. CAHILL was appointed Executive Director of Legal Affairs of Riggs Bank
N.A. in 1998. Mr. Cahill served as the Litigation Manager of Riggs Bank N.A.
from 1996 to 1997, and Associate Litigation Manager from 1993 to 1995.
HENRY A. DUDLEY, JR., Executive Vice President, has served as Chief Trust
Officer in charge of Financial Services, which includes the Trust Division,
Riggs Investment Management Corporation (RIMCO), and the Domestic Private
Banking Division, since 1994.
RAYMOND M. LUND has served as Executive Vice President-International Banking
Group since 1996. Mr. Lund has served in various management positions during the
past 10 years, including Head of the International and Domestic Private Banking
Divisions.
ROBERT C. ROANE, Executive Vice President, has served as Chief Operating Officer
of Riggs Bank N.A. since May of 1999. Mr. Roane has served in various management
positions with Riggs during the past 22 years.
W. E. TIGE SAVAGE has served as Executive Vice President of Riggs Bank N.A.
since 1998, supporting the activities of Riggs Capital Partners LLC, the
Corporation's venture capital subsidiary, and the Office of the Chairman. He has
also served at Riggs Bank N.A. as Vice President and Executive Assistant to the
Chairman and as a commercial lender.
DAVID W. SCOTT, Executive Vice President, has served as Chief Credit Officer of
Riggs Bank N.A. since 1995. Mr. Scott has served in various management positions
with Riggs during the past 11 years.
ALFRED J. SERAFINO has served as Executive Vice President-Relationship Banking
since 1993. He also has served as Executive Vice President in Commercial Banking
and President and Chief Executive Officer of the subsidiary formerly known as
The Riggs National Bank of Maryland.
-7-
<PAGE>
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is included in Riggs National
Corporation's 2000 Proxy Statement to Shareholders, which is incorporated herein
by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in Riggs National
Corporation's 2000 Proxy Statement to Shareholders, which is incorporated herein
by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 2000 Proxy Statement to
Shareholders, which is incorporated herein by reference.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(a) Financial Statements
The financial statements included on pages 97-139 of our 1999 Annual Report are
incorporated herein by reference.
The exhibits listed on the Index to Exhibits are incorporated herein by
reference.
14(b) Reports on Form 8-K
None.
-8-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
JOE L. ALLBRITTON*
- ------------------
Joe L. Allbritton,
Chairman of the Board and Chief Executive Officer
March 24, 2000
TIMOTHY C. COUGHLIN* President
- --------------------
Timothy C. Coughlin
/s/ JOHN L. DAVIS Chief Financial Officer and Comptroller
- ----------------- (Principal Financial and Accounting Officer)
John L. Davis
ROBERT L. ALLBRITTON* Director
- ---------------------
(Robert L. Allbritton)
JOHN M. FAHEY, JR.* Director
- -------------------
(John M. Fahey, Jr.)
LAWRENCE I. HEBERT* Director
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(Lawrence I. Hebert)
STEVEN B. PFEIFFER* Director
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(Steven B. Pfeiffer)
JOHN E. V. ROSE* Director
- ----------------
(John E. V. Rose)
ROBERT L. SLOAN* Vice Chairman
- ----------------- of the Board
(Robert L. Sloan)
JACK VALENTI* Director
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(Jack Valenti)
WILLIAM L. WALTON* Director
- ------------------
(William L. Walton)
EDDIE N. WILLIAMS* Director
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(Eddie N. Williams)
*By: /s/ JOSEPH M. CAHILL
--------------------
Joseph M. Cahill, Attorney-in-fact
March 24, 2000
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<PAGE>
Index to
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description Pages
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<S> <C> <C>
(3.1) Restated Certificate of Incorporation of Riggs National
Corporation, dated April 19, 1999 (Incorporated by reference to
the Registrant's Form 10-Q for the quarter ended June 30, 1999,
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. 0-9756)
(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. 0-9756)
(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. 0-9756)
(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) Aircraft Purchase Agreement for the Sale of Riggs Bank's
Gulfstream III (Incorporated by reference to the Registrant's
Form 10-Q for the quarter ended September 30, 1999, SEC
File No. 0-9756)
(10.2) Outfitted Gulfstream V Sales Agreement, Addendum I, and Amendment
for Riggs Bank's Purchase of a new Gulfstream V (Incorporated
by reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1999, SEC File No. 0-9756)
(10.3)+ Amended Joe L. Allbritton Employment Agreement, dated December 28,
1999 12
(10.4)+ Riggs National Corporation's Executive Incentive Plan
(Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1999, SEC File No. 0-9756)
(10.5)+ 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. 0-9756)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Pages
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(10.6)+ The 1993 Stock Option Plan and the 1994 Stock Option Plan, as
amended April 15, 1998 (Incorporated by reference to the
Registrant's Annual Meeting Proxy Statement filed March 18, 1998),
and the 1996 Stock Option Plan and the 1997 Non-Employee Directors
Stock Option Plan, as amended April 14, 1999 (Incorporated by
reference to the Registrant's Annual Meeting Proxy Statement filed
March 17, 1999)
(10.7)+ 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. 0-9756)
(10.8)+ 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. 0-9756)
(10.9)+ 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.0-9756)
(10.10)+ Supplemental Executive Retirement Plan, as amended and restated
July 12, 1995 (Incorporated by reference to the Registrant's Form
10-K for the ended December 31, 1998, SEC File No. 0-9756)
(10.11)+ 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. 0-9756)
(10.12) Operating Agreement of Riggs Capital Partners LLC 35
(11) Computation of Per Share Earnings 68
(13) Portions of our 1999 Annual Report to Shareholders 69
(21) Subsidiaries of the Registrant 140
(23) Consent of Independent Public Accountants 141
(24) Powers of Attorney 142
(27) Financial Data Schedule 144
</TABLE>
+ Management contract or compensatory plan, contract, or arrangement
-11-
AMENDED EMPLOYMENT AGREEMENT
This Amendment effective as of the 28th day of December, 1999 to
the Employment Agreement effective July 15, 1999, by and between RIGGS
NATIONAL CORPORATION (the "Company") and JOE L. ALLBRITTON (the "Executive").
WHEREAS, the Executive has been the Chief Executive Officer of the
Company since 1982;
WHEREAS, the Board of Directors of the Company has determined that it
is important to the continued success of the Company to insure that the
Executive continue as the Chief Executive Office of the Company for at least the
next five (5) years;
WHEREAS, the Executive voluntarily reduced his compensation in 1992 in
order to improve the profitability of the Company and to assist it in returning
to a healthy and profitable company with the reasonable expectation that once
the Company returned to historic profitability levels, his compensation would be
increased to historic levels and some recognition would be given to the fact of
his voluntary reduction ; and
WHEREAS, the Board of Directors has determined that now that the
Company has earned record profits that it is appropriate to increase the
Executive's compensation to levels consistent with his historic compensation and
for the Company to recognize the personal sacrifice of the Executive in reducing
his compensation in order to benefit the Company and its shareholders;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties agree as follows:
1. Employment, Term and Duties.
-12-
<PAGE>
1.1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment by the Company on the terms and
conditions set forth in this Agreement.
1.2. Term. The Executive's employment under this Agreement shall commence on the
date hereof (the "Effective Date") and shall terminate on July 15, 2004, unless
earlier terminated as provided in Section 3 below (the "Term")
1.3. Duties. During the Term, the Executive shall serve as the Chief Executive
Officer of the Company, with such customary duties and responsibilities as are
incident to said positions, including such authority, duties, and
responsibilities as set forth with respect to such office in the Company's
articles and bylaws. The Executive agrees to devote at least the same amount of
attention and time to the business and affairs of the Company and to the
duties and responsibilities assigned to the Executive as he has in the past
and will use his reasonable best efforts to perform faithfully and
effectively such duties and responsibilities.
2.Compensation and Other Benefits
2.1. Base Compensation. As compensation for services rendered during the
Term, the Company shall pay to the Executive an annual salary of $800,000 (the
"Base Salary"). The Compensation Committee of the Board of Directors of the
Company (the "Committee") shall conduct an annual review of the Base Salary
at such time or times as the Committee reviews the annual compensation of its
executives in general, and, if approved by the Board of Directors, the
Executive shall be entitled to an increase in the Base Salary as is in
accordance with the then prevailing policy of the Company with respect to
executive compensation in general; provided, that such salary may not be
reduced at any time. The Base Salary shall be payable in accordance with the
payroll policies of the Company as from time to time in effect.
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<PAGE>
2.2. Annual Performance Bonus.
(1) In addition to the Base salary, the Executive shall be eligible to
receive, for each calendar year or portion thereof occurring during the
Term, an annual performance bonus (the "Annual Bonus") in an amount equal to
one hundred fifty percent(150%) of the Executive's Base Salary for such calendar
year or portion thereof; provided that the bonus for the year ending December
31, 1999 shall be equal to 150% of the Executive's Base Salary for an entire
year. The amount of any such Annual Bonus shall be based upon the performance
of the Company and determined in accordance with the procedures set forth
on Exhibit A hereto. The Annual Bonus shall be paid to the Executive at such
time or times as is in accordance with the then prevailing policy of the
Company relating to incentive compensation payments.
(2) No later than the next annual meeting of shareholders of the
Company, the Company shall submit to its shareholders (the
"Shareholders") for approval, with a recommendation of the Board of
Directors of the Company of such approval, an Executive Incentive Plan which,
among other things, covers the Annual Bonus provided for in this Agreement.
If the Executive Incentive Plan is approved by the Shareholders, the
Executive will be entitled to the Annual Bonus if earned in accordance with
the terms and conditions of the Executive Incentive Plan. If the Executive
Incentive Plan is not approved by the Shareholders, the Company shall not be
obligated to pay the Annual Bonus for any year prior to the year for which the
plan is subsequently approved. If the Company fails to submit such Executive
Incentive Plan to the Shareholders with such a recommendation by the
Board of Directors by the next annual meeting of shareholders of the
Company, the Company shall remain obligated to pay the Annual Bonuses which
accrue after 1999 as and when they become due under the terms of
subsection (a) of this Section 2.2.
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<PAGE>
If the Company is not obligated to pay the Annual Bonus as a result of the
failure of the Shareholders to approve such Executive Incentive Plan, the
Company and the Executive shall attempt for a period of 30 days to agree upon
another form or method of compensation to the Executive to adjust for the
loss of the opportunity to earn the Annual Bonuses. If the Company and
the Executive, each in their sole and absolute discretion, can not agree on
another form or method of compensation, the Executive, upon 30 days written
notice to the Company, may terminate this Agreement. In the event of such
termination, the Executive shall be entitled to a lump sum payment of one
year's Base Salary and continuation of all Benefits and Other Benefit Plans for
a period of one year.
2.3. Participation in Employee Benefit Plans. The Company agrees to permit the
Executive during the Term to participate in any group life, hospitalization
and/or disability insurance plan, health program, supplemental executive
retirement plan, nonqualified compensation plan, pension and/or savings plans,
long-term incentive plan, receive "fringe benefits," club memberships and
automobile allowance, and participate in such other benefit plans or programs of
the Company (collectively "Benefits") subject to the generally applicable
eligibility requirements relating to such Benefits.
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The Company also agrees to continue to provide to the Executive substantially
the same benefits, programs and privileges which it currently provides to
the Executive and to implement such other benefit plans (the "Other Benefit
Plans") for the benefit of the Executive to the extent the Company offers its
comparable senior executives benefits that are not currently offered by the
Company. The Company also agrees to provide life insurance to the Executive
during the Term at least equivalent to the life insurance coverage provided
to the Executive under the existing split dollar insurance maintained by the
Company.
2.4. General Business Expenses. The Company shall pay or reimburse the Executive
for all expenses that are incurred by the Executive in the performance of the
Executive's duties under this Agreement in accordance with its regular expense
reimbursement policies and procedures upon presentation of such documentation as
the Company customarily requires of its executive employees prior to making such
payments or reimbursements.
2.5. Vacation. During the Term, the Executive shall be entitled to six (6) weeks
of vacation per year. The Executive shall not be permitted to accumulate and
carryover unused vacation time or pay from year to year except to the extent
permitted in accordance with the Company's vacation policy for senior
executives.
2.6. Tax Withholding. All payments required to be made to the Executive shall
be reduced by any amount required to be deducted or withheld therefrom by
applicable law or regulation.
3. Termination.
3.1.Termination upon Death or Disability. If the Executive either dies or
becomes entitled to benefits under a Company long-term disability plan or
program during the Term (whether before or after a Change of Control),
the Term shall automatically terminate thereupon, and the Executive or the
Executive's estate, as the case may be, shall be entitled to receive, in
addition to any life insurance or disability benefits which are payable,
as soon as reasonably practicable after the separate determinations thereof,
(i) a lump sum payment equal to the Base Salary for the remaining Term (as
otherwise determined before such termination), (ii) any unpaid vested
Benefits accrued up to such date of termination, (iii) an amount equal to the
product of (a) the Annual Bonus, if any, otherwise payable with respect to the
year in which the Term is terminated, multiplied by (b) a fraction, the
numerator of which is the number of days elapsed in such year as of the
termination date and the denominator of which is 365. These items are in
addition to and shall not reduce any other benefits to which the Executive or
his estate may be entitled.
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3.2. Other Termination.
(1) Termination By the Company. Notwithstanding any provision of the
Agreement to the contrary, the Company, with the approval of a majority of the
Board of Directors, has the right, at any time during the Term, exercisable by
serving written notice, effective on or after the date of service of such
notice as specified therein, to terminate the Executive's employment
under this Agreement and to discharge the Executive with or without Cause.
(2) Termination With Cause. Any termination of employment of the Executive
by the Company with Cause shall terminate the Term and thereafter no amounts
shall be payable to Executive under this Agreement except (i)his Base Salary
through the date of termination, and (ii) any unpaid vested Benefits, and
(iii) the Annual Bonuses, if any, payable with respect to the prior calendar
year if it has not yet been paid. All of the foregoing amounts shall be payable
in a lump sum, less such amounts as shall be required to be deducted or withheld
therefrom by applicable law and regulations, within fifteen (15) days after
the termination date.
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For purposes of this Agreement, "Cause" shall mean (i) the conviction of
the Executive of a felony specifically involving his actions with respect
to the Company, (ii) the Executive's willful refusal without legal cause to
perform his duties as Chief Executive Officer of the Company which refusal
continues for more than thirty (30) days after written notice to the
Executive from the Board of Directors of the Company directing the Executive
to discontinue same, or (iii) a material breach of his fiduciary duty to the
Company through the misappropriation of funds or property of the Company.
Nothing in this Agreement shall prevent the Executive's right to terminate his
employment with the Company.
(3) Termination Without Cause; Termination by the Employee for Good Reason
or Termination Following Change of Control. Notwithstanding any
provision of this Agreement to the contrary, in the event that the
Executive's employment is terminated following a Change of Control of the
Company, by the Company without Cause or by the Employee for Good Reason, the
following amounts shall be payable or provided by the Company: (i) the Base
Salary then earned, but unpaid, plus an amount equal to the Base Salary
which would have been earned up to and including the end of the Term (as
otherwise determined before such termination), (ii) any unpaid vested
Benefits accrued to such date of termination, (iii) an amount equal to the
aggregate Annual Bonuses which would have been payable on account of any
periods ending on or before the end of the Term (as otherwise determined
before such termination) which bonuses shall, for each such period be equal to
one hundred fifty percent (150%) of the then current Base Salary.
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All of the foregoing amounts shall be payable in a lump sum, less such amounts
as shall be required to be deducted or withheld therefrom by applicable law and
regulations, within fifteen (15) days after the termination date. To the
extent the Executive is eligible thereunder, for a period through the end of
the Term (as otherwise determined before such termination), the
Executive shall continue to be provided life insurance, disability,
long-term disability policies and any other Benefits provided to the
Executive on the date hereof, or such successor policies in effect at
the time of the Executive's termination, and shall also continue to be
covered for the applicable period by such other insurance, disability,
health or other Benefit program, plan or policy by which he was covered
at the time of the Executive's termination. In the event the Executive is
ineligible to continue to be so covered under the terms of any such life
insurance, disability, long-term disability, insurance, health or other
Benefit program, plan or policy, the Company shall provide to the Executive
through other sources such benefits, including such additional
benefits, as may be necessary to make the benefits applicable to the
Executive substantially equivalent to those in effect immediately prior to such
termination.
For purposes of this Agreement, a "Change of Control" of the Company shall be
deemed to occur upon the happening of any of the following:
(1) individuals who, on the date hereof, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director subsequent
to the date hereof, whose election or nomination for election was approved by
a vote of at least two-thirds of the Incumbent Directors then on the Board
(either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director, without
written objection to such nomination)
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shall be an Incumbent Director; provided however, that no individual
initially elected or nominated as a director of the Company as a result of
an actual or threatened election contest (as described in Rule 14a-11 under
the Securities Exchange Act of 1934 (the "Act") ("Election Contest") or
other actual or threatened solicitation of proxies or consent by or on
behalf of any "person" (as such term is defined in Section 3(a)(9) of the
Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act) other than
the Board ("Proxy Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest, shall be deemed an
Incumbent Director;
(2) any person is or becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the event
described in this paragraph (ii) shall not be deemed to be a Change in Control
of the Company by virtue of any of the following acquisitions: (A) by the
Company or any subsidiary, (B) by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any subsidiary, (C) by any
underwriter temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction (as defined in
paragraph (iii)), (E) pursuant to any acquisition by the Executive or any
group of persons including the Executive (or any entity controlled by the
Executive or any group of persons including the Executive); or (F) a
transaction (other than one described in (iii) below) in which Company
Voting Securities are acquired from the Company, if a majority of the
Incumbent Directors (including the Executive if he is then an Incumbent
Director) approve a resolution providing expressly that the acquisition
pursuant to this clause (F) does not constitute a Change in Control of the
Company under this paragraph (ii).
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(3) the consummation of a merger, consolidation, statutory share exchange
or similar form of corporate transaction involving the Company or any of its
subsidiaries that requires the approval of the Company's stockholders,
whether for such transaction or the issuance of securities in the transaction
(a "Reorganization"), or sale or other disposition of all or substantially
all of the Company's assets to an entity that is not an affiliate of the
Company (a "Sale"), unless immediately following such Reorganization or
Sale: (A) more than 60% of the total voting power of (x) the corporation
resulting from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the "Surviving
Corporation), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of at least a majority of the
voting securities eligible to elect directors of the Surviving Corporation
(the "Parent Corporation"), is represented by Company Voting Securities
that were outstanding immediately prior to such Reorganization or Sale
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(or, if applicable, is represented by shares into which such Company Voting
Securities were converted pursuant to such Reorganization or Sale), and such
voting power among the holders thereof is in substantially the same proportion
as the voting power of such Company Voting Securities among the holders thereof
immediately prior to the Reorganization or Sale, (B) no person (other than the
Executive and affiliates of the Executive or any employee benefit plan (or
related trust)sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation) and (C)at least a majority
of the members of the board of directors of the Parent Corporation (or, if
there is no Parent Corporation, the Surviving Corporation) following the
consummation of the Reorganization of the Reorganization or Sale were
Incumbent Directors at the time of the Board's approval of the execution
of the initial agreement providing for such Reorganization or Sale (any
Reorganization or Sale which satisfies all of the criteria specified in (A), (B)
and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(4) the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company. Notwithstanding the foregoing, a Change in
Control of the Company shall not be deemed to occur solely because any person
acquires beneficial ownership of more than 25% of the Company Voting
Securities as a result of the acquisition of Company Voting Securities by
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the Company which reduces the number of Company Voting Securities outstanding;
provided, that if after such acquisition by the Company such person
becomes the beneficial owner of additional Company Voting Securities that
increases the percentage of outstanding Company Voting Securities
beneficially owned by such person, a Change in Control of the Company shall
then occur.
For purposes hereof, "Good Reason" shall mean
(1) Removal without the consent of the Executive in
writing, from any of the offices now held by the Executive in the Company
or any subsidiary of the Company, or any material reduction in Executive's
authority or responsibility, other than or a result of a termination for
Cause or on account of disability.
(2) The Company otherwise commits a material breach of his Agreement.
3.3. Certain Additional Payments by the Company. Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
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such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. Subject to the
provisions of this Section 3.3, all determinations required to be made
hereunder, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall be made by Ernst & Young or such other accounting
firm selected by the Executive (the "Accounting Firm") at the sole expense of
the Company, which shall provide detailed supporting calculations both to the
Company and the Executive within fifteen (15) business days of the date of
termination of the Executive's employment under this Agreement, if applicable,
or such earlier time as is requested by the Company. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, the Accounting Firm
shall furnish the Executive with an opinion that he has substantial authority
not to report any Excise Tax on his federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments, which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. If the Company exhausts its remedies pursuant
hereto and the Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
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The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the Company
relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including (without limitation) accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith to contest effectively such claim,
and
(4) permit the Company to participate in any proceedings relating to such
claim; provided that the Company shall bear and pay directly all ,costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation
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and payment of costs and expenses. Without limitation on the foregoing
provisions hereof the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo
any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine, provided that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax, including interest or penalties
with respect thereto, imposed with respect to such advance or with respect
to any imputed income with respect to such advance, and further provided that
any extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
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If, after the receipt by the Executive of an amount advanced
by the Company pursuant hereto, the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements hereof) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant hereto, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
4. Other Provisions.
4.1. Nondisclosure. During the term of this Agreement and thereafter, the
Executive shall not, without the prior written consent of the Board of
Directors, disclose or use for any purpose (except in the course of his
employment under this Agreement and in furtherance of the business of the
Company confidential information or proprietary data of the Company (or any of
its subsidiaries), except as required by applicable law or legal process;
provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company (or any of its subsidiaries.
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4.2. Noncompetition. The Company and the Executive agree that the services
rendered by Employee hereunder are unique and irreplaceable. The Executive
hereby agrees that, during the term of this Agreement and for a period of
six months thereafter, if the Executive's employment is terminated by the
Company for Cause or by the Executive without Good Reason, he shall not
(except in the course of his employment under this Agreement and in
furtherance of the business of the Company (or any of its subsidiaries) (i)
engage in as principal, consultant or employee in any segment of a business of
a company, partnership or firm ("Business Segment") that is directly
competitive with any significant business of the Company in one of its major
commercial or geographic markets or (ii) hold an interest (except as a
holder of a less than 5% interest in a publicly traded firm or mutual fund, or
as a minority stockholder or unitholder in a firm not publicly traded) in a
company, partnership, or firm with a Business Segment that is directly
competitive with the Company, without prior written consent of the Company.
4.3. Remedies. The Executive acknowledges that irreparable damage would result
to the Company if the provisions of paragraph 4.1 or 4.2 above are not
specifically enforced and agrees that the Company shall be entitled to any
appropriate legal, equitable or other remedy, including injunctive relief, in
respect of any failure to comply with such provisions.
4.4. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, on the date of actual receipt thereof, as follows:
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(i) If to the Company, to:
Riggs National Corporation
800 17th Street, N.W.
Washington, D.C. 20006
Attention: Director
Human Resources
(ii) If to the Executive, to:
Joe L. Allbritton
800 17th Street, N.W.
Washington, D.C. 20006
Any party may change its address for notice hereunder by notice to the
other party hereto.
4.5. Entire Agreement. This Agreement, including the attached Exhibit A which is
a part hereof for all purposes, contains the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
4.6. Governing Law; Validity. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.
4.7. Assignment. The obligations of the Executive hereunder are personal and
may not be assigned or delegated by him or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder,
either in whole or in part, to any parent, affiliate, successor or
subsidiary organization or company of the Company, so long as the
obligations of the Company under this Agreement remain the obligations of the
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Company and of the Company, that the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise), to all or
substantially all of the business and/or assets of the Company, by agreement
in form and substance reasonably acceptable to the Executive, to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
4.8. Termination. Except as otherwise provided expressly herein, this
Agreement shall terminate on July 15, 2004.
5. Resolution of Disputes.
5.1. Negotiation. The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiations between
the Executive and a representative of the Compensation Committee of the Company
who has authority to settle the controversy. Any party may give the other party
written notice of any dispute not resolved in the normal course of business.
Within ten (10) days after the effective date of such notice, the Executive and
a representative of the Compensation Committee of the Company shall meet as
often as they reasonably deem necessary, to exchange relevant information and to
attempt to resolve the dispute. If the matter has not been resolved within
thirty (30) days of the disputing party's notice, or if the parties fail to meet
within ten (10) days, either party may initiate arbitration of the controversy
or claim as provided hereinafter. If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator shall be given at least three
business days' notice of such intention and may also be accompanied by an
attorney. All negotiations pursuant to this Section 5.1 shall be treated as
compromise and settlement negotiations for the purposes of the federal and state
rules of evidence and procedure.
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5.2. Arbitration. Any dispute arising out of or relating to this Agreement or
the breach, termination or validity thereof, which has not been resolved by
non-binding means as provided in Section 5.1 within sixty (60) days of the
initiation of such procedure, shall be finally settled by arbitration conducted
expeditiously in accordance with the Center for Public Resources, Inc.
("CPR") Rules for Non-Administered Arbitration of Business Disputes by three
independent and impartial arbitrators, of whom each party shall appoint
one, provided that if one party has requested the other to participate in
a non-binding procedure and the other has failed to participate, the
requesting party may initiate arbitration before the expiration of such
period. Any such party shall be appointed from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act and any
judgment upon the award decided upon the arbitrators may be entered by any court
having jurisdiction thereof. The arbitrators are not empowered to award damages
in excess of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages. Each party hereby acknowledges that
compensatory damages include (without limitation) any benefit or right of
indemnification given by another party to the other under this Agreement.
5.3. Expenses. The Company shall promptly pay or reimburse the Executive for all
costs and expenses, including, without limitation, court costs and attorneys'
fees, reasonably incurred by the Executive as a result of any claim, action or
proceeding (including, without limitation a claim, action or proceeding by the
Executive against the Company) arising out of, or challenging the validity or
enforceability of, this Agreement or any provision hereof.
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6. Successors. This Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs, executors, administrators and legal
representatives. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns.
7. No Mitigation or Set-Off. The provisions of this Agreement are not intended
to, nor shall they be construed to, require that the Executive mitigate the
amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by the Executive as a
result of his employment by another employer or otherwise. The Company's
obligations to make the payments to the Executive required under this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
set off, counterclaim, recoupment, defense or other claim, right or action that
`the Company may have against the Executive.
8. Amendment. No provision of this Agreement may be modified or waived unless
such modification or waiver is agreed to in writing and signed by the Executive
and by a duly authorized officer of the Company who has been authorized to sign
by the Compensation Committee of the Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Failure by the Executive or the
Company to insist upon strict compliance with any provision of this Agreement or
to assert any right the Executive or the Company may have hereunder, including
without limitation, the right of the Executive to terminate employment for Good
Reason, shall not be deemed to be a waiver of such provision or right or any
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other provision or right of this Agreement. Except as otherwise specifically
provided herein, the rights of, and benefits payable to, the Executive, his
estate or his beneficiaries pursuant to this Agreement are in addition to any
rights of, or benefits payable to, the Executive, his estate or his
beneficiaries under any other employee benefit plan or compensation program of
the Company.
9. Full Settlement. The Company's obligation to make any payments provided for
in this Agreement in respect of the Executive's termination of employment
and otherwise to perform its obligations hereunder shall be in lieu and in
full settlement of all other severance payments to the Executive under any
severance plan of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
for all purposes as of the date first above written.
RIGGS NATIONAL CORPORATION
By:/s/ TIMOTHY C. COUGHLIN
-----------------------
Name: Timothy C. Coughlin
-------------------
Title: President
---------
/s/ JOE L. ALLBRITTON
-----------------
Joe L. Allbritton
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EXHIBIT A
Any capitalized term used herein which is not otherwise defined shall
have the meaning attributed to it in the Executive's Employment Agreement (the
"Employment Agreement").
The Employment Agreement provides that the Executive shall be paid an
Annual Bonus as determined by the Compensation Committee (or a subcommittee
thereof comprised solely of "outside directors," within the meaning of Section
162(m) of the Internal Revenue Code of 1986, if the Committee is not so
comprised, and references herein to the Compensation Committee shall be deemed
references to such subcommittee). The purpose of this Exhibit is to set forth
the procedure for (i) setting the annual objectives (the "Objective") for each
year, (ii) determining whether the Objective has been obtained, and (iii)
setting the magnitude of the Annual Bonus based upon the Company's performance
vis-a-vis the Objective.
On or prior to February 28 of each calendar year, the Executive shall
submit a proposed business plan to the Compensation Committee. The business plan
shall set forth a forecast of the net income after tax for the Company for the
then current year. The proposed business plan shall be subject to review and
approval by the Compensation Committee. The Executive and the Compensation
Committee shall discuss in good faith any revisions to the proposed plan
required by the Compensation Committee, but notwithstanding such discussions,
the business plan shall be subject to the approval of the Compensation Committee
in the exercise of its discretion. On or prior to the 90th day of each calendar
year, the Compensation Committee shall determine, based on the business plan,
specific objective performance criteria which must be met for the Executive to
receive the Annual Bonus; provided however, the Executive shall be entitled to
receive an Annual Bonus with respect to calendar year 1999 if the Company's net
income available for Common Stock for the five months ended December 31, 1999
equals or exceeds an amount determined by the Compensation Committee on or prior
to August 27, 1999.
Within ten (10) days after the year end financial results of the
Company are made available to the Compensation Committee, it shall determine
whether, in its good faith judgment, the Objective has been met or exceeded.
Based upon the Compensation Committee's conclusions with respect to the
Company's performance vis-a-vis the Objective, the Executive shall be entitled
to the Annual Bonus.
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OPERATING AGREEMENT
OF
RIGGS CAPITAL PARTNERS, LLC
a Delaware Limited Liability Company
THIS OPERATING AGREEMENT, entered into effective as of the
30th day of November, 1999, by and among the persons listed on Schedule A hereto
(the "Members"), being all of the members of RIGGS CAPITAL PARTNERS, LLC, a
Delaware limited liability company (the Company");
W I T N E S S E T H:
WHEREAS, the Members wish to form the Company for the purpose
of making and holding certain investments and engaging in the other activities
set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto do hereby amend and
restate the Original Agreement to read in its entirety as follows:
SECTION 1
Definitions
The following capitalized terms used in this Agreement shall
have the following meanings:
1.1. "Act" shall mean the Delaware Limited Liability Company Act, as the same
may be amended from time to time.
1.2. "Adjusted Capital Account Balance" shall mean a Member's Capital Account
balance (a) increased by any amount that such Member is obligated to restore
under Treas. Reg. ss. 1.704-1(b)(2)(ii)(c) (including any addition thereto
pursuant to the next to last sentences of Treas. Reg. ss. 1.704-2(g)(1) and
(i)(5) after taking into account thereunder any changes during such Fiscal Year
in Company Minimum Gain and in Member Nonrecourse Debt Minimum Gain) and (b)
decreased by any adjustments, allocations, and distributions specified in Treas.
Reg. ss. 1.704-1(b)(2)(ii)(d)(4), (5), and (6) as are reasonably expected to be
made to such Member. A distribution or allocation will result in a Member having
a deficit Adjusted Capital Account Balance to the extent such distribution or
allocation either will create or increase a deficit balance in such Member's
Capital Account after making the adjustments described in the preceding
sentence.
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1.3. "Affiliate" shall mean, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person (including, if any of the forgoing is a natural Person, the parent,
spouse, child, brother, or sister of such natural Person), (ii) any Person
owning or controlling a majority of the outstanding voting interests of such
Person, (iii) any officer, director, or general partner of such Person, or (iv)
any Person who is an officer, director, general partner, trustee, or holder of a
majority of the voting interests of any Person described in clauses (i) through
(iii) of this sentence. For purposes of this definition, the term "controls,"
"is controlled by," or "is under common control with" shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise.
1.4. "Agreed Value" shall mean, with respect to Property, the fair market value
of that Property on the date it is contributed to the Company, as determined by
the Managing Member in good faith and by reasonable methods.
1.5. "Agreement" shall mean this Operating Agreement, as amended from time to
time.
1.6. "Bankruptcy" shall mean, with respect to any Person, (i) the entry of a
decree or order for relief of such Person by a court of competent jurisdiction
in any involuntary case involving such Person under any bankruptcy, insolvency
or other similar law now or hereafter in effect; (ii) the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or other
similar agent for such Person or for any substantial part of such Person's
assets or property; (iii) the ordering of the winding up or liquidation of such
Person's affairs; (iv) the filing with respect to such Person of a petition in
any such involuntary bankruptcy case, which petition remains undismissed for a
period of ninety (90) days or which is dismissed or suspended pursuant to
Section 305 of the U.S. Bankruptcy Code or any successor provision thereto; (v)
the commencement by such Person of a voluntary case under any bankruptcy,
insolvency or other similar law now or hereafter in effect; or (vi) the making
by such Person of any general assignment for the benefit of creditors.
1.7. "Capital Account" shall mean the capital account to be maintained by the
Company for each Member in accordance with Section 4.3.
1.8. "Capital Contributions" shall mean all cash and other property contributed
to the Company by or on behalf of a Member or such Member's predecessor in
interest.
1.9. "Capital Interest" shall mean the percentage of total capital contributions
allocable to a Member, as set forth on Schedule A.
1.10. "Cash Reserve" shall mean any reserve fund which may be established and
maintained by the Managing Member in its reasonable good faith judgment for the
conduct of the Company Business, provided that such fund is in keeping with
generally accepted accounting practices and does not exceed amounts deemed by
the Managing Member reasonably necessary for anticipated debt service, future
capital expenditures, repairs, replacements, taxes, contingent liabilities and
the like. If the Cash Reserve is drawn down it may be replenished in accordance
with the preceding limitations.
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1.11. "Code" shall mean the Internal Revenue Code of 1986, as amended (or any
corresponding provision or provisions of succeeding law).
1.12. "Company" shall mean Riggs Capital Partners, LLC, a Delaware limited
liability company.
1.13. "Company Business" shall mean the business in which the Company shall
engage from time to time under Section 2.2 hereof.
1.14. "Company Interest" shall mean the ownership and voting interest of a
Member in the Company at any particular time, including the right of such Member
to any and all distributions and any other benefits to which such Member may be
entitled as provided in this Agreement or the Act, together with the obligations
of such Member to comply with all the provisions of this Agreement and the Act.
1.15. "Company Minimum Gain" shall mean the amount of Company minimum gain,
computed in the manner set forth in Treas. Reg. ss. 1.704-2(d).
1.16. "Company Nonrecourse Deduction" shall mean the amount of nonrecourse
deductions computed in the manner set forth in Treas. Reg. ss. 1.704-2(c).
1.17. "Company Tax Items" shall mean all items of income, gain, loss, and
deduction, and all tax preferences, depreciation, accelerated cost recovery
system deductions, investment interest, and other tax items of the Company for
each Fiscal Year, as allocated among the Members for tax purposes under Section
6.3 hereof.
1.18. "Compliance Manual" shall have the meaning set forth in Section 5.2.
1.19. "Contributing Members" shall mean the Members other than the Special
Member.
1.20. "Default Rule" shall mean a provision of the Act that would apply to the
Company unless otherwise provided in, or modified by, the Agreement.
1.21. "Distributable Amounts" means Net Cash Flow from investments made by the
Company for which J. Carter Beese, Jr., has served as the Investment Advisor, or
from any reinvestment of proceeds from such investments.
1.22. "Fiscal Year" shall mean an annual accounting period ending December 31 of
each year during the term of the Company; provided, however, that the last such
Fiscal Year shall be the period beginning on January 1 of the calendar year in
which the final liquidation and termination of the Company is completed and
ending on the date such final liquidation and termination is completed. To the
extent any computation or other provision hereof provides for an action to be
taken on a Fiscal Year basis, an appropriate proration or other adjustment shall
be made in respect of the first or final Fiscal Year to reflect that such period
is less than a full calendar year period.
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1.23. "Investment Account" shall mean the investment account to be maintained by
the Company for each Member in accordance with Section 4.4.
1.24. "Investment Advisor" shall mean J. Carter Beese, Jr., or such other person
as may hereafter be designated as investment advisor to the Company.
1.25. "Majority Vote" shall mean the affirmative vote of Members holding more
than 50% of the total Profits Interests held by the Members.
1.26. "Managing Member" shall have the meaning ascribed thereto in Section 5.1.
1.27. "Member" shall mean the initial Members listed on Schedule A attached
hereto and any Person admitted as a new Member or a Substitute Member in
accordance with the terms of this Agreement. Schedule A may be amended from time
to time to reflect the withdrawal of a Member or the addition of a new Member or
a Substitute Member in accordance with the terms of this Agreement.
1.28. "Member Nonrecourse Debt" shall mean any Company liability to the extent
the liability is nonrecourse for purposes of Treas. Reg. ss. 1.1001-2, and a
Member (or related person (within the meaning of Treas. Reg. ss. 1.752-4(b)))
bears the economic risk of loss under Treas. Reg. ss. 1.752-2 because, for
example, the Member (or related person) is the creditor or a guarantor. The
determination of whether a Company liability constitutes a Member Nonrecourse
Debt shall be made in accordance with Treas. Reg. ss. 1.704-2(b)(4).
1.29. "Member Nonrecourse Debt Minimum Gain" shall mean the amount of partner
nonrecourse debt minimum gain, computed in the manner set forth in Treas. Reg.
ss. 1.704-2(i)(3), with respect to each Member Nonrecourse Debt.
1.30. "Member Nonrecourse Deduction" shall mean the amount of partner
nonrecourse deductions as computed under Treas. Reg. ss. 1.704-2(i)(2).
1.31. "Net Cash Flow" shall mean, for any period, the sum of cash from
operations of the Company Business, from the sale or disposition of Company
Property, or from any other source, for such period after deducting the
following amounts for such period: (i) amounts required to pay the Company's
operating expenses and current liabilities; (ii) amounts required to discharge
any Company debt or obligation, including loans or advances from Members; (iii)
the amount of any additions to Cash Reserve; and (iv) amounts set aside by the
Managing Member for reinvestment. Net Cash Flow shall not be reduced by
depreciation, amortization, cost recovery deductions or similar allowances, but
shall be increased by any reductions of Cash Reserve.
1.32. "Net Income Amount" shall mean, with respect to a Member for a Fiscal
Year, the amount of Company net taxable income allocated to such Member for such
Fiscal Year, reduced by the excess, if any, of (i) the aggregate amount of
Company net taxable loss allocated to such Member for all prior Fiscal Years,
over (ii) the aggregate amount of Company net taxable income allocated to such
Member for all prior Fiscal Years.
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1.33. "Net Market Value" with respect to the Company's assets shall mean the
fair market value of Company's total assets, net of total liabilities, as
determined in good faith by the Managing Member.
1.34. "Person" shall mean any human being, organization, general partnership,
limited partnership, corporation, limited liability company, joint venture,
trust, business trust, association, governmental entity or other legal entity.
1.35. "Portfolio Company" shall mean a Person in which the Company holds a
Portfolio Investment.
1.36. "Portfolio Investment" shall mean an investment in a Person, in the form
of debt, equity, convertible debt, options, warrants, or other instruments
conferring upon the Company a current or future economic interest, with the
exception of Short-Term Investments.
1.37. "Priority Return" shall mean, for each Member for each Fiscal Year, an
amount equal to nine percent (9%) of the average daily Investment Account
balance of such Member over the course of the current Fiscal Year, multiplied,
in the case of a partial Fiscal Year, by the number of days in such partial
Fiscal Year divided by 365.
1.38. "Profits" or "Loss" shall mean, for each Fiscal Year, the Company's
taxable income or taxable loss for such Fiscal Year, as determined in accordance
with Code Section 703(a) (for this purpose, all items of income, gain, loss, or
deduction required to be separately stated pursuant to Code Section 703(c)(1)
shall be included in taxable income or loss), but with the following
adjustments:
(a) Items of income, gain, loss and deduction relating to Property contributed
to the Company shall be computed as if the basis of the Property to the Company
at the time of contribution were equal to its fair market value on that date and
the amount of any depreciation, amortization, or other cost recovery deductions
allowable were computed in accordance with the following sentence. For purposes
of the preceding sentence, the amount of any depreciation, amortization, or
other cost recovery deduction allowable for any period with respect to Property
contributed to the Company shall be an amount that bears the same ratio to the
fair market value of the Property on the date of contribution as the federal
income tax depreciation, amortization, or other cost recovery deduction bears to
the adjusted tax basis of the Property on the date of contribution; provided,
however, that if the adjusted tax basis of the Property is zero on the date of
contribution, then the amount of depreciation, amortization, or other cost
recovery deduction shall be determined with reference to the fair market value
of the Property on the date of contribution using any reasonable method selected
by the Managing Member.
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(b) Any tax exempt income and gain, as described in Section 705(a)(1)(B) of the
Code, realized by the Company during such Fiscal Year shall be added to such
taxable income or taxable loss and any related expenses not allowed as a
deduction pursuant to Section 265 of the Code shall be subtracted from such
income or loss.
(c) Any expenditures of the Company described in Sections 705(a)(2)(B) (or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Treas. Reg. ss.
1.704-1(b) and not otherwise taken into account under this Section) and 709 of
the Code (except for amounts with respect to which an election is properly made
under Section 709(b)) for such Fiscal Year shall be subtracted from such taxable
income or taxable loss.
(d) Except as otherwise provided in Treas. Reg. ss. 1.704-1(b), amounts
described in this Section shall be computed without taking into account any
basis adjustments created by a Section 754 election under the Code. Profits or
Loss attributable to a basis adjustment resulting from a Section 754 election
shall inure solely to the benefit or detriment of the Member to whom the Section
754 election relates.
(e) If there has been an adjustment to the Members' Capital Accounts pursuant to
Section 4.3(e) to reflect the unrealized income, gain, loss, or deduction
inherent in Company Property: (i) depreciation, amortization, or other cost
recovery deductions with respect to such Property for each Fiscal Year or other
period shall equal an amount which bears the same ratio to the fair market value
of such Property on the date of such adjustment as the federal income tax
depreciation, amortization, or other cost recovery deductions for such Fiscal
Year or other period bears to the adjusted tax basis of such Property on such
date; and (ii) gain or loss resulting from any disposition of such Property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed under this sentence as if such Property had an adjusted basis
on the date of such adjustment equal to its fair market value on such date and
all subsequent adjustments for depreciation, amortization, or other cost
recovery deductions were made in accordance with clause (i) of this sentence.
(f) If the Company's taxable income or taxable loss for such Fiscal Year, as
adjusted in the manner provided in paragraphs (a) through (e) of this Section,
and after removing any amounts allocated under the Regulatory Allocations or
Section 6.2(d) (relating to curative allocations), is a positive amount, such
amount shall be the Company's Profits for such Fiscal Year, and if a negative
amount, such amount shall be the Company's Loss for such Fiscal Year.
1.39. "Profits Interest" shall have the meaning set forth in Section 3.1 hereof.
1.40. "Profit Shortfall Account" shall mean, with respect to a Member for a
Fiscal Year, the excess, if any, of (i) the aggregate amount of Net Cash Flow
distributed under Sections 6.1(a)(i), 6.1(a)(iii), 6.1(a)(v), or 6.1(a)(vi) to
such Member for such Fiscal Year and all prior Fiscal Years, over (ii) the
aggregate amount of Profits allocated to such Member under Sections 6.2(a)(iii),
6.2(a)(iv), or 6.2(a)(vi) for all prior Fiscal Years (to the extent that such
Profits have not been offset by allocations of Losses under Sections
6.2(b)(i)(D), 6.2(b)(i)(C), or 6.2(b)(i)(A), respectively).
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1.41. "Property" shall mean all of the Company's right, title and interest in
and to any real or personal property interests (tangible and intangible) owned
by the Company.
1.42. "Regulatory Allocations" shall mean the allocations described in Section
6.2(c).
1.43. "Short-Term Investments" shall mean short-term investments selected by the
Managing Member to provide for appropriate safety of principal, such as
government obligations, certificates of deposit, money market fund investments,
short-term debt obligations, interest-bearing accounts, and non-interest-bearing
accounts, pending investment of the Company's funds.
1.44. "Special Member" shall mean RCP Investments, L.P., a Delaware limited
partnership, and its successors and assigns.
1.45. "Substitute Member" shall mean a transferee of a Company Interest admitted
as a Substitute Member in accordance with Section 7.7 hereof.
1.46. "Supermajority Vote" shall mean the affirmative vote of the Members
holding at least 67% of the total Profits Interests held by the Members.
1.47. "Tax Distribution Amount" shall mean, with respect to a Member for a
Fiscal Year, such Member's Net Income Amount for such Fiscal Year multiplied by
the Tax Rate for such Fiscal Year. The Managing Member shall have authority to
make appropriate adjustments to the Tax Distribution Amounts to more accurately
reflect the actual tax liability of a Member resulting from participation in the
Company, to implement a Member's request to adjust the amount of such Member's
Tax Distribution Amount, or to remedy any unexpected economic disparities that
would otherwise result from the application of the above formula; provided,
however, that no adjustment shall be made under this sentence that is
inconsistent with the basic economic arrangement of the Members under this
Agreement.
1.48. "Tax Matters Member" shall mean the Member designated as the Tax Matters
Member pursuant to Section 10.3.
1.49. "Tax Rate" shall mean, with respect to a Fiscal Year, a tax rate
(expressed as a percentage) equal to the sum of (a) the maximum federal income
tax rate for individuals for such Fiscal Year, plus (b) the maximum Maryland
income tax rate for individuals residing in that State for such Fiscal Year.
1.50. "Transfer" shall mean any sale, transfer, exchange, assignment, pledge,
hypothecation, gift or any contract for the foregoing or any voting trust or
other agreement or arrangement respecting voting rights or any beneficial
interest in a Company Interest.
1.51. "Unpaid Priority Amount" shall mean, with respect to a Member for a Fiscal
Year, the amount, if any, of such Member's Unpaid Priority Return for such
Fiscal Year, reduced by the amount of any Profits previously allocated under
Section 6.2(a)(iv) with respect to such Member's Priority Return that remains
unpaid (to the extent that such Profits have not been offset by Losses under
Section 6.2(b)(i)(C)).
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1.52. "Unpaid Priority Return" shall mean, with respect to a Member for a Fiscal
Year, the excess, if any, of (i) the sum of such Member's Priority Return for
the current Fiscal Year and all prior Fiscal Years; over (ii) the aggregate
amount distributed to such Member under Section 6.1(a)(iii) for the current
Fiscal Year and all prior Fiscal Years.
1.53. "Unpaid Special Distribution Amount" shall mean, with respect to the
Special Member for a Fiscal Year, the amount, if any, that the Special Member
would be entitled to receive under Section 6.1(a)(iv) that remains unpaid (after
taking into account all distributions to the Special Member under Section
6.1(a)(iv) for the current Fiscal Year and all prior Fiscal Years), reduced by
the amount of any Profits previously allocated under Section 6.2(a)(v) with
respect to such unpaid amounts (to the extent that such Profits have not been
offset by Losses under Section 6.2(b)(i)(B)).
1.54. "Withdrawal" shall mean the death (or dissolution, in the case of
corporate Members), adjudication of incompetence (which term shall include, but
not be limited to, insanity), Bankruptcy, retirement, resignation, or expulsion
of a Member.
SECTION 2
General Provisions
2.1. Formation of the Company. The Members have formed the Company for the
limited purposes set forth herein, and shall take all actions and appropriately
file all documents required by law to qualify the Company to conduct business as
provided herein in all appropriate jurisdictions. The rights and liabilities of
the parties hereto shall be as provided in the Act except as herein otherwise
expressly provided.
2.2. Purposes and Powers of the Company.
(a) The purposes for which the Company is formed are (i) to make, hold, and
dispose of Portfolio Investments in accordance with the Company's Investment
Policies as in effect from time to time; (ii) to make, hold and dispose of
Short-Term Investments in order to hold funds pending the investment or
reinvestment of Company funds in Portfolio Investments, to provide liquid
investments from which to meet expenses of the Company and contingencies, and to
hold funds pending distribution, in each case subject to the other provisions of
this Agreement; and (iii) to do any and all things necessary, convenient or
incidental to the achievement of the foregoing.
(b) The Company shall have the power to do any and all acts and things
necessary, appropriate, advisable or convenient for the furtherance and
accomplishment of the purposes of the Company including, without limitation, to
engage in any kind of activity and to enter into and perform obligations of any
kind necessary to or in connection with, or incidental to, the accomplishment of
the purposes of the Company, so long as said activities and obligations may
lawfully be engaged in or performed by a limited liability company under the
Act.
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2.3. Name of the Company. The name of the Company shall be Riggs Capital
Partners, LLC. The Company Business may be conducted under such other names as
the Managing Member may from time to time determine to be necessary or
advisable.
2.4. Place of Business of the Company. The principal place of business of the
Company shall be 800 17th Street, N.W., Washington, D.C. 20006, or at such other
place as the Managing Member may from time to time determine. The Company may
have such additional offices as the Managing Member may from time to time deem
necessary or advisable.
2.5. Registered Office, Registered Agent. The name and business address of the
registered agent for service of process on the Company and its registered office
in the State of Delaware are The Corporation Trust Company at Corporation Trust
Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware, or such
other qualified Person as the Managing Member may designate from time to time.
The Managing Member may select any Person permitted by applicable law to act as
registered agent for the Company in each jurisdiction in which it is necessary.
2.6. No Liability to Third Parties. The debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company, and no Member shall be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of being a Member.
2.7. Intent. It is the intent of the Members that the Company be operated in a
manner consistent with its treatment as a partnership for federal and state
income tax purposes. The Company shall take all appropriate actions to ensure
that the Company will be treated as a partnership for federal and state income
tax purposes, including the making of available tax elections. No election may
be made to treat the Company as a corporation for federal or state income tax
purposes without the written consent of all Members. It is also the intent of
the Members that the Company not be operated or treated as a "partnership" for
purposes of Section 303 of the Federal Bankruptcy Code, or for any purposes
other than tax purposes. Neither the Company nor any Member shall take any
action inconsistent with the express intent of the parties hereto as set forth
in this Section 2.7.
2.8. Default Rules Under the Act. Regardless of whether this Agreement
specifically refers to a particular Default Rule:
(a) if any provision of this Agreement conflicts with a Default Rule, the
provision of this Agreement controls and such Default Rule is hereby modified or
negated accordingly, and
(b) if is necessary to construe a Default Rule as modified or negated in order
to effectuate any provision of this Agreement, such Default Rule is hereby
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modified or negated accordingly.
2.9. Title to Property. Except as otherwise provided in this Agreement, the
Company shall hold all of its real and personal property in the name of the
Company and not in the name of any Member.
2.10. Payments of Individual Obligations. The Company's credit and assets shall
be used solely for the benefit of the Company, and no asset of the Company shall
be transferred or encumbered for or in payment of any individual obligation of
any Member.
2.11. Independent Activities; Transactions with Affiliates. Insofar as permitted
by applicable law, the Members and the Managing Member (each acting on its own
behalf) and each of their Affiliates may, notwithstanding this Agreement, engage
in whatever activities they choose, whether the same are competitive with the
Company or otherwise, without having or incurring any obligation to offer any
interest in such activities to the Company or any other Member; and neither this
Agreement nor any activity undertaken pursuant hereto shall, except as expressly
provided in a written agreement signed by the parties to be bound thereby,
prevent the Managing Member or any Member or its Affiliates from engaging in
such activities, or require the Managing Member or any Member to permit the
Company or any Member or its Affiliates to participate in any such activities.
As a material part of the consideration for the execution of this Agreement by
each Member, each Member hereby waives, relinquishes, and renounces any such
right or claim of participation.
2.12. Term of the Company. The Company commenced its existence on the date upon
which its Certificate of Formation was duly filed with the Secretary of State of
the State of Delaware and shall continue until the 10th anniversary of the date
hereof, unless the Members by Supermajority Vote agree to extend its existence
or the Company is sooner dissolved pursuant to Section 8.1.
SECTION 3
Members and Profits Interests
3.1. Profits Interest. Each Member's Profits Interest shall be determined under
this Section 3.1.
(a) Each Member's initial Profits Interest is set forth in Schedule A attached
hereto.
(b) Each Member's Profits Interest shall be adjusted upon the occurrence of the
events specified in, and in the manner set forth in, Section 3.2 .
3.2. Additional Members and Interests. The Company shall not, except as provided
in Section 4.1(b)(iii), be expanded to include additional Members, or to provide
for the issuance of additional Company Interests, unless the existing Members by
Supermajority Vote consent to the same. In the event that the Members by
Supermajority Vote elect to take in new or additional Members or issue
additional Company Interests upon such terms and conditions as they may find
advisable, the Profits Interest of each new or additional Member shall be taken
from the existing Members on a pro rata basis unless otherwise agreed to by all
such Members, in such amount and in such fashion as may be agreed upon by the
parties.
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SECTION 4
Capital Contributions and Capital Accounts
4.1. Capital Contributions.
(a) In consideration of his or its Company Interest, each Member hereby
contributes to the Company the Initial Capital Contribution, in the form of cash
and investments currently held by the Members, as specified for such Member on
Schedule A.
(b) In further consideration of his or its Company Interest, each Contributing
Member hereby agrees to contribute to the Company, upon at least 10 business
days prior written notice by the Managing Member, at any one time or in
installments from time to time as specified by the Managing Member, additional
Capital Contributions in accordance with this Section 4.1(b), provided, however,
that, the aggregate amount of all such additional Capital Contributions by such
Member shall not exceed the maximum amount specified for such Member on Schedule
A, and the obligation of Riggs National Corporation to contribute shall be
subject to the following conditions:
(i) Such additional Capital Contributions shall be in compliance with
reasonable loss limits;
(ii) Such contributions shall be consistent with other capital priorities of
Riggs National Corporation;
(iii) Riggs National Corporation shall have the right to designate one or more
other persons who may contribute all or any portion of any capital contribution
otherwise due from Riggs National Corporation and become a Member in the LLC,
with the Profits Interest and Capital Interest of Riggs National Corporation
reduced proportionately; and
(iv) The performance of the Company's investments prior to the date of
contribution shall have been satisfactory to Riggs National Corporation in its
reasonable judgment.
Each such notice by the Managing Member shall call for contributions by each
Contributing Member on a pro rata basis, based upon their relative Capital
Interests.
(c) No Member shall be required to make Capital Contributions in addition to
those set forth in Section 4.1(a) and 4.1(b).
4.2. No Interest on or Right to Withdraw Capital Contributions. No interest
shall be paid on any contribution to the capital of the Company or on the
balance in any Capital Account and no Member shall have the right to withdraw
his Capital Contribution or to demand or receive a return of his Capital
Contribution.
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4.3. Maintenance of Capital Accounts.
(a) The Company shall maintain a separate Capital Account for each Member in
accordance with this Section 4.3.
(b) A Member's Capital Account shall be credited with (i) the amount of any cash
contributed to the Company by or on behalf of such Member, (ii) the fair market
value of any Property other than cash contributed to the Company by or on behalf
of such Member, (iii) allocations to such Member of Company Profits, income or
gain pursuant to Section 6.2, (iv) the amount of any Company liabilities assumed
by such Member or which are secured by any Property distributed to such Member,
and (v) any other item required to be credited for proper maintenance of capital
accounts by the Treasury regulations under Section 704(b) of the Code.
(c) A Member's Capital Account shall be debited with (i) the amount of any cash
and the fair market value of Property other than cash that is distributed to
such Member (other than guaranteed payments under Code Section 707(c)), all as
may be determined in accordance with this Agreement, (ii) allocations to such
Member of Company Losses, deductions, Company Nonrecourse Deductions, or Member
Nonrecourse Deductions pursuant to Section 6.2, (iii) the amount of any
liabilities of such Member assumed by the Company or which are secured by any
Property contributed by such Member to the Company, and (iv) any other item
required to be debited for proper maintenance of capital accounts by the
Treasury regulations under Section 704(b) of the Code.
(d) If any Property other than cash is distributed to a Member, the Capital
Accounts of the Members shall be adjusted to reflect the manner in which gain or
loss that has not previously been reflected in the Capital Accounts would be
allocated among the Members under Section 6.2 if the distributed Property had
been sold by the Company for a price equal to its fair market value on the date
of distribution. See Section 4.3(c)(i) for additional adjustments to be made to
the distributee Member's Capital Account.
(e) The Members may, upon the occurrence of one of the events described in
Section 4.3(e)(ii), increase or decrease the Capital Accounts of the Members in
accordance with Section 4.3(e)(i) to reflect a revaluation of Company Property.
(i) Any adjustments made under this Section 4.3(e) shall reflect the manner in
which the unrealized income, gain, loss, or deduction inherent in Company
Property (to the extent that it has not been reflected in the Capital Account
previously) would be allocated among the Members under Section 6.2 if the
Company had sold all of its Property for its fair market value on the date of
adjustment. The adjustments described in this Section 4.3(e)(i) shall be based
on the fair market value of Company Property on the date of adjustment.
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(ii) The Members may make the Capital Account adjustments described in this
Section 4.3(e) upon the occurrence of the following events: (a) a contribution
of money or other Property (other than a de minimis amount) to the Company by a
new or existing Member as consideration for an interest in the Company; (b) a
distribution of money or other Property (other than a de minimis amount) by the
Company to a retiring or continuing Member as consideration for an interest in
the Company; or (c) the liquidation of the Company.
(iii) The adjustments described in this Section 4.3(e) are intended to comply
with Treas. Reg. ss. 1.704-1(b)(2)(iv)(f) and shall be interpreted consistently
with such regulation to effectuate such intent. See the definition of "Profits
and Losses" for special rules for the computation of Profits and Losses in the
case of an adjustment under this Section 4.3(e).
(f) In the event any interest in the Company is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the transferred interest.
4.4 Maintenance of Investment Accounts.
(a) The Company shall maintain a separate Investment
Account for each Member in accordance with this Section 4.4.
(b) A Member's Investment Account shall be credited with (i)
the amount of any cash contributed to the Company by or on behalf of such
Member; (ii) the principal amount of any capital contribution made by a Member
to the Company in the form of a demand promissory note; and (iii) the fair
market value of any property other than cash contributed to the Company by or on
behalf of such Member (net of any liabilities assumed by the Company upon such
contribution and liabilities to the extent secured by such contributed
property).
(c) A Member's Investment Account shall be debited with the
amount of any distributions to such Member under Section 6.1(a)(ii).
(d) In the event any interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Investment Account of the transferor to the extent it relates to the transferred
interest.
SECTION 5
Management and Operation of Business
5.1. Managing Member. Riggs National Corporation shall be the "Managing Member"
of the Company and, in such capacity, responsible for the business and
operations of the Company. The Managing Member may be removed and replaced only
by Supermajority Vote.
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5.2. Management. The Managing Member shall be responsible for the overall
management and operation of the Company. No Member shall take any action in the
name of or on behalf of the Company except pursuant to authority granted by the
Managing Member. Each Member shall take such actions on behalf of the Company as
may be necessary or desirable in order to effectuate the decisions and
determinations of the Managing Member. The Managing Member shall adopt on behalf
of the Company, and may amend or modify from time to time, a compliance manual
for the Company (the "Compliance Manual") setting forth standards of conduct,
investment policies, and other policies relating to the operation of the
Company.
5.3. Investment Advisor. The Managing Member shall delegate to the Investment
Advisor the authority to conduct the day to day business of the Company and to
make investment decisions in accordance with the Compliance Manual as then in
effect. The Investment Advisor shall not be authorized to take any action that
the Managing Member is not authorized to take pursuant to Section 5.5 or Section
5.6. Except as otherwise specified or directed by the Managing Member or by the
Members by Supermajority Vote, the Investment Advisor shall have and may
exercise with respect to the Company all of the powers customarily exercised by
a president and chief executive officer of a Delaware corporation, subject to
the provisions of Sections 5.5 and 5.6 and the Compliance Manual as in effect
from time to time.
5.4. Meetings and Actions of the Members.
(a) A meeting of the Members may be called at such time and such place as the
Managing Member, the Investment Advisor, or Members holding Interests entitling
them to cast at least a Majority Vote, may specify by written notice to all
Members not less than 10 days prior to the date of such meeting.
(b) There shall be a quorum if Members holding in the aggregate more than a 50%
Profits Interest are present at a meeting. A Member shall be deemed present at
any meeting if he attends in person or by telephone conference call, or by proxy
granted to another Member and delivered to the Company. Unless otherwise
provided for in this Agreement, the Majority Vote of the Members shall
constitute an action of the Company. The Members, may also take action by
unanimous written consent. Copies of the records of the Company shall be
maintained at the principal offices of the Company.
5.5. Limitations of the Power of the Managing Member. The Managing Member and
the Investment Advisor shall not cause or permit the Company to take any of the
following actions without Supermajority Approval:
(a) admit any additional Member;
(b) carry on any business other than as provided in Section 2.2 hereof;
(c) guarantee or otherwise in any way become responsible (including as surety or
pursuant to a pledge or grant of security on any assets or rights of the
Company) for the obligations or indebtedness of any other Person, other than an
entity all of the equity interest of which is owned by the Company;
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(d) extend credit or make any loan to any Person, other than reasonable trade
credit offered in the ordinary course of the Company's business and reasonable
advances to officers and employees not exceeding $5,000 in the aggregate to any
one employee;
(e) enter into any transaction with any Member other than upon terms that, in
the reasonable judgement of the Managing Member, are not materially less
favorable to the Company than those that would be obtainable in an arm's length
transaction with an unrelated party; or
(f) sell or agree to sell, transfer, or dispose of all or substantially all of
the Company's assets, other than pursuant to a pledge or security interest
conferred in order to incur bona fide indebtedness for the Company.
5.6. Additional Restrictions. For so long as Riggs National Corporation is a
Member, the Company shall not, without the prior written consent of Riggs
National Corporation:
(a) acquire or hold any Portfolio Investment or Short-Term Investment that would
result in the Company holding an interest that has been determined by Riggs
National Corporation not to be permissible under the Bank Holding Company Act or
any rule or regulation thereunder; or
(b) engage in any other activity that Riggs National Corporation has determined
not to be permissible under the Bank Holding Company Act or any rule or
regulation thereunder.
5.7. Officers of the Company. The Investment Advisor may appoint from time to
time any one or more persons to serve as officers of the Company as the
Investment Advisor deems necessary for the proper conduct of the business of the
Company, in such capacities and with such delegated rights and powers as the
Investment Advisor may approve.
5.8. Cash Reserve. The Managing Member may decide to establish a Cash Reserve
for the Company. Such Cash Reserve may be replenished in accordance with the
limitations set forth in Section 1.10 hereof.
5.9. Compensation. The Managing Member shall not be entitled to any fee or other
compensation, other than reimbursement of expenses incurred by it on behalf of
or for the benefit of the Company, in consideration for its service as Managing
Member. The Company shall enter into a investment advisory agreement with the
Investment Advisor, which will entitle the Investment Advisor to receive an
annual management fee equal to (i) Two Percent (2%) of $100,000,000, or Two
Million Dollars ($2,000,000), minus (ii) all expenses of operating and managing
the Company, excluding origination expenses for raising funds from additional
Members, as determined in accordance with the Intercompany Operating and
Services Agreement dated as of July 15, 1998, between Riggs Bank N.A. and the
Company as the successor to Riggs Capital Partners, a division of Riggs National
Corporation.
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5.10. Exculpation and Indemnity. No Member, including without limitation the
Managing Member or the Investment Advisor, shall be liable or accountable in
damages or otherwise to the Company or the other Members for any act or omission
done or omitted by him in good faith, unless such act or omission constitutes
gross negligence, willful misconduct, or a willful breach of this Agreement or
the investment advisory agreement entered into pursuant to Section 5.9 on the
part of such person. The Company shall indemnify each Member, including the
Managing Member and the Investment Advisor, against any loss, damage, judgment
or claim incurred by or asserted against such person (including reasonable
attorney's fees and legal expenses), unless such act or omission constitutes
gross negligence, willful misconduct, or a willful breach of this Agreement or
the investment advisory agreement entered into pursuant to Section 5.9 on the
part of such person.
SECTION 6
Allocations and Distributions
6.1. Distributions.
(a) Net Cash Flow. The Company shall, except as otherwise provided in this
Section 6.1, distribute Net Cash Flow for a Fiscal Year when and as determined
by the Managing Member, in accordance with the following priorities:
(i) First, to the Members in proportion to, and to the extent of, each
Member's Tax Distribution Amount for such Fiscal Year;
(ii) Second, to the Members in proportion to, and to the extent of, the
outstanding balances in their respective Investment Accounts;
(iii) Third, to the Members entitled to a Priority Return, in proportion to, and
to the extent of, each such Member's Unpaid Priority Return for such Fiscal
Year;
(iv) Fourth, to the Special Member, up to the amount that, together with all
prior payments pursuant to this Section 6.1(a)(iv) equals 25% of the sum of all
distributions made pursuant to Section 6.1(a)(iii) (thereby equaling 20% of the
total distributions made pursuant to Sections 6.1(a)(iii) and 6.1(a)(iv));
(v) Fifth, to the extent that the remaining Net Cash Flow constitutes
Distributable Amounts, to the Members in proportion to their Profits Interests,
with appropriate adjustments made with respect to distributions for any period
during which the Profits Interests of the Members have changed; and
(vi) Sixth, to the extent that the remaining Net Cash Flow does not constitute
Distributable Amounts, to the Contributing Members in proportion to their
relative Profits Interests, with appropriate adjustments made with respect to
distributions for any period during which the Profits Interests of such Members
have changed.
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(vii) For purposes of making calculations pursuant to this Section 6.1(a), to
the extent that Net Cash Flow includes both amounts that are Distributable
Amounts and amounts that are not, Net Cash Flow payable pursuant to Sections
6.1(a)(i), 6.1(a)(ii), 6.1(a)(iii), and 6.1(a)(iv) shall be deemed to be
allocated between those two categories pro rata in accordance with their
relative proportions in Net Cash Flow at the time of distribution.
(b) Tax Distributions. The Company shall take reasonable efforts to make the
distributions under Section 6.1(a)(i) with respect to a Fiscal Year in a manner
that will allow the timely payment of the distributee Members' estimated taxes.
(c) Liquidation and Dissolution. Proceeds from the liquidation of the assets of
the Company upon dissolution shall be distributed to the Members in accordance
with Section 9.1. Proceeds from the sale (or other conversion into cash) of all
or substantially all of the Company Property shall be distributed to the Members
in accordance with Section 9.1 as if such proceeds arose from the liquidation of
the assets of the Company.
(d) Distributions in Kind. In the event that, prior to any sale by the Company
of any securities of a Portfolio Investment ("Sale Securities") the proceeds of
which the Company intends to distribute pursuant to Section 6.1 or Section 9.1,
the Company has received notice by any Member that such Member would, in lieu of
such distributed proceeds, prefer to receive such Member's portion of such
distribution in the form of Sale Securities with a value equal to the amount
otherwise to be distributed to such Member, then the Company may, if the
Managing Member determines that it may do so without impairing the value of the
remaining Sale Securities or violating any contractual or legal restriction upon
the transfer of such Sale Securities, pay such Member's distribution in the form
of Sale Securities, valued at their fair market value on the date of
distribution as determined by the Managing Member, and such value shall be
included in the amount of "Net Cash Flow" for purpose of Section 6.1(a).
6.2. Allocation of Profits and Losses.
(a) Allocation of Profits. After giving effect to the special allocations set
forth in Section 6.2(c), Profits of the Company for each Fiscal Year shall be
allocated to the Members as follows:
(i) First, Profits shall be allocated to the Members in proportion to, and to
the extent of, the amount equal to the remainder, if any, of (A) the cumulative
Losses allocated to each such Member pursuant to Section 6.2(b)(iii) for all
prior Fiscal Years, over (B) the cumulative Profits allocated to each such
Member pursuant to this Section 6.2(a)(i) for all prior Fiscal Years.
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(ii) Second, Profits less any amounts allocated under Section 6.2(a)(i), shall
be allocated to the Special Member in an amount not to exceed the excess, if
any, of (A) the aggregate amounts distributed to the Special Member under
Section 6.1(a)(iv) for the current and all prior Fiscal Years, over (B) the
aggregate amount of Profits allocated to the Special Member under Section
6.2(a)(v) or this Section 6.2(a)(ii) for all prior Fiscal Years (to the extent
that such Profits have not been offset by allocations of Losses under Sections
6.2(b)(i)(B) or 6.2(b)(i)(E), respectively).
(iii) Third, Profits less any amounts allocated under Sections 6.2(a)(i) and
6.2(a)(ii), shall be allocated in an aggregate amount not to exceed the
aggregate balances in all Members' Profit Shortfall Accounts for the current
Fiscal Year, among the Members in proportion to, and to the extent of, each
Member's Profit Shortfall Account.
(iv) Fourth, Profits less any amounts allocated under Sections 6.2(a)(i) through
6.2(a)(iii), shall be allocated to the Members in proportion to, and to the
extent of, each Member's Unpaid Priority Amount.
(v) Fifth, Profits less any amounts allocated under Sections 6.2(a)(i) through
6.2(a)(iv) shall be allocated to the Special Member to the extent of such
Member's Unpaid Special Distribution Amount.
(vi) Sixth, Profits less any amounts allocated under Sections 6.2(a)(i) through
6.2(a)(v) shall be allocated to the Members in proportion to their Profits
Interests; provided, however, that the Managing Member shall have the authority
to make appropriate adjustments to the allocation Profits under this Section
6.2(a)(vi) to reflect that such Profits, or a portion thereof, are more
appropriately allocated among the Contributing Members to reflect distributions
(or reasonably anticipated distributions) under Section 6.1(vi) (relating to Net
Cash Flow that does not constitute Distributable Amounts).
(b) Allocation of Losses. After giving effect to the special allocations set
forth in Section 6.2(c), Losses of the Company for each Fiscal Year shall be
allocated to the Members as follows:
(i) Except as provided in Section 6.2(b)(iii), Losses shall be allocated to the
Members to offset any Profits allocated under the following sections, in the
following order (in each case, pro rata in proportion to the share of Profits
being offset): (A) Section 6.2(a)(vi); (B) Section 6.2(a)(v); (C) Section
6.2(a)(iv); (D) Section 6.2(a)(iii); and (E) Section 6.2(a)(ii).
(ii) Except as provided in Section 6.2(b)(iii), Losses less any amounts
allocated under Section 6.2(b)(i), shall be allocated to the Members in
proportion to their Profits Interests.
(iii) The Losses allocated pursuant to Section 6.2(b)(i) and 6.2(b)(ii) shall
not exceed the maximum amount of Losses that can be so allocated without causing
any Member to have a deficit Adjusted Capital Account Balance at the end of any
Fiscal Year. In the event some but not all of the Members would have deficit
Adjusted Capital Account Balances as a consequence of an allocation of Losses
pursuant to Section 6.2(b)(i) or 6.2(b)(ii), the limitation set forth in this
Section 6.2(b)(iii) shall be applied on a Member by Member basis so as to
allocate the maximum permissible Losses to each Member under Treas. Reg. ss.
1.704-1(b)(2)(ii)(d). All Losses in excess of the limitations set forth in this
Section 6.2(b)(iii) shall be allocated to the Members in proportion to their
Profits Interests.
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(c) Regulatory Allocations. The following special allocations shall be made in
the following order:
(i) If there is a net decrease during a Company Fiscal Year in Company Minimum
Gain then, to the extent required by Treas. Reg. ss. 1.704-2(f), each Member
shall be allocated items of Company income and gain entering into the
computation of Profits and Losses for such Fiscal Year (and, as necessary, for
subsequent Fiscal Years) equal to that Member's share of the net decrease in the
Company Minimum Gain (within the meaning of Treas. Reg. ss. 1.704-2(g)(2)). It
is the intent of the Members that this Section 6.2(c)(i) constitute a Company
Minimum Gain chargeback provision under Treas. Reg. ss. 1.704-2(f) and be
interpreted consistently with such regulation to effectuate such intent.
(ii) If there is a net decrease during a Company Fiscal Year in Member
Nonrecourse Debt Minimum Gain then, to the extent required by Treas. Reg. ss.
1.704-2(i)(4), any Member with a share of Member Nonrecourse Debt Minimum Gain
at the beginning of such Fiscal Year shall be allocated items of Company income
and gain entering into the computation of Profits and Losses for such Fiscal
Year (and, if necessary, for subsequent Fiscal Years) equal to that Member's
share of the net decrease in Member Nonrecourse Debt Minimum Gain (within the
meaning of Treas. Reg. ss. 1.704-2(i)(4)). It is the intent of the Members that
this Section 6.2(c)(ii) constitute a Member Nonrecourse Debt Minimum Gain
chargeback provision under Treas. Reg. ss. 1.704-2(i)(4) and be interpreted
consistently with such regulation to effectuate such intent.
(iii) If any Member unexpectedly receives an adjustment, allocation, or
distribution of the type contemplated by Treas. Reg. ss.
1.704-1(b)(2)(ii)(d)(4), (5), or (6) that causes or increases a deficit in such
Member's Adjusted Capital Account Balance items of Company income and gain
entering into the computation of Profits and Losses shall be allocated to all
such Members in an amount and manner sufficient to eliminate, to the extent
required by Treas. Reg. ss. 1.704-1(b), the deficit Adjusted Capital Account
Balance of such Member as quickly as possible, provided that an allocation
pursuant to this Section 6.2(c)(iii) shall be made only if and to the extent
that such Member would have a deficit Adjusted Capital Account Balance after all
other allocations provided for in this Section 6.2 have been tentatively made as
if this Section 6.2(c)(iii) were not in the Agreement. It is the intent of the
Members that this Section 6.2(c)(iii) constitute a qualified income offset
provision under Treas. Reg. ss. 1.704-1(b)(2)(ii)(d) and be interpreted
consistently with such regulation to effectuate such intent.
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(iv) In the event that any Member has a deficit Capital Account balance at the
end of any Fiscal Year which is in excess of the amount such Member is deemed to
be obligated to restore pursuant to the next to last sentences of Treas. Reg.
ss.ss. 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially
allocated items of Company income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this Section
6.2(c)(iv) shall be made only if and to the extent that such Member would have a
deficit Capital Account balance in excess of such sum after all other
allocations provided for in this Section 6.2 have been made as if Section
6.2(c)(iii) and this 6.2(c)(iv) were not in the Agreement. It is the intent of
the Members that this Section 6.2(c)(iv) constitute a gross income allocation
and be interpreted to effectuate such intent.
(v) Company Nonrecourse Deductions shall be allocated to the Members in
proportion to their Profits Interests.
(vi) Member Nonrecourse Deductions attributable to a Member Nonrecourse Debt
shall be allocated to the Member (or Members) that bear the economic risk of
loss for such Member Nonrecourse Debt in accordance with Treas. Reg. ss.
1.704-2(i)(1).
(d) Curative Allocations. The Regulatory Allocations are intended to comply with
certain requirements of the Treasury Regulations under Code Section 704(b). It
is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 6.2(d). Therefore, notwithstanding any other provision
of this Section 6.2 (other than the Regulatory Allocations), the Managing Member
shall make such offsetting special allocations of Company income, gain, loss or
deduction in whatever reasonable manner it determines appropriate so that, after
such offsetting allocations are made, each Member's Capital Account balance is,
to the extent possible, equal to the Capital Account balance such Member would
have had if the Regulatory Allocations were not part of the Agreement and all
items of Company items of income, gain, loss or deduction were allocated
pursuant to Sections 6.2(a) and 6.2(b). In exercising its discretion under this
Section 6.2(d), the Managing Member shall take into account future Regulatory
Allocations under Sections 6.2(c)(i) and 6.2(c)(ii) that, although not yet made,
are likely to offset other Regulatory Allocations previously made under Sections
6.2(c)(v) and 6.2(c)(vi). This Section 6.2(d) is intended to minimize to the
extent possible and to the extent necessary any economic distortions which may
result from application of the Regulatory Allocations and shall be interpreted
in a manner consistent therewith.
(e) Special Allocations In Connection With Liquidation. In the case of the
Fiscal Year in which the Company is liquidated (and, to the extent necessary,
for prior Fiscal Years) the Profits and Losses (or, to the extent necessary,
items thereof) shall be allocated in such a manner, as determined by the
Managing Member, as is necessary to provide a Capital Account balance for each
Member equal to the amount that such Member would receive if all of the proceeds
of liquidation of the Company were distributed among the Members in accordance
with Section 6.1(a) (determined as if (i) the Company were not liquidating and
that such distributable amounts were Net Cash Flow, and, (ii) only distributions
actually made under Section 6.1(a) prior to liquidation shall be taken into
account and no additional amounts will be deemed to be distributed with respect
to Tax Distribution Amounts).
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6.3. Tax Allocations. All items of income, gain, loss, and deduction, and all
tax preferences, depreciation, accelerated cost recovery system deductions and
investment interest and other tax items of the Company for each Fiscal Year
(collectively referred to as "Company Tax Items") shall be allocated for tax
purposes to the Members in accordance with this Section 6.3.
(a) Except as provided in Sections 6.3(b) and 6.3(c), Company Tax Items shall be
allocated for tax purposes in accordance with the allocations of items of
income, gain, loss, deduction, Company Nonrecourse Deductions, Member
Nonrecourse Deductions, Profits, and Losses under Section 6.2. For purposes of
the preceding sentence, an allocation to a Member of a share of Profits or
Losses shall be treated as an allocation to such Member of the same share of
each Company Tax Item that is taken into account in computing such Profits or
Losses.
(b) Gain or loss upon sale or other disposition of any Property contributed to
the Company or any depreciation, amortization, or other cost recovery deduction
allowable with respect to the basis of Property contributed to the Company shall
be allocated for tax purposes among the contributing and non-contributing
Members so as to take into account the difference between the adjusted tax basis
and the Agreed Value of the Property on the date of its contribution to the
extent permitted by Treas. Reg. ss. 1.704-3 or such superseding regulations as
may be promulgated in accordance with Section 704(c) of the Code. In making
allocations pursuant to the preceding sentence, the Managing Member may apply
any method or convention required or permitted by Section 704(c) of the Code.
(c) Except as provided in Section 6.3(b), if there has been an adjustment to the
Members' Capital Accounts pursuant to Section 4.3(e) to reflect the unrealized
income, gain, loss, or deduction inherent in Company Property, Company Tax Items
with respect to such Property shall be allocated to the Members for tax purposes
so as to take into account the difference between the adjusted tax basis of such
Property and the value at which it is reflected in the Members' Capital Accounts
in the same manner as variations between the adjusted tax basis and fair market
value of Property contributed to the Company are taken into account in
determining the Members' allocations of Company Tax Items under Section 6.3(b).
The allocations under this Section 6.3(c) are intended to comply with paragraphs
(b)(2)(iv)(f)(4) and (b)(4)(i) of Treas. Reg. ss. 1.704-1 and shall be
interpreted consistently with such regulation to effectuate such intent.
(d) To the extent consistent with the intent of the parties to this Agreement,
accounting matters relating to allocations of Profits and Losses, Capital
Accounts, and allocations of items of federal income tax significance shall be
handled in such a way that the allocations of items of federal income tax
significance will have substantial economic effect or will otherwise be
respected for federal income tax purposes.
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6.4. Other Allocation Rules.
(a) All other items that must be allocated to the Members shall be allocated to
the Members in accordance with the allocation of Profits and Losses as provided
in Section 6.2 of this Agreement.
(b) The Members are aware of the income tax consequences of the allocations made
by this Section 6 and hereby agree to be bound by the provisions of this Section
6 in reporting their shares of Company income and loss for income tax purposes.
(c) Solely for purposes of determining a Member's proportionate share of the
"excess nonrecourse liabilities" of the Company, within the meaning of Treas.
Reg. ss. 1.752-3(a)(3), the Members' interests in Company profits are in
proportion to their Profits Interests.
(d) To the extent permitted by Treas. Reg. ss. 1.704-2(h)(3), the Managing
Member shall endeavor not to treat distributions of Net Cash Flow as having been
made from the proceeds of a Company nonrecourse liability or a Company
nonrecourse debt.
6.5. Allocation Savings Provision. The allocation method set forth in this
Section 6 is intended to allocate Profits and Losses to the Members for federal
income tax purposes in accordance with their economic interests in the Company
while complying with the requirements of Code Section 704(b) and the Treasury
Regulations promulgated thereunder. If in the reasonable opinion of the Managing
Member, the allocation of Profits or Losses pursuant to the provisions of this
Section 6 shall not (i) satisfy the requirements of Code Section 704(b) or the
Treasury Regulations thereunder, (ii) comply with any other provisions of the
Code or Treasury Regulations or (iii) properly take into account any expenditure
made by the Company or transfer of a Company Interest, then notwithstanding
anything to the contrary contained in the preceding provisions of this Section
6, Profits and Losses shall be allocated in such reasonable manner as the
Managing Member determines to be required so as to reflect properly (i), (ii) or
(iii), as the case may be; provided, however, that any change in the method of
allocating Profits or Losses shall not materially alter the economic agreement
between the Members.
6.6. Members' Varying Interests. In the event of any changes in any Member's
Company Interest during the Fiscal Year, then for purposes of this Section 6,
the Managing Member shall take into account the requirements of Code Section
706(d) and shall have the right to select any reasonable method of determining
the varying interests of the Members during the Fiscal Year which satisfies Code
Section 706(d). See Section 7.9 for additional rules relating to distributions
and allocations in respect to Transferred Company Interests.
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SECTION 7
Transfer Provisions
7.1. Restriction on Transfers. Except as otherwise permitted by this Agreement,
no Member shall Transfer all or any portion of his Company Interest. In the
event that any Member pledges or otherwise encumbers any of its Company Interest
as security for the payment of an obligation, any such pledge or hypothecation
shall be made pursuant to a pledge or hypothecation agreement that requires the
pledgee or secured party to be bound by all of the terms and conditions of this
Section 7. For purposes of this Section 7, any Transfer of a partnership
interest in RCP Investments, L.P., shall be deemed to be a Transfer of a Company
Interest, and RCP Investments, L.P., shall not permit it to be effected unless
it is done in compliance with the provisions of this Section 7 applicable to
Transfers of Company Interests as if the holder thereof were a Member.
7.2. Permitted Transfers. Subject to the conditions and restrictions set forth
in Section 7.3 hereof, a Member may at any time Transfer all or any portion of
his or its Company Interest to (a) any other Member, (b) any member of the
transferor's Family, (c) any Affiliate of the transferor, (d) the transferor's
executor, administrator, trustee, or personal representative to whom such
Company Interest are transferred at death or involuntarily by operation of law,
or (e) any Purchaser in accordance with Section 7.4 hereof (any such Transfer
being referred to in this Agreement as a "Permitted Transfer"). For purposes
hereof, a Member's "Family" shall include only (i) such Member's spouse, natural
or adoptive lineal ancestors or descendants, sisters, brothers, (ii) trusts for
the exclusive benefit of one or more of the Member and such other persons, and
(iii) corporations, partnerships or limited liability companies substantially
all of the securities of which are held by one or more of the Member and such
other persons.
7.3. Conditions to Permitted Transfers. A Transfer shall not be treated as a
Permitted Transfer under Section 7.2 hereof unless and until the following
conditions are satisfied or waived by the Managing Member:
(a) Except in the case of a Transfer of a Company Interest at death or
involuntarily by operation of law, the transferor and transferee shall execute
and deliver to the Company such documents and instruments of conveyance as may
be necessary or appropriate in the opinion of counsel to the Company to effect
such Transfer and to confirm the agreement of the transferee to be bound by the
provisions of this Section 7. In the case of a Transfer of a Company Interest at
death or involuntarily by operation of law, the Transfer shall be confirmed by
presentation to the Company of legal evidence of such Transfer, in form and
substance satisfactory to counsel to the Company. In all cases, the Company
shall be reimbursed by the transferor and/or transferee for all costs and
expenses that it reasonably incurs in connection with such Transfer.
(b) The transferor and transferee shall furnish the Company with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the Company Interest transferred, and any
other information reasonably necessary to permit the Company to file all
required federal and state tax returns and other legally required information
statements or returns. Without limiting the generality of the foregoing, the
Company shall not be required to make any distribution otherwise provided for in
this Agreement with respect to any transferred Company Interest until it has
received such information.
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<PAGE>
(c) Except in the case of a Transfer of a Company Interest at death or
involuntarily by operation of law, the transferor shall provide an opinion of
counsel, which opinion and counsel shall be satisfactory to the Company, to the
effect that (i) such Transfer is exempt from all applicable registration
requirements, including the Securities Act of 1933, as amended, and any
applicable state securities laws, (ii) such Transfer will not result in the
Company being deemed an investment company within the meaning of the Investment
Company Act of 1940, (iii) such Transfer will not result in the Company or any
person providing services to the Company becoming subject to the provisions of
the Investment Adviser's Act of 1940, and (iv) such Transfer will not violate
any applicable laws regulating the Transfer of securities.
(d) The transferor shall comply with the provisions of Section 7.8 and 7.11
hereof.
7.4. Right of First Refusal. In addition to the other limitations and
restrictions set forth in this Section 7, except as permitted by Section 7.2
hereof, no Member other than Riggs National Corporation or an Affiliate thereof
shall Transfer all or any portion of his Company Interest (the "Offered
Interests") unless such Member (the "Seller") complies with the terms of this
Section 7.4.
(a) Limitation on Transfers. No Transfer may be made under this Section 7.4
unless the Seller has received a bona fide written offer (the "Purchase Offer")
from a Person (the "Purchaser") to purchase the Offered Interest for a purchase
price (the "Offer Price") denominated and payable in United States dollars at
closing or according to specified terms, with or without interest, which offer
shall be in writing signed by the Purchaser and shall be irrevocable for a
period ending no sooner than the day following the end of the Offer Period, as
hereinafter defined.
(b) Offer Notice. Prior to making any Transfer that is subject to the terms of
this Section 7.4, the Seller shall give to the Company and Riggs National
Corporation written notice (the "Offer Notice") which shall include a copy of
the Purchase Offer and an offer (the "Firm Offer") to sell the Offered Interests
to the Company or Riggs National Corporation (the "Offerees") for the Offer
Price, payable according to the same terms as (or more favorable terms than)
those contained in the Purchase Offer, provided that the Firm Offer shall be
made without regard to the requirement of any earnest money or similar deposit
required of the Purchaser prior to closing, and without regard to any security
(other than the Offered Interest) to be provided by the Purchaser for any
deferred portion of the Offer Price.
(c) Offer Period. The Firm Offer shall be irrevocable for a period (the "Offer
Period") ending at 11:59 P.M., local time at the Company's principal place of
business, on the ninetieth day following the day of the Offer Notice.
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(i) Acceptance of Firm Offer. At any time during the first sixty (60) days of
the Offer Period, any Offeree who is a Member may, by giving written notice of
acceptance to the Seller, accept the Firm Offer as to the Offered Interest. In
the event that within sixty (60) days of the Offer Period, the Company or, if
the Company does not do so, Riggs National Corporation (the "Accepting Offeree")
accepts the Firm Offer with respect to all of the Offered Interests, the Firm
Offer shall be deemed to be accepted, and the Offered Interest shall be
purchased by the Accepting Offeree.
(d) Closing of Purchase Pursuant to Firm Offer. In the event that the Firm Offer
is accepted, the closing of the sale of the Offered Interest shall take place
within thirty (30) days after the Firm Offer is accepted or, if later, the date
of closing set forth in the Purchase Offer. The Seller and the Accepting Offeree
shall execute such documents and instruments as may be necessary or appropriate
to effect the sale of the Offered Interest pursuant to the terms of the Firm
Offer and this Section 7.
(e) Sale Pursuant to Purchase Offer If Firm Offer Rejected. If the Firm Offer is
not accepted in the manner hereinabove provided, the Seller may sell the Offered
Interest to the Purchaser at any time within sixty (60) days after the last day
of the Offer Period, provided that such sale shall be made on terms no more
favorable to the Purchaser than the terms contained in the Purchase Offer and
provided further that such sale complies with other terms, conditions, and
restrictions of this Agreement that are applicable to sales of Company Interests
and are not expressly made inapplicable to sales occurring under this Section
7.4.
7.5. Prohibited Transfers. Any purported Transfer of a Company Interest that is
not a Permitted Transfer shall be null and void and of no force or effect
whatever; provided that, if the Company is required to recognize a Transfer that
is not a Permitted Transfer (or if the Managing Member, in its sole discretion,
elects to recognize a Transfer that is not a Permitted Transfer), the interest
Transferred shall be strictly limited to the transferor's rights to allocations
and distributions as provided by this Agreement with respect to the transferred
Company Interest, which allocations and distributions may be applied (without
limiting any other legal or equitable rights of the Company) to satisfy any
debts, obligations, or liabilities for damages that the transferor or transferee
of such Company Interest may have to the Company. In the case of a Transfer or
attempted Transfer of a Company Interest that is not a Permitted Transfer, the
parties engaging or attempting to engage in such Transfer shall be liable to
indemnify and hold harmless the Company and the other Members from all cost,
liability, and damage that any of such indemnified Persons may incur (including,
without limitation, incremental tax liability and lawyers' fees and expenses) as
a result of such Transfer or attempted Transfer and efforts to enforce the
indemnity granted hereby.
7.6. Rights of Unadmitted Assignees. A Person who acquires one or more Company
Interests but who is not admitted as a Substitute Member pursuant to Section 7.7
hereof shall be entitled only to allocations and distributions with respect to
such Company Interest in accordance with this Agreement, and shall have no right
to any information or accounting of the affairs of the Company, shall not be
entitled to inspect the books or records of the Company, and shall not have any
of the rights of a Member under the Act or this Agreement.
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<PAGE>
7.7. Admission as Substitute Members. A transferee of Company Interest may be
admitted to the Company as a Substitute Member only upon satisfaction of the
conditions set forth below in this Section 7.7, unless waived by the Managing
Member:
(a) The Company Interest with respect to which the transferee is being admitted
was acquired by means of a Permitted Transfer;
(b) The transferee becomes a party to this Agreement as a Member and executes
such documents and instruments as the Members may reasonably request as may be
necessary or appropriate to confirm such transferee as a Member in the Company
and such transferee's agreement to be bound by the terms and conditions hereof;
(c) The transferee pays or reimburses the Company for all reasonable legal,
filing, and publication costs that the Company incurs in connection with the
admission of the transferee as a Member with respect to the Transferred Company
Interest;
(d) The transferee provides the Company with evidence satisfactory to counsel
for the Company that such transferee has made each of the representations and
undertaken each of the warranties applicable to it described in Section 11
hereof; and
(e) If the transferee is not an individual of legal majority, the transferee
provides the Company with evidence satisfactory to counsel for the Company of
the authority of the transferee to become a Member and to be bound by the terms
and conditions of this Agreement.
7.8. Covenants. Each Member hereby represents, covenants and agrees with the
Company for the benefit of the Company and all Members, that (i) he is not
currently making a market in Company Interests and will not in the future make a
market in Company Interests, (ii) he will not Transfer his Company Interest on
an established securities market, a secondary market (or the substantial
equivalent thereof) within the meaning of Code Section 7704(b) (and any
regulations, proposed regulations, revenue rulings, or other official
pronouncements of the Internal Revenue Service or Treasury Department that may
be promulgated or published thereunder), and (iii) in the event such
Regulations, revenue rulings, or other pronouncements treat any or all
arrangements which facilitate the selling of partnership interests and which are
commonly referred to as "matching services" as being a secondary market or
substantial equivalent thereof, he will not Transfer any Interest through a
matching service that is not approved in advance by the Company. Each Member
further agrees that he will not Transfer any Interest to any Person unless such
Person agrees to be bound by this Section 7.8 and to Transfer such Company
Interest only to Persons who agree to be similarly bound. The Managing Member
may, from time to time and at the request of an Member, consider whether to
approve a matching service and shall notify all Members of any matching service
that is so approved.
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7.9. Distributions and Allocations in Respect to Transferred Company Interest.
If any Company Interest is sold, assigned, or Transferred during any Fiscal Year
in compliance with the provisions of this Section 7, Profits, Losses, each item
thereof, and all other items attributable to the Transferred Interest for such
Fiscal Year shall be divided and allocated between the transferor and the
transferee by taking into account their varying Company Interests during such
Fiscal Year in accordance with Code Section 706(d), using any conventions
permitted by law and selected by the Members. All distributions on or before the
date of such Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize such Transfer not
later than the end of the calendar month during which it is given notice of such
Transfer, provided that, if the Company is given notice of a Transfer at least
ten (10) Business Days prior to the Transfer the Company shall recognize such
Transfer as the date of such Transfer, and provided further that, if the Company
does not receive a notice stating the date such Interest was Transferred and
such other information as the Members may reasonably require within thirty (30)
days after the end of the Fiscal Year during which the transfer occurs, then all
such items shall be allocated, and all distributions shall be made, to the
Person who, according to the books and records of the Company, was the owner of
the Interest on the last day of the Fiscal Year during which the Transfer
occurs. Neither the Company nor any Member shall incur any liability for making
allocations and distributions in accordance with the provisions of this Section
7.9, whether or not any Member or the Company has knowledge of any Transfer of
ownership of any Interest.
7.10. Tax Elections.
(a) In the event of a Transfer of all or part of a Company Interest by sale or
exchange or on death of a Member, upon request of the transferee Member, the
Company shall elect, pursuant to Section 754 of the Code, to adjust the basis of
the Company's Property with respect to such Member; provided, however, that the
transferee Member shall bear all costs incurred by the Company as a result of
the election. Any tax items or aspects attributable to the aforesaid adjustments
to basis (whether consisting of additional depreciation deductions or a
reduction of gain on sale or otherwise) shall be allocated solely to the
transferee Member. Each Member shall, at its own expense, within thirty (30)
days of request from the Company, furnish to the Company such information as is
reasonably necessary to accomplish the adjustments in basis provided for under
the Section 754 election.
(b) The Managing Member shall cause the Company to make or revoke all other tax
elections provided for under the Code. Each Member who transfers all or any
portion of its Company Interest shall furnish the Company with all information
required to enable the Company to fulfill any federal income tax reporting
requirements imposed with respect to such transfer.
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SECTION 8
Sale of Assets and Dissolution of Company
8.1. Dissolution of the Company. The Company shall be dissolved on the
occurrence of any of the following events:
(a) the sale of all or substantially all of the assets of the Company;
(b) the expiration of the term of the Company in accordance with Section
2.12;
(c) the determination of the Managing Member to dissolve the Company; or
(d) otherwise by operation of law.
8.2. Heirs and Executors. The Members agree that this Operating Agreement,
including, without limitation, the terms and conditions of this Section 8, shall
be binding upon any of their heirs, executors, administrators, successors, and,
subject to Section 7 hereof, assigns.
SECTION 9
Distribution Upon Dissolution
9.1. Distributions Upon Dissolution.
(a) Upon the dissolution of the Company, the Members or the Persons required by
law to wind up the Company's affairs shall liquidate the assets of the Company
and apply and distribute the proceeds of such liquidation as follows, unless
required otherwise by law:
(i) first, to the payment of debts and liabilities of the Company, exclusive of
those debts and liabilities set forth in clauses (ii) and (iii) hereof, and to
the payment of the expenses of winding up;
(ii) second, to the payment of any accrued any unpaid fees due under the
investment advisory agreement with the Investment Advisor and any other amounts
payable to any Member (other than amounts payable to a Member solely in such
Member's capacity as a Member of the Company);
(iii) third, to the setting up of reasonable reserves for any contingent
liabilities and obligations of the Company, provided that any such reserves
shall be held for such period as the Members or other Persons so distributing
shall deem advisable for the purpose of disbursing such reserves in payment of
such liabilities or obligations and, at the expiration of such period, the
balance of such reserves, if any, shall be distributed as hereinafter provided;
(iv) fourth, to the Members to the extent of, and in proportion to, their
positive Capital Account balances as adjusted to reflect Company operations up
to and including the liquidation.
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(b) If the Members or the Persons required by law to wind up the Company's
affairs, in their sole discretion (and whether or not in accordance with Section
6.1(d)), shall determine that a portion of the Property should be distributed in
kind to the Members, the Members or such Persons, as the case may be, shall
obtain an appraisal as of a date reasonably close to the date of liquidation.
The Capital Accounts shall be adjusted as provided in Section 4.3 to reflect
each Member's share of the unrealized appreciation (or loss) with respect to
such distributed Property. The distribution of any such Property (or portions
thereof as tenants in common) in kind to a Member shall be considered a
distribution of an amount equal to the Property's appraised fair market value
(or portion thereof) for purposes of this Section 9.1.
9.2. Time for Liquidation. A reasonable time shall be allowed for the orderly
liquidation of the assets of the Company and the discharge of liabilities.
9.3. Statements Upon Dissolution. By no later than one hundred twenty (120) days
after the dissolution and termination of the Company, each of the Members shall
be furnished with statements similar, so far as may be practicable, to those set
forth in Section 10.2 hereof prepared by the certified public accountant for the
Company as of and for the period ending with the date of complete liquidation.
SECTION 10
Books of Account, Records and Reports
10.1. Books and Records of the Company. Proper and complete records and books of
account of the Company shall be kept or caused to be kept by an accountant
approved by the Managing Member, in which shall be entered fully and accurately
all transactions and such other matters relating to the Company Business as are
usually entered into records and books of account maintained by Persons engaged
in businesses of a like character. The Company's annual financial statements
shall be prepared on an accrual basis in accordance with generally accepted
accounting principles. The books and records shall at all times be maintained at
the principal offices of the Company, and shall be open to the reasonable
inspection and examination of any Member or such Member's duly authorized
representatives during reasonable business hours.
10.2. Tax Information to Members. Within ninety (90) days after the end of each
Fiscal Year of the Company, the Company shall send to each Person who was a
Member at any time during such Fiscal Year such tax information, including,
without limitation, Federal Tax Schedule K-1, as shall be reasonably necessary
for the preparation of such Member's federal income tax return. This period
shall be automatically extended by the period of any delay beyond the control of
the Members, such as a delay resulting from the failure of a third party to
provide required tax information to the Company in a timely manner.
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10.3. Tax Matters Member. Riggs National Corporation shall be the Tax Matters
Member and shall be designated as such on all relevant forms or in any other
manner as designated by applicable law or regulation; provided, however, that if
at any time Riggs National Corporation ceases to be the Managing Member, then
the Members by Majority vote may select another Member to serve as the Tax
Matters Member. The Tax Matters Member shall have all powers needed to perform
its duties, including, without limitation, the power to retain all attorneys and
accountants of its choice. The Tax Matters Member shall be entitled to
reimbursement from the Company for all necessary and reasonable out-of-pocket
expenses incurred in performing his duties as Tax Matters Member.
10.4. Tax Returns. The Managing Member shall cause income and other required
federal, state and local tax returns for the Company to be prepared and to be
timely filed with the appropriate authorities making such elections as the
Managing Member shall reasonably deem to be in the best interest of the Company
and the Members.
SECTION 11
Representations and Warranties
Each of the Members hereby represents and warrants to each of
the remaining Members as follows:
11.1. Such Member has power to execute, deliver and perform his obligations
under this Agreement. This Agreement constitutes the valid and binding
obligation of such Member, enforceable against him in accordance with its terms
except as enforcement may be limited by laws governing bankruptcy, insolvency
and similar matters and by general principles of equity.
11.2. The execution, delivery and performance of his obligations hereunder by
such Member do not conflict with, violate, or constitute a breach or default
under any law, regulation, judicial or administrative order, contract, indenture
or other agreement to which such Member is a party or subject or by which he may
be bound.
11.3. There is not pending or, to the best knowledge of such Member, threatened
or pending against such Member any claim, suit, action or governmental
proceeding, that would, if adversely determined, materially impair the ability
of such Member to perform his obligations hereunder.
SECTION 12
Miscellaneous
12.1. Notices. All notices under this Agreement shall be in writing and shall be
deemed to have been given when delivered personally, or, if sent by an overnight
delivery service maintaining records of receipt, on the first business day of
actual receipt. Notices shall be addressed to the Members at the addresses set
forth on Schedule A or to such other address as the Members shall specify by
written notice to the Company and the other Members. Notices shall be addressed
to the Company at: 800 17th Street, N.W., Washington, D.C. 20006, or to such
other address as the Company may specify by written notice to the Members.
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12.2. Amendments. This Agreement constitutes the full and complete agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements, understandings, letters of intent, term sheets,
and similar evidences of prior intent. This Agreement may be amended only with
the written consent of the Members by Supermajority Vote; provided, however,
that no amendment may materially and adversely affect the rights of any Member
relative to the other Members without the consent of the adversely affected
Member.
12.3. Additional Documents. Each Member agrees to execute and acknowledge all
documents and writings reasonably necessary to the creation of this Company and
the achievement of its purposes, specifically including, without limitation, a
certificate of formation and all amendments thereto, as well as any cancellation
thereof.
12.4. Successors and Assigns. Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
12.5. Interpretation and Governing Law. When the context in which words are used
in this Agreement indicates that such is the intent, words in the singular
number shall include the plural, and vice versa, the masculine gender shall
include the neuter or female gender, and "or" is used in the inclusive sense.
Headings or titles contained herein are inserted only as a matter of convenience
and in no way define, limit, extend or interpret the scope of this Agreement or
any particular Section hereof. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving regard to the
conflict of laws provisions thereof.
12.6. Severability. If any provision, sentence, phrase or word of this Agreement
or the application thereof to any Person or circumstance shall be held invalid,
the remainder of this Agreement, or the application of such provision, sentence,
phrase or word to Persons or circumstance, other than those as to which it is
held invalid, shall not be affected thereby.
12.7. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, but all of which shall constitute one and
the same instrument.
12.8. Third Parties. The agreements, covenants and representations contained
herein are for the benefit of the Members hereto and are not for the benefit of
any third parties including, without limitation, any creditors of the Company.
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IN WITNESS WHEREOF, the parties have executed this Operating
Agreement as of the day and year first above written.
RIGGS NATIONAL CORPORATION
By/s/TIMOTHY C. COUGHLIN /s/J. CARTER BEESE, JR.
------------------- --------------------
President J. Carter Beese, Jr.
RCP Investments, L.P.
By /s/ J. CARTER BEESE, JR.
--------------------
J. Carter Beese, Jr., General Partner
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SCHEDULE A
MEMBERS OF RIGGS CAPITAL PARTNERS, LLC
Members
<TABLE>
<CAPTION>
Members' Names Initial Capital Maximum Annual Capital Interest Profits
And Addresses Contribution Capital Contribution Interest
<S> <C> <C> <C> <C>
Riggs National Corporation Equity Interests $58,616,171.17 99% 79.2%
800 17th Street, N.W. listed below
Washington, D.C. 20006
RCP Investments L.P. $500 None 0% 20.0%
800 17th Street, N.W.
Washington, D.C. 20006
Attn: J. Carter Beese, Jr.
J. Carter Beese, Jr. Equity interests $592,082.54 1% 0.8%
800 17th Street, N.W. listed below
Washington, D.C. 20006
</TABLE>
Contributed Equity Interests:
NOTE: Equity interests are being contributed by Riggs National Corporation,
which has held such interests 99% for the benefit of itself and 1% for the
benefit of J. Carter Beese, Jr., in the manner previously agreed to by them.
Stock Interests
- ---------------
Company Number of Shares and Class
- ------- --------------------------
omitted-proprietary and confidential
Partnership Interests
- ---------------------
Partnership Percentage Interest
- ----------- -------------------
omitted-proprietary and confidential
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Exhibit 11
Riggs National Corporation
Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Basic Earnings Per Share:
Income Available to Commons Shareholders $36,655 $38,185 $40,129
before Extraordinary Loss
Extraordinary Loss, Net of Taxes (5,061) -- --
Net Income Available to Common Shareholders 31,594 38,185 40,129
Weighted-Average Shares Outstanding 28,463,825 30,603,384 30,422,822
Basic EPS before Extraordinary Loss $1.29 $1.25 $1.32
Basic EPS 1.11 1.25 1.32
Diluted Earnings Per Share:
Income Available to Commons Shareholders $36,655 $38,185 $40,129
before Extraordinary Loss
Extraordinary Loss, Net of Taxes (5,061) -- --
Net Income Available to Common Shareholders 31,594 38,185 40,129
Diluted Weighted-Average Shares Outstanding:
Weighted-Average Shares Outstanding 28,463,825 30,603,384 30,422,822
Weighted-Average Dilutive Effect of Stock 552,100 1,032,096 1,164,568
Option Plans
Adjusted Weighted-Average Shares Outstanding 29,015,925 31,635,480 31,587,390
Diluted EPS before Extraordinary Loss $1.26 $1.21 $1.27
Diluted EPS 1.09 1.21 1.27
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</TABLE>
TO MY FELLOW SHAREHOLDERS
To my fellow shareholders:
As Riggs enters the year 2000, it is a pleasure to inform you about our
company's expansion of its products from loan and deposit banking to the full
spectrum of financial services. For 164 years, we have built an excellent
reputation for providing traditional banking services to our clients. Now amidst
deregulation, we are taking full advantage of our opportunity to build upon the
trust and confidence we enjoy from our customers and to provide for the full
range of their financial needs while maintaining our standards of quality and
safety.
Riggs & Company, our Investment Management, Trust and Private Banking Division,
is realizing the promise envisioned when it was inaugurated in 1997. Total fee
income for Riggs & Company in 1999 increased 12%, and its scope of business was
significantly enhanced when Riggs Investment Corporation was launched early in
the year. This new broker-dealer subsidiary has responsibility for Riggs &
Company's sales of stocks, bonds and mutual funds including four new Riggs Funds
which bring our total mutual funds to nine well-managed and diversified
investment choices for our customers. G. Michael Richwine, Senior Vice President
of our Trust Department, has been assigned responsibility for Riggs Investment
Corporation's accelerated growth by supervising coordination throughout Riggs
Bank for the development of investment sales.
Riggs Mortgage Banking was also created in 1999. After Riggs Bank's long and
successful history of purchasing mortgage loans, this new division enables us to
originate loans at higher profit both for our own portfolio and for placement
with others as well. An experienced mortgage banking professional, Senior Vice
President Richard Knapp, Jr., manages this important and rapidly growing
residential mortgage loan business.
Riggs Embassy Banking opened a new branch in Berlin during 1999 to complement
the well established and successful Embassy Banking Division in Washington and
the more recently established and rapidly growing Embassy Banking Branch in
London. By establishing an early presence in Berlin, Riggs has the opportunity
to realize significant new business as foreign embassies from around the world
relocate their embassies in Germany to its reinstated capital city. Vice
President David D. Gallalee has moved from Embassy Banking in Washington to be
Manager of the Berlin Branch.
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Riggs Private Banking initiated a major new initiative in London during 1999.
The international private banking business enables us to leverage our embassy
banking network for investment sales with our growing international client base,
and London represents an important expansion opportunity which has been placed
under the responsibility of Wadih F. Hanna, an experienced and outstanding
international banker recruited to be its Managing Director. To strengthen
service to our international diplomatic clients in Washington, we have
consolidated all of our international banking functions at our efficient new
Paul Cushman III International Financial Center located at Dupont Circle on
"Embassy Row."
Riggs Enterprise Solutions is a new division formed in 1999 to develop and
market cash management services to foreign governments based upon Riggs's
CA$HLINK service to the U. S. Treasury, the largest cash management collection
information system in the world. Based on the success we have enjoyed with our
own government, we believe that Riggs can successfully market the same efficient
and transparent electronic funds management system to other governments around
the globe. Alexander M. Daisley, President of Riggs Enterprise Solutions, brings
the right combination of technological and marketing experience to head this new
activity.
Riggs Investment Banking was formed in 1999 within our Relationship Banking
Group to offer our business clients access to capital market expertise for the
full range of their funding needs. Several private placement offers have already
been presented to longstanding clients of Riggs with encouraging prospects for
success in this business as a new source of fee income. Two seasoned Riggs
corporate bankers, David L. Bachetti and Kevin L. Flemming II, are Managers of
Riggs Investment Banking.
Riggs Capital Partners, our new venture capital business, is investing up to
$100 million in emerging companies with particular emphasis on the Washington
area's technology market, which is among the most entrepreneurial,
fastest-growing and vibrant of such markets in the United States. Under the
superb management of J. Carter Beese, Jr., President, and W. E. Tige Savage,
Executive Vice President, Riggs Capital Partners is realizing positive results
after just one and one-half years of operation, with enormous future potential.
In order to strengthen our management team, Robert C. Roane, a twenty-year
executive veteran at Riggs, was promoted to Executive Vice President and Chief
Operating Officer of Riggs Bank. Mr. Roane's principal occupation will be to
make certain that we stay focused on our traditional banking business while we
develop our new initiatives at the same time.
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Financial results for 1999 were adversely affected by development expenses
associated with the foregoing new initiatives, by an increase in non-performing
loans and by redemption of our $125 million 8.5% subordinated notes during the
year, all of which combined to reduce Net Income to $31.6 million ($1.09 per
diluted share). However, we believe that the future returns on expenses incurred
for our initiatives will be well worth the expenditures. The vast majority of
our non-performing loans in 1999 were syndicated loans purchased from other
banks to companies having no relationships with Riggs, a practice which we have
ended. The redemption of our high cost subordinated notes, which resulted in a
$5.1 million extraordinary loss during 1999, is expected to provide substantial
interest expense savings, enhancing profits in future years beginning year 2000.
A key element in Riggs's strategy is ensuring that we will always have a sound
financial position. Our robust capital structure -- $827.2 million of regulatory
capital -- assures us of both financial strength and the flexibility to take
timely advantage of new business opportunities. At year end 1999, our capital
ratios continued to exceed regulatory definitions of "well capitalized." The
Corporation's total and leverage capital ratios were 23.55% and 8.59% at
December 31, 1999, compared to regulatory minimums of 8.0% and 4.0%,
respectively, and liquidity continues to be high.
In concluding this review of Riggs in 1999, I would like to extend my heartfelt
thanks and appreciation to our dedicated Board of Directors, Board of
Consultants and 1,600 employees, all of whom are working hard to strengthen our
business and position it for growth. And I thank our loyal customers and our
shareholders for their continued support as Riggs completes its transition into
a broadly based financial services company.
/s/ JOE L. ALLBRITTON
- ---------------------
Joe L. Allbritton
Chairman of the Board and Chief Executive Officer
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SERVING THE MOST IMPORTANT CUSTOMERS IN THE WORLD
On a global basis, personal wealth is multiplying, multitudes of new businesses
are being created, and technologies are being transformed at a breathtaking
pace. With our headquarters serving the burgeoning Washington, D.C., market and
with our strategic locations in London, Berlin and Miami, Riggs has a unique
historical franchise and is well positioned to take advantage of the
unprecedented opportunities today's economic and business environment offers.
As a financial counselor to U.S. Presidents, statesmen from around the world,
and embassies - as well as affluent individuals - we have carved out a niche
market in sophisticated wealth management for the customer who has numerous and
specialized financial needs. Riggs is in the forefront of knowing and serving
the Washington, D.C.-related financial services environment. Building on our
franchise strength, we are developing new market opportunities that further
enhance our competitive edge.
TRANSLATING TRADITIONAL LEADERSHIP INTO NEW MARKETS
Over the latter half of the decade, Riggs began a strategic move to broaden its
capabilities - and its identity - from that of a traditional banking and trust
business with a unique customer base to that of a full-fledged, broadly-based
financial services provider serving the full spectrum of its clients' needs.
The 1997 introduction of Riggs & Co., our integrated trust and investment
advisory services business, was followed in short order with the acquisition of
J. Bush & Co. Incorporated - a subsidiary specializing in high wealth individual
investors.
Riggs has for more than 160 years developed and refined private banking for
generations of affluent Washingtonians. Since its creation, Riggs & Co. has
rapidly built a highly personalized business based on the customer's
perspective. A client's assets work harder when they work together. Using a team
approach - with banking, credit, investment and retirement plan specialists
working hand-in-hand with the customer we address the client's complex
challenges, offer him the best possible solutions to his problems, and help him
create opportunities out of those challenges.
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More than one-third of all households in metropolitan Washington, D.C., maintain
income-producing assets - nearly twice the national average. Over the course of
1999, we made considerable and tangible progress in serving this attractive
market by increasing the size and capabilities of our trust and investment
services to offer virtually any type of leading edge service or product a client
needs.
Riggs & Co. now offers clients a host of new benefits, including a greater
choice of investments, daily valuation of accounts, and a daily opportunity to
change their investments. We also now offer customers the ability to receive
estate settlements in the form of shares rather than cash, providing them with
better options in managing their taxes.
Additionally, Riggs Investment Corporation, created in 1999, has introduced to
its clients a broad array of new asset classes and investment styles, nearly
doubling our existing product offerings and giving our customers a greater
choice of investment options to tailor to their individual needs. For example,
our new Prevail asset allocation program combines Riggs Funds with other mutual
funds in a single, customized account offering the benefits of investment advice
and easy recordkeeping. What's more, we also have launched an attractive asset
management account, an integrated account linking checking, debit cards and ATMs
with investment management.
Venture capital investment nationwide has doubled over the past year, and the
greater Washington, D.C., region is outpacing the growth over much of the
country. Riggs Capital Partners, our venture capital subsidiary, has established
itself quickly and broadened its reach, significantly extending Riggs's
in-market franchise. Riggs Capital Partners will commit up to $100 million, both
for funds and for direct deals. The relationships we are developing through this
investment process are positioning us perfectly to gain ever more access to new,
quickly-growing entrepreneurial businesses in the mid-Atlantic region,
especially in the vibrant emerging technologies market.
Our Relationship Banking unit in 1999 reinforced its dedication to serving the
unique customer base indigenous to the Washington area. Known in the commercial
community as the local bank for local customers, we are renewing our focus on
the area's emerging technology organizations, government contractors,
not-for-profit organizations, and trade associations.
The launch early this year of our newest Relationship Banking initiative, Riggs
Investment Banking, now enables us to offer our middle-market customers direct
access to the capital markets - further strengthening Riggs's opportunities for
fee income, together with our traditional commercial credit, cash management,
private banking, and investment services.
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Over the past two years, we have been developing a powerful base overseas, with
several offices in London emulating our successful Washington-based embassy and
international business. We are actively seeking opportunities to increase our
business internationally by forging new critical linkages between our unique,
existing relationships through both traditional banking and non-traditional,
fee-based services.
The year 1999 proved to be a vital period for our international embassy banking
activities. The opening of our Berlin office in conjunction with the move of the
entire diplomatic community in Germany from Bonn to Berlin affords us
outstanding new business prospects, as Berlin becomes a new diplomatic crossroad
in Europe. Our new footprint in Berlin not only has enabled us to begin serving
the U.S. Embassy in Berlin with its banking needs, but also enables us to extend
our expertise in diplomatic banking services to other foreign embassies and
missions headquartered there. It also gives us unprecedented access to
additional, non-banking business opportunities in government cash management and
personal investment management.
We anticipate the Berlin office will emulate our success in London, where, in
just two years, we have built a strong base of operations. We now serve more
than 50 countries in this dynamic European financial hub. As the European
economy continues to evolve, we have created a distinct opportunity to build a
series of niched international businesses, including private banking, trade and
property finance, and corporate lending. Our newly-formed private banking
company in London is opening up European and other international investment
sales opportunities, with a senior manager who has substantial and publicly
recognized international private banking experience.
Through Riggs International Services Company Limited, created in 1999, we now
are further expanding our service to international clients by providing new,
sophisticated forms of international insurance overseas, including life and
health insurance, for Washington, D.C.-based diplomats and other international
clients.
Our early 1999 award of a new agreement to transform and manage the U.S.
Treasury's cash management system has provided us with an excellent platform to
pursue additional business opportunities in cash management, both domestically
and internationally. Through Riggs Enterprise Solutions, we are capitalizing on
our development work on the largest deposit reporting and cash concentration
system in the world to build new revenue opportunities in this key business
area, especially with foreign governments.
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Our new International Financial Center in the Dupont Circle neighborhood of
Washington, D.C., located near the local embassy banking and diplomatic
community, consolidates all of our Washington, D.C.-based international business
activity, improving the coordination and efficiency of these operations. Our
Miami office continues to complement these international activities in serving
the banking and investment needs of the Latin American diplomatic community.
OFFERING AN UNSURPASSED CUSTOMER EXPERIENCE
The hallmark of Riggs, our traditional in-market banking business, continues as
the strong foundation of our franchise. Over the past year, we have worked
enterprise-wide to offer the Riggs customer a consistent, high-quality and
personalized experience with the sales process, as well as a widening array of
products. We have developed a sales-oriented culture to transform the quality of
customer service through better technology, a dramatic enhancement of our sales
management process, and heightened performance standards throughout the company.
With the explosive new demands for e-commerce, we have been significantly
upgrading our electronic distribution channels to make it easier for customers
to do business with us. Our recently enhanced Web banking structure enables
customers to access more information more quickly. Through Web banking, our
customers are now applying for loans online, purchasing additional shares of
Riggs Funds, and receiving additional information on their personal investments.
We have upgraded our RiggsDirect telephone customer interface system as well, to
enhance the customer relationship. With new technologies, we are able to view a
customer's entire relationship with Riggs, and recommend the best product and
service mix to benefit that customer.
Further enhancing our customer-fluency, we have significantly improved our
ability to cross-sell our growing range of products by training and licensing
branch sales representatives to sell securities. Concurrently, we have developed
stronger sales measurement and sales incentive programs that already are
demonstrating measurable improvements in cross-selling results.
As a local bank with deep roots in the community, our leading position, stature
and name recognition in the region provide us an excellent springboard to
becoming the premier mortgage lender in the Washington area. To take advantage
of the significantly growing local market in home sales, we are complementing
our traditional lending and home equity services with a direct retail mortgage
loan capability, which already is beginning to yield success. Our existing
customer base has offered us an instant relationship-building opportunity to
make a solid mark in this business.
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With a strong view to customer service, we are providing new, more competitive
loan parameters and product profiles to serve a diverse customer base. Our
experienced professionals are offering flexible solutions to homebuyers' needs,
whether the customer is a first-time buyer, an experienced buyer, an
international homeowner, or a low-income buyer.
Equally strong is our commitment to our community. Throughout 1999 we continued
our leadership in the community, as well as our solid and recognized support of
CRA objectives. Early in the year, we made a meaningful contribution to D.C.
College Access, a program ensuring higher educational opportunities for District
high school students through counseling and scholarships.
Over the past year our aggressive community support agenda also has included
programs benefiting minority churches; making electronic banking available to
low-income customers; providing area-wide support for low-income students; and
making affordable loans available for a low-income housing program. In late 1999
we were named the first ever recipient of the Corporate Responsibility Award
from the Educational Organization for United Latin Americas.
Riggs has created a truly unique franchise over its long and distinguished
history, built on personalized service to the most important people in the world
- - our customers. We treasure that heritage, and keep that as the focus of
everything we do. Our customer-intimate strategy will continue to develop Riggs
in the 21st century as a premier provider of financial services.
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MANAGEMENT'S DISCUSSION & ANALYSIS
RIGGS NATIONAL CORPORATION
Riggs National Corporation is a bank holding company headquartered in
Washington, D.C. We engage in a variety of banking and financial services
activities, either directly or through our subsidiaries, serving a broad
customer base. These services include community banking, corporate and
commercial banking, international banking, and trust and investment management
services.
Our principal banking subsidiary is Riggs Bank National Association (the "Bank"
or "Riggs Bank"), serving the Washington, D.C., metropolitan area with 53
branches and 133 ATM's. We provide trust and investment management services
through a division of the Bank, Riggs & Company ("Riggs & Co."). We have a
mortgage banking subsidiary, Riggs Real Estate Investment Corporation ("RREIC"),
based in Virginia. A subsidiary of the Bank, Riggs Bank Europe Limited ("RBEL"),
is a full-service banking operation based in the United Kingdom. We formed a
venture capital subsidiary in 1999, Riggs Capital Partners, LLC ("RCP"). In
addition to Washington, D.C., Virginia and the United Kingdom, we had banking
operations or subsidiaries in Maryland, Florida, Germany and the Bahamas at
December 31, 1999.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 334,443 $ 353,802 $ 330,792 $ 293,198 $ 298,799
Interest Expense 147,503 163,450 151,501 139,891 147,821
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 186,940 190,352 179,291 153,307 150,978
Less: Provision for Loan Losses 2,500 -- (12,000) -- (55,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 184,440 190,352 191,291 153,307 205,978
Noninterest Income Excluding
Securities Gains, Net 105,472 99,259 84,424 89,007 73,493
Securities Gains, Net 1,154 15,023 3,500 7,170 511
Noninterest Expense 207,244 193,752 186,030 176,947 191,834
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Taxes, Minority
Interest, and Extraordinary Loss 83,822 110,882 93,185 72,537 88,148
Applicable Income Tax Expense 26,953 29,088 24,690 6,174 346
Minority Interest in Income
of Subsidiaries, Net of Taxes 20,214 19,947 17,616 420 --
====================================================================================================================================
Net Income before Extraordinary Loss 36,655 61,847 50,879 65,943 87,802
Extraordinary Loss, Net of Taxes 5,061 -- -- -- --
====================================================================================================================================
Net Income $ 31,594 $ 61,847 $ 50,879 $ 65,943 $ 87,802
Less: Dividends on Preferred Stock -- 9,854 10,750 10,750 10,750
Less: Excess of Call Price over Carrying Amount
of Preferred Stock -- 13,808 -- -- --
====================================================================================================================================
Net Income Available
for Common Shareholders $ 31,594 $ 38,185 $ 40,129 $ 55,193 $ 77,052
Earnings Per Share
Basic before Extraordinary Loss $ 1.29 $ 1.25 $ 1.32 $ 1.82 $ 2.55
Diluted before Extraordinary Loss 1.26 1.21 1.27 1.79 2.54
Basic 1.11 1.25 1.32 1.82 2.55
Diluted 1.09 1.21 1.27 1.79 2.54
Dividends Declared and
Paid Per Common Share .20 .20 .20 .15 -
====================================================================================================================================
YEAR-END
Total Assets $5,830,149 $5,502,331 $5,846,426 $5,135,100 $4,732,533
Long-Term Debt 66,525 191,525 191,525 191,525 217,625
Shareholders' Equity 337,713 392,728 463,182 425,776 376,669
====================================================================================================================================
</TABLE>
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OVERVIEW
Net income was $31.6 million in 1999 compared to $61.8 million in 1998. Income
before taxes, minority interest, and extraordinary losses for 1999 was $83.8
million, representing a 24% decrease from the 1998 total of $110.9 million.
The decrease in earnings in 1999 was attributable to decreases in net interest
income and nonrecurring securities gains combined with increases in noninterest
expense, provision for loan losses, and extraordinary losses. Net interest
income for 1999 was $186.9 million, a decrease of 2% or $3.4 million from 1998.
Securities gains declined $13.8 million to a total of $1.2 million in 1999 from
$15.0 million in 1998. Noninterest expense totaled $207.2 million in 1999, a 7%
increase from 1998. The provision for loan losses was $2.5 million in 1999, with
none in 1998. Extraordinary losses of $5.1 million, net of tax, were recorded in
1999 from the early redemption of debt compared with no such losses in 1998. The
reduction in earnings was partially offset by an improvement in noninterest
income, excluding securities gains, that totaled $105.5 million in 1999, a 6%
increase from $99.3 million in 1998.
Diluted earnings per share (EPS) for 1999 and 1998 were $1.09 and $1.21,
respectively. A one time charge of $0.17 from the redemption of debt reduced
1999 EPS while the 1998 EPS was reduced by a one-time charge of $0.44 from the
redemption of preferred stock. Return on average assets was 0.57% for 1999
compared to a ratio of 1.11% for 1998; the return on average shareholders'
equity was 9.14% in 1999 compared to 13.61% for 1998.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the difference between interest income on earning assets
and interest expense on deposits and borrowed funds. Net interest income is
affected by changes in the level of interest rates and changes in the amount and
composition of interest-earning assets and interest-bearing liabilities (see
Tables A and B).
Net interest income on a tax-equivalent basis totaled $190.2 million in 1999, a
decrease of $3.2 million or 2% over 1998 and an increase of $7.0 million or 4%
from 1997. The net interest margin was stable in 1999 at 3.76% compared with
3.78% in 1998 and 3.81% in 1997. In 1999, average interest-earning assets
decreased by $46.9 million or 1% from 1998, while the average rate earned
decreased 31 basis points between the years. This decrease in the rate earned on
average assets was the primary cause of a $19.1 million decrease in interest
income. Average interest-bearing funds increased by $243.2 million during the
year with the average rate paid declining 61 basis points, resulting in a $15.9
million decrease in interest expense.
The decrease in average earning assets during 1999 was caused by a decrease in
the average balances of time deposits with other banks, federal funds sold and
reverse repurchase agreements totaling $168.1 million, offset by a $116.5
million increase in the average balance of the loan portfolio. The average rate
earned on loans was the largest contributor to the decrease in interest income
in 1999. Declining yields on the commercial, residential and foreign portfolio
all contributed to reducing interest income. The increased average balance in
the loan portfolio offset the reduction in interest income from declining yields
by $9.2 million.
The increase in average interest-bearing funds during 1999 was due primarily to
the growth on average of $156.8 million in money market deposits and $134.6
million in short-term borrowings. These increases were offset to some extent by
a decline in long-term debt from the redemption of $125.0 million of
subordinated notes in July 1999. The average rate paid on interest-bearing funds
decreased 61 basis points from 1998 with a decline seen in all interest-bearing
deposit areas.
Noninterest Income
Our revenue mix continued to shift in the most recent year with a larger
percentage of our income coming from fee-based noninterest income versus net
interest income components. Noninterest revenue, excluding securities gains,
accounted for 36% of combined revenue in 1999 compared to 34% in 1998 and 32% in
1997. The revenue shift is a result of our continued strategic focus on the
trust and investment management division, Riggs & Co. Excluding nonrecurring
securities gains, noninterest income increased 6% in the current year compared
to 1998 and the 1999 total was 24% higher compared to 1997. Securities gains
decreased significantly in 1999 as a rising interest rate environment decreased
the market value of our investment portfolio. Securities gains were $1.2 million
in 1999 compared with $15.0 million in 1998.
Trust and investment advisory income is the primary revenue source for Riggs &
Co. Growth in this area was $5.8 million in 1999, an increase of 13% over 1998
and 38% in relation to 1997. In the fourth quarter of 1999, we recorded $2.0
million in investment valuation gains from our venture capital subsidiary, Riggs
Capital Partners. RCP recorded no gain or loss prior to the fourth quarter of
1999. In addition to securities gains, certain nonrecurring items are included
in 1999 and 1998 noninterest income. These include a $3.8 million gain from the
sale of our corporate aircraft in the current year and a $3.6 million gain in
1998 resulting from the termination of the RBEL pension plan. These gains are
reported in other operating income on the Consolidated Statements of Income.
Noninterest Expense
Noninterest expense for the year ended December 31, 1999, was $207.2 million, an
increase of $13.5 million or 7% over 1998. This compares to an increase of $7.7
million or 4% in 1998 over 1997. The current period increase includes $6.6
million in added personnel costs, partially attributable to staff costs
associated with new business initiatives. Additional increases also were seen in
the areas of data processing services, furniture and equipment related costs,
merchant credit card processing services, and advertising costs. The number of
employees at December 31, 1999, was relatively unchanged from December 31, 1998,
with a year-end total of 1,589. This compares to 1,598 and 1,580 at December 31,
1998 and 1997, respectively.
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Income Taxes
Our provision for income taxes includes federal, state, local and international
tax obligations. Income tax expense decreased $2.1 million in 1999 to $27.0
million from $29.1 million in 1998 and $24.7 million in 1997. The decreased
expense was primarily the result of decreased earnings. Our effective tax rate
of 32.2% for 1999 was higher than the rate of 26.2% for 1998 and 26.5% for 1997.
During 1998 and 1997, we reversed valuation allowances related to deferred tax
assets which reduced income tax expense. As substantially all of the valuation
allowances were reversed in earlier periods, the effective tax rate increased in
1999. The increase in our effective tax rate was mitigated by a reduction in our
state tax obligation from the formation of RREIC, a Real Estate Investment
Trust. RREIC is the mortgage banking subsidiary of Riggs Bank that holds the
Bank's residential real estate loans.
FINANCIAL POSITION AND LIQUIDITY
Earning Assets
Loans and investments are our primary earning assets. At December 31, 1999,
earning assets totaled $5.25 billion compared to $5.00 billion at December 31,
1998. Loans represented 61% of the earning assets at December 31, 1999, while
securities and short-term investments were the remaining 39%. In 1998, the mix
was similar with 65% of earning assets in loans and 35% in investments. Loans
are generated in our Banking segment through both retail and commercial banking
activities as well as in our International segment through embassy banking and
our London based subsidiary, RBEL. Investments are managed predominately by our
Treasury segment including securities available for sale and other short-term
investments.
Loans
Total loans at December 31, 1999, were $3.20 billion, a decrease of 2% from
December 31, 1998. One-half of the loan portfolio consisted of residential
mortgage, home equity, and consumer loans which were generated through retail
banking activities. Commercial loans generated through both the relationship
banking and international banking activities represent the remaining balance of
the portfolio (see Tables C, D and E).
Total loans decreased $56.2 million in 1999 resulting from a $56.5 million
decrease in the residential mortgage portfolio as mortgage loan runoff was not
fully replaced with new loan originations. In 1998 there was an increase in
residential mortgage loans due primarily to the purchase of $261.7 million of
bulk loans offset by prepayments of loans during the year. Loan balances in all
other lending areas were relatively consistent with year-end 1998.
Cross-Border Outstandings
We extend credit to borrowers domiciled outside of the United States through
several of our banking subsidiaries primarily through our International Banking
segment. Cross-border outstandings include loans, acceptances, interest-bearing
deposits with other banks, investments, and other monetary assets that are
denominated in U.S. dollars or other currencies. In addition, cross-border
outstandings include legally enforceable guarantees issued on behalf of
non-local third parties and local currency outstandings to the extent they are
not funded by local currency borrowings. These assets may be impacted by
changing economic conditions in the respective countries. We routinely review
these credits and continually monitor the international economic climate and
assess the impact of these changes on foreign domiciled borrowers.
At December 31, 1999, we had no cross-border outstandings exceeding 1% of our
total assets to countries experiencing difficulties in repaying their external
debt. At December 31, 1999, 1998 and 1997, the United Kingdom was the only
foreign country with cross-border outstandings in excess of 1% of our total
assets that had loans in either a nonperforming, past-due or potential problem
loan status (see Tables F and G).
Short-Term Investments
Short-term investments are managed by our Treasury segment and include time
deposits with other banks, federal funds sold and reverse repurchase agreements.
These investments are liquid assets with original maturities generally of less
than 90 days. Short-term investments are lower-yielding assets that are highly
interest-rate sensitive. Funds available for short-term investments are a
function of daily movements in our securities, loans and deposit portfolios,
combined with our overall interest-rate risk and asset/liability management
strategy. Liquidity is also available through our credit facilities with Federal
Home Loan Banks ("FHLB"). We have secured and unsecured lines of credit that
exceed $1 billion which could be drawn upon to meet potential funding
requirements.
At December 31, 1999, total short-term investments decreased by $11.6 million,
or less than 2%, when compared to year-end 1998 due to normal daily fluctuations
from our ongoing liquidity management process.
Securities Available for Sale
Our securities consist of securities available for sale that are managed by our
Treasury segment and carried on the Consolidated Statements of Condition at
market value. The unrealized gains and losses on these securities are reported
net of tax as a component of accumulated other comprehensive income (loss) in
shareholders' equity. The securities portfolio totaled $1.29 billion at December
31, 1999, with an average duration of 4.0 years and an average yield of 5.92%.
These securities consisted primarily of U.S. Treasuries, U.S. government agency
and mortgage-backed securities. At December 31, 1999, securities available for
sale had $39.5 million of unrealized losses after taxes. The unrealized losses
were a direct result of an increasing interest rate environment combined with an
increase in the portfolio's duration during 1999 (see Table H).
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At December 31, 1998, the portfolio totaled $970.7 million with an average
duration of 3.7 years and an average yield of 5.75%. At December 31, 1997, the
portfolio had an average life of 2.2 years and an average yield of 6.06%. The
securities portfolio increased $319.2 million at year-end 1999 from year-end
1998. The increase in securities was due mainly to increased short-term
borrowings as we increased the liquidity of our financial position with
borrowings from the FHLB. This increase was offset by certain uses of funds
including the repurchase of 2.1 million common shares of our stock at a cost of
$42.2 million in the first quarter 1999 and the redemption of $125.0 million in
subordinated notes in the third quarter 1999.
As part of our asset/liability strategy, securities available for sale may be
sold in response to changes in interest rates, risk characteristics and other
factors. We realized net securities gains of $1.2 million in 1999 compared with
$15.0 million in 1998. The significant amount of sales in 1998 was the result of
a repositioning of the securities portfolio as we replaced certain U.S.
Treasuries with mortgage-backed securities and extended the portfolio duration
to 3.7 years. Securities sales were limited during 1999 and the yield on
securities increased 17 basis points as overall interest rates increased.
Venture Capital Investments
Venture Capital investments of RCP totaled $39.5 million at December 31, 1999
and $3.1 million at December 31, 1998. The investments are accounted for at fair
value, with valuation gains and losses taken into income. For the year ended
December 31, 1999, investment valuation gains associated with RCP totaled $2.0
million. There were no investment valuation gains or losses in 1998. A $267
thousand minority interest expense associated with RCP is included on the
Consolidated Statements of Income, net of taxes, for 1999.
ASSET QUALITY
Credit Risk Management
One of our key objectives is to maintain the quality of the loan portfolio
through high underwriting standards and regular evaluation of credit risk in the
portfolio. The potential for loss is intrinsic to the lending process and we
attempt to minimize these losses. The amount of loss, however, will fluctuate
depending on the risk characteristics of the loan portfolio.
We have comprehensive policies and procedures that cover both loan origination
and management of risk. Our Credit Administration group establishes credit
policies including approval of underwriting standards, lending limit authorities
and concentration limits. Business unit managers throughout our company have
primary responsibility to evaluate, monitor and manage credit risk within policy
guidelines for each portfolio. Credit Administration reports to the Chief Credit
Officer and works with business units to ensure the integrity of the credit
process. An independent loan review group monitors compliance with our credit
policies and further ensures the integrity of the credit process.
Provision and Reserve for Loan Losses
The provision for loan losses is a charge to earnings to maintain the reserve
for loan losses at a level adequate to absorb estimated losses inherent in the
loan portfolio. The reserve for loan losses is based on our assessment of
existing conditions and of potential losses determined to be probable and
subject to reasonable estimation. We determine the appropriate balance of the
reserve for loan losses based upon an analysis of inherent risk and other
factors that include: primary sources of repayment on individual loans and
groups of similar loans, liquidity and financial condition of the borrowers and
guarantors, historical charge-offs/writedowns within loan categories, loan
trends and general economic conditions. On a quarterly basis, the Loan Loss
Reserve Committee evaluates the adequacy of the reserve for loan losses.
In 1999, a provision of $2.5 million was made to the reserve for loan losses
while no provision was made in 1998 and a negative provision of $12.0 million
was made in 1997. The reserve for loan losses was $41.5 million, or 1.29% of
total loans, at December 31, 1999, compared to $54.5 million, or 1.67% of total
loans, at December 31, 1998 (see Table I). The provision was a result of
additions to our nonperforming loans during the year and an increased level of
charge-offs related to these nonperforming loans.
The reserve for loan losses is reduced by loans charged off during the year and
increased by recoveries of loans that were previously charged off. In 1999 we
had net charge-offs totaling $15.2 million compared to net recoveries of $2.0
million and $472 thousand for 1998 and 1997. Net charge-offs for 1999 were
primarily attributable to $12.3 million of charge-offs from commercial loans
with $11.3 million of these charge-offs attributed to two separate loans.
Besides commercial lending, other charge-offs in 1999 included $2.2 million
related to consumer loans and $398 thousand in residential mortgage and home
equity loans.
The net charge-offs experienced during 1999 contributed to our decision to
record a $2.5 million provision for loan losses in the fourth quarter. Net
recoveries were experienced in each of the prior four years from 1995 through
1998; therefore, no additions to the loan loss reserve were made in those prior
periods. Despite the provision made in 1999, our overall reserve for loan losses
decreased as this provision was more than offset by the level of charge-offs.
The reserve at December 31, 1999, is lower than at the prior year-end, and we
believe it to be adequate as a result of enhanced risk mitigation strategies
employed during the year. These strategies included a renewed focus on lending
within the greater Washington region where we can develop broad lending, deposit
and investment relationships with our customers rather than participating in
nationally syndicated loans. In addition, the reserve was impacted by the use of
our own historical charge-off experience as an approximation of losses in
certain loan groups, rather than the higher industry benchmark percentages we
had previously used.
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Foreign exchange translation adjustments in the reserve for loan losses were
$(262) thousand and $94 thousand in 1999 and 1998, respectively. These
adjustments relate to reserves for our London branch and RBEL, recorded in
British pounds sterling, and are made to account for changes in our reserve for
loan losses resulting from fluctuating foreign exchange rates. The estimated
allocation of the reserve for loan losses by loan category is detailed in Table
J and represents our assessment of existing conditions and risk factors within
these categories. Changes in the risk characteristics and commitment amounts
within the loan portfolio impact the overall level of required reserves.
During 1999, the decline in the commercial and financial allocation of the
reserve for loan losses represented the most significant change from 1998. The
commercial and financial allocation decreased by $5.8 million while the
underlying portfolio balance was relatively unchanged. This is a result of
several factors including a significant reduction of the specific reserve
assigned to a $25.0 million commercial loan which was placed on nonaccrual
status in the fourth quarter of 1998. This reduction was offset by specific
reserves for two commercial loans which entered nonaccrual status in 1999.
Further, our loss estimate for pass-rated loans decreased by approximately $2.5
million. This change was a result of our ongoing analysis of our historical
charge-off experience.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, renegotiated loans, and other
real estate owned. Nonaccrual loans are loans for which recognition of interest
income has been discontinued. Impaired loans are nonaccrual loans for which it
is probable that all amounts due will not be collected according to the
contractual terms of the loan agreement (see Tables K and L).
Loans are placed on nonaccrual when, in our opinion, there is doubt as to the
ability to collect either interest or principal, or when interest or principal
is 90 days or more past due and the loan is not well-secured and in the process
of collection. Nonaccrual loans totaled $41.5 million at December 31, 1999, an
increase of $14.7 million from December 31, 1998.
This increase in nonaccrual loans was primarily attributable to two individual
commercial loans that entered nonaccrual status during 1999 and totaled $14.4
million on December 31, 1999. The period end balances of these two loans
reflected charge-offs on each loan in the fourth quarter of 1999, accounting for
$11.3 million of the total 1999 charge-offs. These increased charge-offs caused
a decrease in the total amount of reserve for loan losses; however, improvements
in other factors offset the need for an additional provision. These factors
included the removal of certain commercial loans from our criticized loan
classification and a reduction in our overall qualitative reserve requirements.
Renegotiated loans are those where there have been extensions of the original
repayment period or a reduction of the obligation to pay principal or interest
because of a deterioration in the borrower's financial position. At December 31,
1999 and 1998, all renegotiated loans were not accruing interest. Renegotiated
loans remained at a low level during 1999 and ended the year at $1.3 million,
compared with $2.9 million at year-end 1998. The decrease of $1.6 million during
1999 is attributable to charge-offs made on a commercial loan at RBEL.
Loans are transferred to other real estate owned when collateral securing the
loans is acquired through foreclosure. Other real estate owned decreased to $908
thousand at December 31, 1999, from $1.7 million at December 31, 1998. The
remaining balance consists primarily of a tract of land in the Washington, D.C.,
metropolitan area.
Past-Due and Potential Problem Loans
Past-due loans generally consist of residential real estate and consumer loans
that are well-secured and in the process of collection but which continue to
accrue interest. At December 31, 1999, the past-due loan category had a balance
of $7.4 million. Past-due loans decreased $17.8 million at year-end 1999
compared to the prior year-end. This decrease was primarily the result of a
foreign government overdraft for $15.8 million at December 31, 1998, that was
cleared early in 1999.
Potential problem loans are defined as loans that are currently performing but
which we believe have certain attributes that may lead to nonaccrual or past-due
status in the foreseeable future. At December 31, 1999, we identified $2.0
million of residential and consumer loans as potential problem loans compared to
no such loans at December 31, 1998.
DEPOSITS AND FUNDING SOURCES
Deposits, short-term borrowings, long-term debt and trust preferred securities
are our primary funding sources. For 1999, interest-bearing funds averaged $4.22
billion compared to $3.97 billion for 1998. The increase in average
interest-bearing funds from 1998 to 1999 includes an additional $134.6 million
from short-term borrowings and an additional $156.8 million from money market
deposits (see Table A).
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Deposits
Deposits are the primary source of funding for our activities. On average, in
1999 deposits were relatively unchanged compared to the prior year and totaled
$4.13 billion versus $4.09 billion in 1998. The average 1999 balance consisted
of $3.53 billion in interest-bearing deposits and $603.4 million in
noninterest-bearing demand deposits. Average demand deposits decreased during
1999 partially due to a program in which certain noninterest-bearing accounts
were transferred to the money market classification, thereby reducing the level
of required reserves. On average, in 1999, $260.0 million of demand deposits
were transferred. The demand deposit balance at December 31, 1999 was lower than
the prior year-end balance by less then 1%.
The rates paid on time deposits in domestic offices were 4.30% and 4.55% in 1999
and 1998, respectively. The rates were 4.36% and 4.40%, respectively, for time
deposits with denominations in excess of $100 thousand.
Short-Term Borrowings
Short-term borrowings consist primarily of federal funds purchased, repurchase
agreements, and Federal Home Loan Bank (FHLB) borrowings. These short-term
obligations are an additional source of funds used to meet certain
asset/liability and daily cash management objectives. On average, short-term
borrowings increased $134.6 million to $549.9 million in 1999. The increase was
due to $400.3 million of new borrowings during the year from the FHLB. These
FHLB borrowings occurred in the third quarter at an average interest rate of
4.99% and a first call date ranging from the first quarter to the third quarter
of 2000. The increase in these balances was used to fund an increase in our
securities portfolio at December 31, 1999 (see Table M).
Long-Term Debt
Long-term debt averaged $135.4 million in 1999 compared to $191.5 million in
1998. The average decrease of $56.2 million in long-term debt was from our early
redemption of $125.0 million of subordinated notes in July 1999. These notes
were not due to mature until 2006 and were called at a premium of 104.25%
resulting in an extraordinary loss, net of tax, of $5.1 million. The remaining
balance in long-term debt at December 31, 1999, consisted of subordinated
debentures of $66.5 million due in 2009. These debentures have a fixed interest
rate of 9.65% and are not callable in advance of maturity.
Trust Preferred Securities
(Guaranteed Preferred Beneficial Interests in Junior Subordinated Deferrable
Interest Debentures)
Trust Preferred Securities totaled $350.0 million at December 31, 1999 and 1998.
Included in these securities are $200.0 million of 8.875% securities issued in
1997 and $150.0 million of 8.625% securities issued in 1996. The securities were
issued by two of our wholly owned subsidiaries and are classified on the
Consolidated Statements of Condition as Guaranteed Preferred Beneficial
Interests in Junior Subordinated Deferrable Interest Debentures. The related
expense is classified on the Consolidated Statements of Income as Minority
Interest in Income of Subsidiaries, Net of Taxes. Dividends are paid
semi-annually and the Trust Preferred Securities cannot be redeemed for ten
years from the date of issuance. The securities have a final maturity of 30
years from their issuance date. Dividends are cumulative and deferrable for a
period not to exceed five years. The Trust Preferred Securities qualify as Tier
I Capital, with certain limitations. Amounts not included in Tier I Capital are
included in Tier II Capital.
Sensitivity to Market Risk
We are exposed to various market risks. We have determined that interest-rate
risk has a material impact on our financial performance, and, as such, have
established the Asset/Liability Committee ("ALCO") to manage interest-rate risk
and liquidity. Asset/liability management is the process of managing earning
assets and funding sources in changing interest rate environments. The primary
goal of asset/liability management is to manage our asset/liability mix and
maximize net interest income within an acceptable range of risk.
We manage our interest-rate risk through the use of an income simulation model
that forecasts the impact on net interest income of a variety of different
interest-rate scenarios. The model evaluates the impact on net interest income
of rates moving significantly higher or lower than a "most likely" scenario. The
results are compared to risk-tolerance limits set by corporate policy 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. The results of the simulation for year-end 1999 and 1998
indicated that we were within the established guidelines (see Table N).
In managing our interest-rate risk, ALCO uses financial derivative instruments,
such as foreign currency and interest-rate swaps. Financial derivatives are
employed to assist in the management and/or reduction of our interest-rate risk
and currency risk. All of these instruments are off-balance sheet items. At
December 31, 1999, our use of derivatives was limited.
We had foreign currency exchange contracts for a notional amount of $92.8
million to hedge the equity investments at RBEL and Riggs National Bank (Europe)
S.A. The foreign currency contracts mitigate the risk of changes in exchange
rates. In addition, RBEL used interest-rate swaps to convert fixed rate loans
into floating rate assets. There were 30 such interest-rate swap agreements
outstanding at December 31, 1999, totaling $101.8 million in notional principal
balance. We had approximately $109.3 million in commitments to sell foreign
exchange contracts for the purpose of hedging intercompany loans. Also, we had
three open interest rate swaps at year-end with a total notional amount of $25.0
million. These swaps extend the maturities of certain short-term liabilities at
the current funding rates to protect these liabilities against rising interest
rates.
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We find that the methodologies discussed above provide a meaningful
representation of our interest-rate and market risk sensitivity, although
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. We believe our current interest-rate sensitivity level is
appropriate, considering our economic outlook and conservative approach taken in
the review and monitoring of our sensitivity position.
CAPITAL RESOURCES
One of our fundamental objectives is to maintain a level of capitalization that
is sufficient to take advantage of favorable investment opportunities and to
promote depositor and investor confidence. We place an emphasis on capital
strength and our ability to withstand unfavorable economic and/or business
losses. We continue to maintain a strong capital position at December 31, 1999.
Total shareholders' equity at December 31, 1999 was $337.7 million, down $55.0
million from year-end 1998. The decrease was the result of our repurchasing
common stock during 1999 along with a decline in the securities portfolio. In
the first quarter of 1999 we repurchased 2.1 million shares of our common stock
at a total price of $42.2 million. Our equity was also reduced by a decline in
value of the securities portfolio totaling $38.3 million after tax. This
reduction in equity was offset by earnings for the year totaling $31.6 million,
less dividends paid on common stock.
Our Regulators have issued risk-based capital guidelines for banks and bank
holding companies. These requirements provide minimum Total, Tier I, and
Leverage capital ratios that measure capital adequacy. The Total capital ratio
measures combined Tier I and Tier II capital to risk-weighted assets. The Tier I
capital ratio measures Tier I capital to risk-weighted assets. The Leverage
capital ratio measures Tier I capital to quarterly average assets. At December
31, 1999 and 1998, our Corporation's and Bank's capital ratios exceeded the
"well-capitalized" levels under each of the regulatory ratios (see Table O).
Our policy is to ensure that our bank subsidiary is capitalized in accordance
with regulatory guidelines. Our national bank subsidiary is subject to minimum
capital ratios as prescribed by the Office of the Comptroller of the Currency,
which are the same as those prescribed by the Federal Reserve Board for bank
holding companies.
YEAR 2000 READINESS DISCLOSURE
General
Advances and changes in technology can have a significant impact on our
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 have worked properly with
dates beginning in the Year 2000 and beyond. The Year 2000 issue created risk
for us from unforeseen problems in our computer systems and from Year 2000
issues with our vendors, service providers and customers.
Approach and Risks
We began to identify the risks associated with the Year 2000 in 1995.
We 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 entailed 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 was performed by
the Year 2000 Advisory Group. This was a management committee appointed by
the Board of Directors that reported to the Board on a quarterly basis.
We determined that an enterprise-wide business risk-assessment approach was most
appropriate for addressing and remediating Year 2000 problems. This included an
assessment of the information technology resources of each of our functional
areas, 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, we undertook a review of risks created by
potential business interruptions suffered by our major business counterparties,
both domestic and foreign. We divided our 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 had a significant impact on our liquidity, income, or capital markets
activities, if they had encountered significant business interruption due to the
Year 2000, we assessed their readiness and contingency plans for recovering from
an abrupt interruption.
After the assessment phase, Year 2000 efforts focused on remediation and
verification. We 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 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
included correction of the programs to ensure proper data processing. Our action
plans also included testing mission-critical systems to verify the remediation
efforts. We recorded and tracked information to keep ourselves aware of the
status of our information technology systems. The Program Manager worked with
our functional areas 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.
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The failure to correct a material problem could have resulted in an interruption
in or failure of certain business operations. Year 2000 risks and uncertainties
included increased credit losses, service delays, funding delays, counterparty
failures, inaccurate information processing, ATM failures, and problems with
international accounts. There was no assurance that the Year 2000 issue would
not have a material adverse impact on our financial position, results of
operations, or relationships with customers, vendors, or others.
Conversion
While there was general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the readiness of third party vendors and
customers, the enterprise-wide risk assessment and remediation of Year 2000
problems was completed on target. We 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 we substantially completed our verification of these systems by March 31,
1999. All mission-critical systems were assessed, remediated, tested, and
implemented into production in accordance with guidelines established by Bank
regulatory authorities. Verification of non-mission critical system changes,
including non-information technology issues, was performed throughout 1999.
Results
We did not experience systems malfunctions, delays, or other problems related to
the Year 2000 conversion. In addition, we experienced no significant unusual
customer behavior patterns, such as increased cash withdrawals or account
closures due to concerns about the Year 2000. Year 2000 did not cause the
postponement of other significant information technology projects or any other
capital spending. Although there can be no certainty over future Year 2000
problems, we feel confident that our Year 2000 concerns have been adequately
addressed.
We have been in contact with our significant third party service providers since
the Year 2000 conversion and are satisfied that no significant conversion
problems occurred. We have had no evidence of Year 2000 related issues at any of
our vendors, debtors, creditors, or suppliers.
Costs
The total cost of the Year 2000 project at December 31, 1999, was $7.0 million.
The future cost of completing the Year 2000 project is estimated to be $400
thousand. The total amount expended for 1999 was $3.4 million. The most
significant components of the $7.0 million total estimated cost consisted of 65%
for personnel costs, including consultants and special Year 2000 incentives, and
24% for data processing services. We did not separately track all internal costs
incurred for the Year 2000 project. Internal costs were principally the
payroll-related costs for the information systems group. The Year 2000 expense
represented approximately 11% of our total information technology expenditures
for 1999.
Contingency Plans
To prepare for the possibility that certain information systems or third party
vendors and servicers were not Year 2000 compliant, we developed detailed
contingency plans. We had two types of contingency plans, remediation plans and
business resumption plans.
The remediation plans addressed any information systems which, through testing,
had been identified as non-Year 2000 compliant. These plans described and
scheduled alternative provisions, including, if necessary, the replacement of
vendors or third party servicers to ensure compliance. The remediation plans
were complete; however, implementation of these plans was not necessary because
of our state of readiness.
The business resumption plans addressed how we would continue operations in the
event a Year 2000 related interruption occurred. The business resumption plans
for our mission-critical systems and third-party servicers were substantially
completed as of June 30, 1999. In some cases these plans provided for the manual
processing of certain normal bank functions. Manual processing would have caused
delays, which could have disrupted the normal business activities of our company
and our customers. While implementation of the business resumption plans was not
expected to be necessary, it ensured that we had the ability to process
transactions and serve our customers if a Year 2000 problem actually had
occurred.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
estimates. Such forward-looking statements include, but are not limited to, (1)
discussions of earnings and growth, future plans, business initiatives and
financial projections in the Letter to Shareholders, (2) discussions of
strategic plans on pages 72 through 76, (3) projections on our tax rate and tax
expense in Management's Discussion and Analysis (MD&A), (4) discussions of
loans, loan losses and credit quality in MD&A, (5) comments related to the
redemption of debt, buyback of common stock and redemption of preferred stock in
MD&A, (6) discussions of Asset/Liability Management and related risk in MD&A,
and (7) disclosures related to the Year 2000 in MD&A.
The risks and uncertainties associated with forward-looking statements include,
among other things, significant changes in general economic conditions, both
domestic and international; the impact of market conditions; changes in interest
rates; deterioration of credit quality in our loan portfolios; the impact of
interest rates and market conditions on loans, deposits, debt, equity and
assumptions made in the redemption of preferred stock, repurchase of common
stock, and redemption of subordinated debt; changes in our tax liability and
rates; increased losses in our securities portfolio; decline in value in our
venture capital investments, in particular significant risks in technology
investments; and our ability and resources to execute our business strategies
and manage risks associated with potential expansion plans or business
initiatives.
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FOURTH QUARTER 1999 VS.
FOURTH QUARTER 1998
For the fourth quarter of 1999, we reported net income of $7.1 million, or $0.25
per diluted share, compared with $14.4 million, or $(0.04) per diluted share,
for the fourth quarter of 1998. Results for the fourth quarter of 1999 included
a $2.5 million provision for loan losses and $2.0 million in income from our
venture capital group, RCP. Results for the fourth quarter of 1998 included
$13.8 million in costs, or $(0.44) per share, for redemption of our preferred
stock and a $3.6 million gain from the restructuring of our RBEL pension plan
(see the table on page 85).
Net interest income for the fourth quarter of 1999 was $47.9 million, an
increase of $1.4 million over 1998, or 3% reflecting the impact of increased
average earning assets combined with an increase of four basis points in
the net interest margin.
Noninterest income for the fourth quarter of 1999 was $27.3 million, a
decrease of $699 thousand or 2% when compared with the same period in 1998. This
decrease was attributable to a $3.6 million gain from termination of the
RBEL pension plan recorded in the fourth quarter of 1998. This decrease was
offset by an increase in venture capital income of $2.0 million in 1999 and
additional trust and investment advisory income in the fourth quarter of 1999
compared to 1998.
Noninterest expense for the fourth quarter of 1999 totaled $55.2 million,
compared to $49.1 million a year earlier, an increase of $6.1 million or 12%.
This increase was the result of costs related to our new business initiatives,
as well as increases in salaries and benefits.
1998 VS. 1997
We achieved 21% earnings growth in 1998, with net income of $61.8 million
compared to $50.9 million in 1997. Income before taxes and minority interest for
1998 reached a record $110.9 million, representing a 19% increase over the 1997
total of $93.2 million. The growth in earnings was attributable to increases in
both of the major components of our revenue. Net interest income for 1998 was
$190.4 million and increased 6% over 1997. Noninterest income, excluding
securities gains, totaled $99.3 million in 1998, an 18% increase from $84.4 in
1997. Diluted earnings per share for 1998 and 1997 were $1.21 and $1.27,
respectively. Diluted earnings per share in 1998 were reduced by a one-time
charge of $0.44 from the redemption of $100.0 million of 10.75% preferred stock.
Net interest income on a tax-equivalent basis totaled $193.3 million in 1998, an
increase of $10.2 million or 6% over 1997. The net interest margin was 3.78% for
1998, a decrease of three basis points from the prior year. Average
interest-earning assets increased during 1998 by $309.7 million, while the
average rate earned was relatively unchanged between the years. This increase in
average assets led to a $22.2 million increase in interest income. Average
interest-bearing funds increased by $340.3 million during the year with the
average rate paid declining six basis points, resulting in an $11.9 million
increase in interest expense.
Total noninterest income for 1998 was up $26.4 million or 30% over 1997.
Excluding securities gains of $15.0 million and $3.5 million for 1998 and 1997,
respectively, noninterest income increased 18% in 1998. Trust and investment
advisory income growth was $8.5 million in 1998, an increase of 23% over 1997.
Service charges and fees also contributed to the growth in noninterest income,
with an increase of $1.6 million during the year, primarily from increases in
merchant credit card and debit card fees. We also recognized a $3.6 million gain
in 1998 resulting from the termination of the RBEL pension plan, which was
replaced by a defined contribution plan.
Noninterest expense for the year ended December 31, 1998, was $193.8 million, an
increase of $7.7 million or 4% over 1997. This increase was substantially the
result of $7.2 million in added personnel costs during 1998, primarily
attributable to increased incentive-based compensation and staff costs
associated with new business initiatives. The number of employees at December
31, 1998, increased 1% from December 31, 1997, with a year-end total of 1,598.
Income tax expense increased $4.4 million in 1998 to $29.1 million from $24.7
million in 1997. The increased expense was a direct result of increased
earnings, as the effective tax rate of 26.2% for 1998 was relatively unchanged
from the effective tax rate of 26.5% for 1997. During 1998 and 1997, we reversed
valuation allowances related to deferred tax assets which reduced income tax
expense.
Total loans at December 31, 1998, were $3.26 billion, an increase of 13% from
year-end 1997. Total loan growth was $373.8 million with increases in excess of
$100 million in three primary areas: residential mortgage, commercial and
financial, and foreign loans. The increase in residential mortgage loans was due
primarily to the purchase of $261.7 million of bulk loans offset by prepayments
of loans during the year. Foreign lending increased 34% in 1998, with the
primary increases noted in RBEL. RBEL experienced growth in 1998 in each of its
three lending areas: property finance, trade finance and general corporate
lending.
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The securities portfolio totaled $970.7 million at December 31, 1998, with an
average duration of 3.7 years and an average yield of 5.75%. These securities
consisted primarily of U.S. Treasuries, U.S. government agency and
mortgage-backed securities. At December 31, 1998, securities available for sale
had $1.8 million of unrealized losses before taxes. At December 31, 1997, the
portfolio totaled $1.67 billion with an average life of 2.2 years and an average
yield of 6.06%. The securities portfolio decreased $247.8 million on average in
1998. The decrease in average securities was mainly due to repositioning of the
balance sheet resulting from loan growth and the redemption of preferred stock
of $109.0 million. These decreases were offset by an increase in average
short-term investments in 1998. We realized net gains of $15.0 million in 1998
compared with $3.5 million in 1997 from securities sales as the result of a
repositioning of our portfolio.
In 1998, no provisions were made to the reserve for loan losses compared to a
negative provision of $12.0 million for 1997. The reserve for loan losses was
$54.5 million or 1.67% of total loans at December 31, 1998, compared to $52.4
million or 1.82% of total loans at December 31, 1997. Net recoveries totaled
$2.0 million in 1998 compared with $472 thousand in 1997. Net recoveries for
1998 were primarily attributable to $4.4 million recovered from commercial real
estate loans. These recoveries were partially offset by relatively low levels of
charge-offs, including $2.2 million related to consumer loans and $937 thousand
to foreign loans. The net recoveries experienced during 1998 contributed to our
decision to not record a provision for loan losses during the year. Net
recoveries were experienced in 1997 as well, which contributed to the decision
to reverse $12.0 million from the reserve for loan losses in the fourth quarter
of 1997.
Nonaccrual loans totaled $26.8 million at December 31, 1998, an increase of
$23.0 million from December 31, 1997. This increase during 1998 was primarily
attributable to a $25.0 million commercial loan entering nonaccrual status in
the fourth quarter of 1998. A specific reserve was assigned to a $25.0 million
commercial loan that entered nonaccrual status in the fourth quarter of 1998;
however, this specific reserve did not cause an increase in the total amount of
reserve for loan losses as improvements in other factors offset the need for a
provision. These factors included the removal of certain commercial loans from
our criticized loan classification and a reduction in our overall qualitative
reserves. The reduction in qualitative reserves resulted from the analysis of
various factors, the most significant of which were a reduction in industry
concentration risk and an improvement in our credit process as determined by a
series of independent loan reviews in 1998.
At December 31, 1998 the past-due loan category included a foreign government
overdraft of $15.8 million on which we were accruing interest. Past-due loan
increases at year-end 1998 were primarily the result of this foreign government
loan.
On average in 1998, deposits totaled $4.09 billion compared with $3.97 billion
in 1997. The average 1998 balance consisted of $3.37 billion in interest-bearing
deposits and $723.1 million of noninterest-bearing demand deposits. Demand
deposits decreased during 1998 partially due to a new program in which certain
noninterest-bearing accounts were transferred to the money market
classification, thereby reducing the level of required reserves. Domestic and
foreign time deposits increased $293.5 million on average in 1998 with the
largest portion of growth occurring in deposits where individual balances are in
excess of $100 thousand. The increase in time deposits was partially offset by
an average decrease of $43.6 million in money market accounts.
On average, short-term borrowings increased $130.9 million or 46% to $415.3
million at December 31, 1998. The increase in the balances during 1998 was used
to fund loan growth during the year.
Long-term debt totaled $191.5 million at December 31, 1998 and 1997. Included in
long-term debt were subordinated debentures of $66.5 million due in 2009 and
subordinated notes of $125.0 million due in 2006. Trust Preferred Securities
totaled $350.0 million at December 31, 1998 and 1997; included in these
securities are $200.0 million of 8.875% securities issued in 1997 and $150.0
million of 8.625% securities issued in 1996.
Total shareholders' equity at December 31, 1998, was $392.7 million, down $70.5
million from year-end 1997. The decrease was the result of our redeeming all
outstanding shares of our $100.0 million Non-cumulative Perpetual Series B
Preferred Stock. The preferred stock had an annual dividend rate of 10.75% and a
redemption price of $27.25 per share, resulting in a reduction to our equity of
$109.0 million. This reduction in equity was offset by earnings for the year
totaling $61.8 million less dividends paid on preferred and common stock.
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Table A:
THREE-YEAR AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES 1
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:
Commercial-Taxable $ 563,729 $ 38,263 6.79% $ 551,179 $ 39,830 7.23% $ 388,865 $ 30,458 7.83%
Commercial-Tax-Exempt 127,158 9,858 7.75 57,232 4,598 8.03 47,768 4,041 8.46
Real Estate-
Commercial/Construction 394,584 30,234 7.66 408,314 35,468 8.69 346,404 30,245 8.73
Residential Mortgage 1,229,224 85,848 6.98 1,247,988 89,265 7.15 1,196,090 85,727 7.17
Home Equity 317,872 22,845 7.19 326,837 25,179 7.70 306,470 24,932 8.14
Consumer 70,754 8,817 12.46 69,199 8,685 12.55 75,383 9,177 12.17
Foreign 501,035 37,527 7.49 427,062 36,705 8.59 299,892 24,606 8.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans, Including Fees 3,204,356 233,392 7.28 3,087,811 239,730 7.76 2,660,872 209,186 7.86
Securities Available for Sale 2 1,183,004 70,564 5.96 1,178,271 71,331 6.05 1,426,082 86,702 6.08
Time Deposits with Other Banks 479,368 23,552 4.91 618,964 33,379 5.39 167,235 8,470 5.06
Federal Funds Sold and
Reverse Repurchase Agreements 196,668 10,179 5.18 225,219 12,351 5.48 546,358 30,283 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and
Average Rate Earned 5,063,396 337,687 6.67 5,110,265 356,791 6.98 4,800,547 334,641 6.97
Less: Reserve for Loan Losses 52,505 53,625 63,768
Cash and Due from Banks 149,678 144,761 158,531
Premises and Equipment, Net 203,353 179,379 165,710
Other Assets 3 218,671 185,931 191,094
====================================================================================================================================
Total Assets $5,582,593 $5,566,711 $5,252,114
====================================================================================================================================
LIABILITIES, MINORITY INTEREST
AND SHAREHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 233,715 $ 2,547 1.09% $ 244,604 $ 4,967 2.03% $ 285,068 $ 6,359 2.23%
Money Market Deposit Accounts 1,715,321 33,539 1.96 1,558,482 41,260 2.65 1,602,131 51,375 3.21
Time Deposits in Domestic Offices 978,168 42,061 4.30 989,658 45,029 4.55 809,133 35,091 4.34
Time Deposits in Foreign Offices 604,256 31,947 5.29 574,022 34,873 6.08 461,045 26,738 5.80
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,531,460 110,094 3.12 3,366,766 126,129 3.75 3,157,377 119,563 3.79
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements 371,891 17,038 4.58 396,438 19,443 4.90 266,828 13,569 5.09
Other Short-Term Borrowings 178,017 7,779 4.37 18,824 405 2.16 17,563 896 5.10
Long-Term Debt 135,361 12,592 9.30 191,525 17,473 9.12 191,525 17,473 9.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds
and Average Rate Incurred 4,216,729 147,503 3.50 3,973,553 163,450 4.11 3,633,293 151,501 4.17
Demand Deposits 4 603,449 723,138 815,690
Other Liabilities 66,583 65,481 56,358
Minority Interest 350,000 350,000 311,644
Shareholders' Equity 345,832 454,539 435,129
====================================================================================================================================
Total Liabilities, Minority Interest
and Shareholders' Equity $5,582,593 $5,566,711 $5,252,114
Net Interest Income and Spread $190,184 3.17% $193,341 2.87% $183,140 2.80%
====================================================================================================================================
Net Interest Margin on Earning Assets 3.76% 3.78% 3.81%
====================================================================================================================================
</TABLE>
1 Income and rates are computed on a tax-equivalent basis using a federal
income tax rate of 35% for 1999, 1998, and 1997, in addition to local tax
rates as applicable. Average foreign assets and average foreign liabilities
are found under "Supplemental Financial Data".
2 The averages and rates for the securities available for sale portfolio are
based on amortized cost.
3 Includes venture capital investment balances in 1999 and 1998.
4 1999 and 1998 demand deposit balances exclude certain accounts transferred
to the money market classification to reduce the level of deposit
reserves required.
-87-
<PAGE>
Table B:
NET INTEREST INCOME CHANGES 1
<TABLE>
<CAPTION>
1999 VERSUS 1998 1998 VERSUS 1997
- ------------------------------------------------------------------------------------------------------------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans, Including Fees $(15,546) $ 9,208 $ (6,338) $(2,916) $ 33,460 $ 30,544
Securities Available for Sale (1,042) 275 (767) (367) (15,004) (15,371)
Time Deposits with Other Banks (2,769) (7,058) (9,827) 584 24,325 24,909
Federal Funds Sold and Reverse
Repurchase Agreements (661) (1,511) (2,172) (318) (17,614) (17,932)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Income (20,018) 914 (19,104) (3,017) 25,167 22,150
Interest Expense:
Savings and NOW Accounts (2,208) (212) (2,420) (539) (853) (1,392)
Money Market Deposit Accounts (11,586) 3,865 (7,721) (8,748) (1,367) (10,115)
Time Deposits in Domestic Offices (2,450) (518) (2,968) 1,793 8,145 9,938
Time Deposits in Foreign Offices (4,703) 1,777 (2,926) 1,322 6,813 8,135
Federal Funds Purchased and
Repurchase Agreements (1,231) (1,173) (2,404) (499) 6,372 5,873
Other Short-Term Borrowings 796 6,577 7,373 (550) 60 (490)
Long-Term Debt 343 (5,224) (4,881) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense (21,039) 5,092 (15,947) (7,221) 19,170 11,949
====================================================================================================================================
Net Interest Income $ 1,021 $(4,178) $ (3,157) $ 4,204 $ 5,997 $ 10,201
====================================================================================================================================
</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% for
1999, 1998 and 1997, in addition to local tax rates as applicable.
-88-
<PAGE>
Table C:
YEAR-END LOANS
DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial and Financial $ 667,393 $ 668,778 $ 529,894 $ 443,557 $ 400,280
Real Estate-Commercial/Construction 415,304 409,586 410,011 352,015 326,965
Residential Mortgage 1,219,740 1,276,257 1,156,493 1,226,110 1,284,193
Home Equity 315,520 314,347 317,669 281,867 251,798
Consumer 73,158 69,419 78,932 78,617 79,867
- ------------------------------------------------------------------------------------------------------------------------------------
Total Domestic 2,691,115 2,738,387 2,492,999 2,382,166 2,343,103
Foreign:
Governments and Official Institutions 67,555 74,676 50,606 17,131 30,849
Banks and Other Financial Institutions 2,730 9,451 8,506 5,457 6,570
Commercial and Industrial 395,120 395,552 293,609 213,236 171,070
Other 51,607 42,353 36,911 15,958 15,761
- ------------------------------------------------------------------------------------------------------------------------------------
Total Foreign 517,012 522,032 389,632 251,782 224,250
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 3,208,127 3,260,419 2,882,631 2,633,948 2,567,353
Net Deferred Loan Fees, Costs,
Premiums and Discounts (6,146) (2,284) 1,742 3,886 4,606
- ------------------------------------------------------------------------------------------------------------------------------------
Loans 3,201,981 3,258,135 2,884,373 2,637,834 2,571,959
Reserve for Loan Losses (41,455) (54,455) (52,381) (64,486) (56,546)
====================================================================================================================================
Total Net Loans $3,160,526 $3,203,680 $2,831,992 $2,573,348 $2,515,413
====================================================================================================================================
</TABLE>
-89-
<PAGE>
Table D:
YEAR-END MATURITIES AND RATE SENSITIVITY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
LESS THAN OVER
(IN THOUSANDS) 1 YEAR 1 1-5 YEARS 5 YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturities:
Commercial and Financial $107,154 $274,438 $ 285,801 $ 667,393
Real Estate-Commercial/Construction 49,369 175,892 190,043 415,304
Residential Mortgage 34,281 163,193 1,022,266 1,219,740
Home Equity 123,930 37,963 153,627 315,520
Consumer 52,846 19,809 503 73,158
Foreign 412,004 98,074 6,934 517,012
====================================================================================================================================
Total Loans $779,584 $769,369 $1,659,174 $3,208,127
Rate Sensitivity:
With Fixed Interest Rates $137,411 $496,066 $1,246,102 $1,879,579
With Floating and Adjustable Interest Rates 642,173 273,303 413,072 1,328,548
====================================================================================================================================
Total Loans $779,584 $769,369 $1,659,174 $3,208,127
====================================================================================================================================
</TABLE>
1 Includes demand loans, loans having no stated schedule of repayments or
maturity, and overdrafts.
Table E:
REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GEOGRAPHIC LOCATION
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land Acquisition and
Construction Development $ 153 $ 1,026 $ 2,620 $ -- $ 3,799
Multi-Family Residential 22,874 14,818 7,351 -- 45,043
Commercial:
Office Buildings 106,276 47,766 25,916 -- 179,958
Shopping Centers 14,541 27,515 58,212 -- 100,268
Hotels 1,111 -- -- -- 1,111
Industrial/Warehouse 1,249 9,557 6,915 -- 17,721
Churches 21,139 775 21,754 -- 43,668
Other 2,816 17,699 3,221 -- 23,736
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial $147,132 $103,312 $116,018 $ -- $366,462
- ------------------------------------------------------------------------------------------------------------------------------------
Total Domestic Real Estate-
Commercial/Construction Loans 170,159 119,156 125,989 -- 415,304
Foreign -- -- -- 195,828 195,828
====================================================================================================================================
Total Real Estate-
Commercial/Construction Loans $170,159 $119,156 $125,989 $195,828 $611,132
====================================================================================================================================
</TABLE>
-90-
<PAGE>
Table F:
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS 1
<TABLE>
<CAPTION>
GOVERNMENTS BANKS AND COMMERCIAL
AND OFFICIAL OTHER FINANCIAL AND
(IN THOUSANDS) INSTITUTIONS INSTITUTIONS INDUSTRIAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of December 31, 1999
United Kingdom $536 $(33,906) $360,575 $ 4,356 $331,561
United States 2 -- 208,468 -- 9,499 217,967
====================================================================================================================================
As of December 31, 1998
United Kingdom 313 (73,380) 344,081 3,874 274,888
United States 2 -- 378,419 -- 21,262 399,681
====================================================================================================================================
As of December 31, 1997
United Kingdom 472 (112,033) 264,549 1,724 154,712
United States 2 -- -- -- -- --
====================================================================================================================================
</TABLE>
1 Cross-border outstandings include loans, acceptances, investments, accrued
interest and other monetary assets, net of interest-bearing deposits with other
banks that are denominated in U.S. dollars or other non-local currencies.
2 United States cross-border outstandings consist of deposits placed by the
Corporation in foreign branches of United States banks.
Table G:
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
WITH NONPERFORMING OR PAST-DUE LOANS
<TABLE>
<CAPTION>
TOTAL
NONACCRUAL NONPERFORMING PAST-DUE
(IN THOUSANDS) LOANS LOANS LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
As of December 31, 1999
United Kingdom $2,185 1 $2,185 $--
====================================================================================================================================
As of December 31, 1998
United Kingdom 2,843 2 2,843 21
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997
United Kingdom 1,421 3 1,421 --
====================================================================================================================================
</TABLE>
1 As of December 31, 1999, $1,210 of nonaccrual loans were classified as
renegotiated loans.
2 As of December 31, 1998, all nonaccrual loans were also classified as
renegotiated loans.
3 As of December 31, 1997, no nonaccrual loans were classified as renegotiated
loans.
-91-
<PAGE>
Table H:
MATURITIES OF SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities:
Mature after 1 but within 5 years $ 175,844 $ - $ 2,055 $ 173,789
Mature after 10 years 113,398 - 19,179 94,219
Government Agencies Securities:
Due within 1 year 205,364 -- 296 205,068
Due after 1 year but within 5 years 241,962 -- 2,792 239,170
Due after 5 years but within 10 years 31,971 -- 1,752 30,219
Mortgage-Backed Securities:
Due after 5 years but within 10 years 17,547 -- 1,386 16,161
Mature after 10 years 500,871 13 33,311 467,573
Other Securities:
Mature within 1 year 21,190 -- -- 21,190
Mature after 10 years 42,495 -- -- 42,495
====================================================================================================================================
Total Securities Available for Sale $1,350,642 $ 13 $60,771 $1,289,884
====================================================================================================================================
</TABLE>
Table I:
RESERVE FOR LOAN LOSSES AND SUMMARY OF CHARGE-OFFS (RECOVERIES)
DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $ 54,455 $ 52,381 $ 64,486 $ 56,546 $ 97,039
Provision for Loan Losses 2,500 -- (12,000) -- (55,000)
Loans Charged Off:
Commercial and Financial 12,251 579 146 764 243
Real Estate-Commercial/Construction 90 183 -- 1,061 697
Residential Mortgage 178 5 10 11 --
Home Equity 220 186 448 67 438
Consumer 2,238 2,232 2,047 1,513 906
Foreign 1,970 937 593 260 6,106
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans Charged Off 16,947 4,122 3,244 3,676 8,390
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries on Charged-Off Loans:
Commercial and Financial 399 72 220 397 2,084
Real Estate-Commercial/Construction 207 4,410 2,263 3,802 11,408
Residential Mortgage -- -- 10 -- 84
Home Equity 105 58 47 27 114
Consumer 472 546 510 512 838
Foreign 526 1,016 666 5,513 8,400
- ------------------------------------------------------------------------------------------------------------------------------------
Total Recoveries on Charged-Off Loans 1,709 6,102 3,716 10,251 22,928
- ------------------------------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 15,238 (1,980) (472) (6,575) (14,538)
Foreign Exchange Translation Adjustments (262) 94 (577) 1,365 (31)
====================================================================================================================================
Balance, December 31 $ 41,455 $ 54,455 $ 52,381 $ 64,486 $ 56,546
====================================================================================================================================
Ratio of Net Charge-Offs (Recoveries) to
Average Loans .48% (.06)% (.02)% (.26)% (.57)%
====================================================================================================================================
Ratio of Reserve for Loan Losses to Total Loans 1.29% 1.67 % 1.82 % 2.44 % 2.20 %
====================================================================================================================================
</TABLE>
-92-
<PAGE>
Table J:
RESERVE FOR LOAN LOSSES ALLOCATION AND LOAN DISTRIBUTION
DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS)
Allocation of the Reserve for Loan Losses 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and Financial $21,807 $27,631 $11,473 $18,923 $ 9,334
Real Estate-Commercial/Construction 3,768 4,438 7,952 9,714 9,028
Residential Mortgage 1,218 1,275 1,157 1,226 515
Home Equity and Consumer 2,780 2,612 3,593 4,231 2,717
Foreign 6,006 8,665 4,765 4,398 5,030
Based on Qualitative Factors 5,876 9,834 23,441 25,994 29,922
====================================================================================================================================
Balance, December 31 $41,455 $54,455 $52,381 $64,486 $56,546
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Distribution of Year-End Loans 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and Financial 20.8% 20.5% 18.4% 16.8% 15.6%
Real Estate-Commercial/Construction 13.0 12.6 14.2 13.4 12.8
Residential Mortgage 38.0 39.1 40.1 46.5 50.1
Home Equity and Consumer 12.1 11.8 13.8 13.7 12.8
Foreign 16.1 16.0 13.5 9.6 8.7
====================================================================================================================================
Total, December 31 100.0% 100.0% 100.0% 100.0% 100.0%
====================================================================================================================================
</TABLE>
-93-
<PAGE>
Table K:
NONPERFORMING ASSETS AND PAST-DUE LOANS
DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming Assets:
Nonaccrual Loans:
Domestic $ 40,559 $ 26,831 $ 1,916 $ 9,133 $ 7,542
Foreign 975 -- 1,877 743 1,784
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 41,534 26,831 3,793 9,876 9,326
Renegotiated Loans:
Domestic 53 77 101 125 3,410
Foreign 1,210 2,843 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Renegotiated Loans 1,263 2,920 101 125 3,410
Other Real Estate Owned, Net:
Domestic 908 1,638 4,993 27,722 32,627
Foreign -- 42 83 399 570
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other Real Estate Owned, Net 908 1,680 5,076 28,121 33,197
====================================================================================================================================
Total Nonperforming Assets, Net $ 43,705 $ 31,431 $ 8,970 $ 38,122 $ 45,933
====================================================================================================================================
Past-Due Loans:
Domestic $ 7,429 $ 25,254 $ 7,279 $ 3,849 $ 5,423
Foreign -- 15 -- -- 36
====================================================================================================================================
Total Past-Due Loans $ 7,429 $ 25,269 $ 7,279 $ 3,849 $ 5,459
====================================================================================================================================
Total Loans, Net of Deferred
Loan Fees, Costs, Premiums
and Discounts $3,201,981 $3,258,135 $2,884,373 $2,637,834 $2,571,959
Ratio of Nonaccrual Loans to Total Loans 1.30% .82% .13% .37% .36%
====================================================================================================================================
Ratio of Nonperforming Assets to Total Loans
and Other Real Estate Owned, Net 1.36% .96% .31% 1.43% 1.76%
====================================================================================================================================
</TABLE>
-94-
<PAGE>
Table L:
INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS
DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income at Original Terms:
Nonaccrual Loans:
Domestic $3,168 $ 751 $385 $ 972 $1,230
Foreign -- -- 65 228 1,156
Renegotiated Loans 222 586 18 68 54
====================================================================================================================================
Total $3,390 $1,337 $468 $1,268 $2,440
====================================================================================================================================
Actual Interest Income Recognized:
Nonaccrual Loans:
Domestic $ 249 $ -- $ 5 $ 254 $ 214
Foreign -- -- -- 37 186
Renegotiated Loans -- -- -- -- --
====================================================================================================================================
Total $ 249 $ -- $ 5 $ 291 $ 400
====================================================================================================================================
</TABLE>
Table M:
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED
AND REPURCHASE AGREEMENTS OTHER SHORT-TERM BORROWINGS
(IN THOUSANDS) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31 $424,508 $353,303 $327,579 $407,694 $21,077 $24,929
Average Amount Outstanding 1 371,891 396,438 266,828 178,017 18,824 17,563
Weighted-Average Rate Paid 1 4.58% 4.90% 5.09% 4.37% 2.16% 5.10%
Maximum Amount Outstanding at any
Month-End 424,508 547,934 346,086 426,571 27,014 26,522
====================================================================================================================================
</TABLE>
1 Average amounts are based on daily balances. Average rates are computed by
dividing actual interest expense by average amounts outstanding.
-95-
<PAGE>
Table N:
INTEREST-RATE SENSITIVITY ANALYSIS 1
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM DECEMBER 31, 1999
(IN THOUSANDS) SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
+100BP -100BP +300BP -300BP
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Simulated Impact Compared with a
Most Likely Scenario:
Net Interest Income Increase (Decrease) (1.6)% 4.1% (4.2)% 3.7 %
Net Interest Income Increase (Decrease) $(3,025) $7,886 $(25,972) $ 22,895
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM DECEMBER 31, 1998
(IN THOUSANDS) SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
+100BP -100BP +300BP -300BP
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Simulated Impact Compared with a
Most Likely Scenario:
Net Interest Income Increase (Decrease) (0.4)% 0.0% 0.6 % (4.7)%
Net Interest Income Increase (Decrease) $ (813) $ 65 $ 3,622 $(28,401)
====================================================================================================================================
</TABLE>
1 Key Assumptions:
Assumptions with respect to the model's projection 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.
Table O:
CAPITAL RATIOS
DECEMBER 31,
<TABLE>
<CAPTION>
REQUIRED WELL
1999 1998 MINIMUMS CAPITALIZED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Riggs National Corporation
Tier I 14.09% 14.63% 4.00% 6.00%
Combined Tier I and Tier II 23.55 27.51 8.00 10.00
Leverage 8.59 9.33 4.00 5.00
Riggs Bank N.A.
Tier I 12.63% 12.17% 4.00% 6.00%
Combined Tier I and Tier II 13.86 13.43 8.00 10.00
Leverage 7.91 8.26 4.00 5.00
====================================================================================================================================
</TABLE>
-96-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans $230,577 $238,564 $208,100
Interest and Dividends on Securities Available for Sale 70,135 69,508 83,939
Time Deposits with Other Banks 23,552 33,379 8,470
Federal Funds Sold and Reverse Repurchase Agreements 10,179 12,351 30,283
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 334,443 353,802 330,792
Interest Expense
Interest on Deposits:
Savings and NOW Accounts 2,547 4,967 6,359
Money Market Deposit Accounts 33,539 41,260 51,375
Time Deposits in Domestic Offices 42,061 45,029 35,091
Time Deposits in Foreign Offices 31,947 34,873 26,738
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 110,094 126,129 119,563
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 17,038 19,443 13,569
Other Short-Term Borrowings 7,779 405 896
Long-Term Debt 12,592 17,473 17,473
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 37,409 37,321 31,938
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 147,503 163,450 151,501
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 186,940 190,352 179,291
Less: Provision for Loan Losses 2,500 -- (12,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 184,440 190,352 191,291
Noninterest Income
Trust and Investment Advisory Income 51,671 45,847 37,343
Service Charges and Fees 39,464 39,161 37,590
Venture Capital Valuation Gains, Net 1,975 -- --
Other Noninterest Income 12,362 14,251 9,491
Securities Gains, Net 1,154 15,023 3,500
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 106,626 114,282 87,924
Noninterest Expense
Salaries and Wages 78,628 74,185 67,097
Pensions and Other Employee Benefits 13,275 11,109 11,046
Occupancy, Net 18,697 18,329 19,095
Data Processing Services 19,038 17,663 21,427
Furniture, Equipment, and Software 15,986 13,930 11,954
Credit Card Processing 7,709 6,643 5,857
Consultants and Outsourcing Fees 9,502 11,099 9,195
Advertising and Public Relations 4,809 3,992 5,405
FDIC Insurance 399 415 435
Other Real Estate Owned (Income) Expense, Net (72) 107 (1,392)
Other Noninterest Expense 39,273 36,280 35,911
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 207,244 193,752 186,030
Income before Taxes, Minority Interest, and Extraordinary Loss 83,822 110,882 93,185
Applicable Income Tax Expense 26,953 29,088 24,690
Minority Interest in Income of Subsidiaries, Net of Taxes 20,214 19,947 17,616
====================================================================================================================================
Net Income before Extraordinary Loss $ 36,655 $ 61,847 $ 50,879
Extraordinary Loss, Net of Taxes 5,061 -- --
====================================================================================================================================
Net Income $ 31,594 $ 61,847 $ 50,879
Less: Dividends on Preferred Stock -- 9,854 10,750
Less: Excess of Call Price over Carrying Amount of Preferred Stock -- 13,808 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income Available for Common Shareholders $ 31,594 $ 38,185 $ 40,129
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Basic before Extraordinary Loss $ 1.29 $ 1.25 $ 1.32
Diluted before Extraordinary Loss 1.26 1.21 1.27
====================================================================================================================================
Basic $ 1.11 $ 1.25 $ 1.32
Diluted 1.09 1.21 1.27
====================================================================================================================================
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements.
-97-
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks $ 149,712 $ 155,003
Federal Funds Sold and Reverse Repurchase Agreements 346,000 75,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 495,712 230,003
Time Deposits with Other Banks 413,528 696,181
Securities Available for Sale (at Market Value) 1,289,884 970,728
Venture Capital Investments 39,525 3,093
Loans 3,201,981 3,258,135
Reserve for Loan Losses (41,455) (54,455)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 3,160,526 3,203,680
Premises and Equipment, Net 202,840 203,071
Other Real Estate Owned 908 1,680
Other Assets 227,226 193,895
====================================================================================================================================
Total Assets $5,830,149 $5,502,331
====================================================================================================================================
Liabilities
Deposits:
Noninterest-Bearing Demand Deposits $ 729,030 $ 732,099
Interest-Bearing Deposits:
Savings and NOW Accounts 395,024 434,649
Money Market Deposit Accounts 1,489,690 1,414,278
Time Deposits in Domestic Offices 1,068,920 917,442
Time Deposits in Foreign Offices 492,669 646,380
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,446,303 3,412,749
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 4,175,333 4,144,848
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 424,508 353,303
Other Short-Term Borrowings 407,694 21,077
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Borrowings 832,202 374,380
Other Liabilities 68,376 48,850
Long-Term Debt 66,525 191,525
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,142,436 4,759,603
Guaranteed Preferred Beneficial Interests in Junior Subordinated
Deferrable Interest Debentures 350,000 350,000
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock - $2.50 Par Value
Shares Authorized - 50,000,000 at December 31, 1999, and 1998
Shares Issued -
31,615,495 at December 31, 1999, and 31,555,345
at December 31, 1998 79,039 78,888
Surplus - Common Stock 161,439 160,760
Undivided Profits 210,682 184,794
Accumulated Other Comprehensive Loss (42,090) (2,548)
Treasury Stock - 3,300,798 shares at December 31, 1999,
and 1,175,798 at December 31, 1998 (71,357) (29,166)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 337,713 392,728
====================================================================================================================================
Total Liabilities and Shareholders' Equity $5,830,149 $5,502,331
====================================================================================================================================
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements.
-98-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
PREFERRED COMMON OTHER TOTAL
STOCK STOCK UNDIVIDED COMPREHENSIVE TREASURY SHAREHOLDERS'
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) $1.00 PAR $2.50 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 50,879 $ 50,879
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gain (Loss) on Securities
Available for Sale, Net of
Reclassification Adjustments 2,768 2,768
Foreign Exchange Translation Adjustments (1,983) (1,983)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) 785
====================================================================================================================================
Total Comprehensive Income $ 51,664
Issuance of Common Stock for
Stock Option Plans - 188,442 shares 471 2,100 2,571
Cash Dividends Declared:
Common Stock, $.20 Per Share (6,079) (6,079)
Series B Preferred Stock, $2.6875 Per Share (10,750) (10,750)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 4,000 $78,654 $250,352 $152,732 $ 1,167 $(23,723) $ 463,182
====================================================================================================================================
Comprehensive Income:
Net Income 61,847 $ 61,847
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gain (Loss) on Securities
Available for Sale, Net of
Reclassification Adjustments (3,238) (3,238)
Foreign Exchange Translation Adjustments (477) (477)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income(Loss) (3,715)
====================================================================================================================================
Total Comprehensive Income $ 58,132
Issuance of Common Stock for
Stock Option Plans - 93,559 shares 234 1,600 1,834
Cash Dividends Declared:
Common Stock, $.20 Per Share (6,123) (6,123)
Series B Preferred Stock, $2.6875 Per Share (9,854) (9,854)
Redemption of Preferred Stock (4,000) (91,192) (13,808) (109,000)
Common Stock Repurchase - 275,000 Shares (5,443) (5,443)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ -- $78,888 $160,760 $184,794 $ (2,548) $(29,166) $ 392,728
====================================================================================================================================
Comprehensive Income:
Net Income 31,594 $ 31,594
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gain (Loss) on Securities
Available for Sale, Net of
Reclassification Adjustments (38,294) (38,294)
Foreign Exchange Translation Adjustments (1,248) (1,248)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income(Loss) (39,542)
====================================================================================================================================
Total Comprehensive Loss $ (7,948)
Issuance of Common Stock for
Stock Option Plans - 60,150 shares 151 679 830
Cash Dividends Declared:
Common Stock, $.20 Per Share (5,706) (5,706)
Common Stock Repurchase - 2,125,000 Shares (42,191) (42,191)
====================================================================================================================================
Balance, December 31, 1999 $ -- $79,039 $161,439 $210,682 $(42,090) $(71,357) $ 337,713
====================================================================================================================================
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements.
-99-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 31,594 $ 61,847 $ 50,879
Adjustments to Reconcile Net Income to Cash
Provided by (Used in) Operating Activities:
Provision for Loan Losses 2,500 -- (12,000)
Provision for Other Real Estate Owned Losses 23 1,036 1,437
Depreciation Expense and Amortization of Leasehold Improvements 12,113 11,459 11,659
Gains on Sale of Securities Available for Sale (1,154) (15,023) (3,500)
Gains on Sale of Other Real Estate Owned (61) (918) (2,694)
(Increase) Decrease in Other Assets (15,185) 2,374 (23,216)
Increase (Decrease) in Other Liabilities 19,526 (142,443) 129,411
Extraordinary Losses on Redemption of Long-Term Debt 7,786 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 25,548 (143,515) 101,097
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Operating Activities 57,142 (81,668) 151,976
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net Decrease (Increase) in Time Deposits with Other Banks 282,653 (454,368) 39,313
Proceeds from Maturities of Securities Available for Sale 3,247,978 5,555,730 7,197,217
Proceeds from Sale of Securities Available for Sale 177,703 1,706,165 475,956
Purchase of Securities Available for Sale (3,802,597) (6,550,030) (8,175,479)
Purchases of Venture Capital Investments (36,432) (3,093) --
Net Decrease (Increase) in Loans 40,916 (371,688) (247,467)
Proceeds from Sale of Other Real Estate Owned, Net of Additions 809 3,278 25,109
Net Increase in Premises and Equipment (11,882) (49,153) (10,962)
Other, Net (261) -- 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (101,113) (163,159) (696,297)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand, Savings, NOW and Money
Market Deposit Accounts 32,718 (331,018) 58,095
Net (Decrease) Increase in Time Deposits (2,233) 177,948 189,140
Net Increase in Short-Term Borrowings 457,822 21,872 97,274
Proceeds from the Issuance of Common Stock 830 1,834 2,571
Repayments of Long-Term Debt (130,312) -- --
Proceeds from Preferred Stock of Subsidiaries -- -- 200,000
Dividend Payments - Preferred -- (9,854) (10,750)
Dividend Payments - Common (5,706) (6,123) (6,079)
Redemption of Preferred Stock -- (109,000) --
Repurchase of Common Stock (42,191) (5,443) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities 310,928 (259,784) 530,251
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (1,248) (477) (1,983)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 265,709 (505,088) (16,053)
Cash and Cash Equivalents at Beginning of Year 230,003 735,091 751,144
====================================================================================================================================
Cash and Cash Equivalents at End of Year $ 495,712 $ 230,003 $ 735,091
Supplemental Schedule of Non-cash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned $ 72 $ -- $ 823
Supplemental Disclosures:
Interest Paid (Net of Amount Capitalized) $ 152,109 $ 161,424 $ 150,642
Income Tax Payments 128 23,178 7,630
====================================================================================================================================
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements.
-100-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The following is a summary of Riggs National Corporation's ("our company's")
significant accounting policies, including those of our principal subsidiaries,
Riggs Bank National Association (the "Bank" or "Riggs Bank"), Riggs Bank Europe
Limited ("RBEL"), Riggs Real Estate Investment Corporation ("RREIC"), Riggs
Capital, Riggs Capital II, and Riggs Capital Partners, LLC("RCP").
We engage in a variety of banking and financial services activities, either
directly or through our subsidiaries, serving a broad customer base. These
services include community banking, corporate and commercial banking,
international banking and trust and investment management services.
Basis of Presentation
Our accounting and reporting policies are in accordance with generally accepted
accounting principles and conform to general practice within the banking
industry. The consolidated financial statements include the accounts of our
company and our subsidiaries, after elimination of all intercompany
transactions. For purposes of comparability, certain prior period amounts have
been reclassified to conform with current year presentation. None of these
reclassifications had any effect on net income or earnings per share for the
periods presented.
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying
footnotes. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash equivalents include cash on hand,
amounts due from banks, federal funds sold and reverse repurchase agreements.
Cash equivalents have original maturities of 30 days or less.
Acquisitions and Additions
In April 1999, we formed a real estate investment trust, Riggs Real Estate
Investment Corporation, which is an indirect wholly owned subsidiary of Riggs
Bank. At December 31, 1999 it had $1.22 billion in real estate loans.
In 1998, we established a venture capital division of our company, Riggs Capital
Partners. In 1999, we formed a Delaware subsidiary that replaced this division,
Riggs Capital Partners, LLC. At December 31, 1999, RCP had investments of $39.5
million.
In October 1997, we acquired J. Bush & Co. Incorporated ("J. Bush & Co.") a
privately-held investment advisor. At acquisition, J. Bush & Co.
had approximately $250.0 million in assets under management. J. Bush & Co.
is a separate subsidiary of Riggs Bank. This acquisition was accounted for
as a purchase.
In November 1996 and March 1997, we formed two Delaware business trusts, Riggs
Capital and Riggs Capital II, respectively, with all of the common securities of
each trust owned by our company. Subsequently, in December 1996 and March 1997,
respectively, each of the trusts sold preferred securities. The preferred
securities represent a minority interest in each trust, which is reflected
separately in the Consolidated Statements of Condition under the caption
"Guaranteed Preferred Beneficial Interests in Junior Subordinated Deferrable
Interest Debentures." Dividends on the trust preferred securities are reflected
in the Consolidated Statements of Income as a deduction from income before taxes
and minority interest under the caption of "Minority Interest in Income of
Subsidiaries, Net of Taxes"(see Note 11, "Common and Preferred Stock").
Securities
All of our securities are classified as securities available for sale and are
carried at fair value, with unrealized gains and losses, net of tax, included as
a separate component of accumulated other comprehensive income (loss) within
shareholders' equity. We have established policies that require the periodic
review of the securities portfolio for proper classification of securities (see
Note 2, "Securities").
Loans
Loans are carried at the principal amount outstanding, net of unearned
discounts, unamortized premiums and deferred fees and costs. Interest on loans
and amortization of unearned discounts/premiums and deferred fees and costs are
computed by methods that generally result in level rates of return on principal
amounts outstanding over the estimated lives of the loans. Loan origination fees
and certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment to the related loan's yield.
-101-
<PAGE>
We discontinue the accrual of interest on loans based on delinquency status, an
evaluation of the related collateral and the financial strength of the borrower.
Loans are placed on nonaccrual when, in our opinion, there is doubt as to the
ability to collect either interest or principal, or when interest or principal
is 90 days or more past due and the loan is not well-secured and in the process
of collection. Income recognition on consumer loans is discontinued and the
loans are charged off after a delinquency period of 120 days. At that point, any
accrued interest that has not been collected is reversed.
Impaired loans are defined as specifically reviewed loans for which it is
probable that we will be unable to collect all amounts due according to the
terms of the loan agreement. Our impaired loans generally are defined as
nonaccrual loans. Impaired loans do not include large groups of smaller-balance
loans with similar collateral characteristics such as residential mortgages and
consumer installment loans, which are evaluated collectively for impairment.
Impaired loans, therefore, are primarily commercial and financial loans and real
estate-commercial/construction loans.
Reserve for Loan Losses
The reserve for loan losses is maintained at a level that, in our opinion, is
adequate to absorb potential losses in the loan portfolio. The adequacy of the
reserve is based on our review and evaluation of the individual credits in the
loan portfolio, historical loss experience by loan type, current and anticipated
economic conditions, and where applicable, the estimated value of the underlying
collateral. The determination of the adequacy of the reserve for loan losses
involves uncertainties and matters of judgment and, therefore, could result in
adjustments to future results of operations.
The provision for loan losses is charged against, or credited to, earnings in
amounts necessary to maintain an adequate reserve for loan losses. A loan is
charged off if, in our opinion, the loan cannot be fully collected. Recoveries
of loans previously charged off are added to the reserve.
The specific reserves for impaired loans are included in the reserves for loan
losses. Impaired loans are valued based on the fair value of the related
collateral if the loans are collateral- dependent. For all other impaired loans,
the specific reserves are based on the present values of expected future cash
flows discounted at each loan's initial effective interest rate.
Other Real Estate Owned
Other real estate owned is property on which we have foreclosed and taken title.
Other real estate owned is recorded at the lower of fair value, less estimated
costs to sell, or at cost. Initial writedowns at the time of foreclosure of
other real estate owned are charged to the reserve for loan losses. Revenues and
expenses incurred in connection with ownership of the properties, and subsequent
writedowns and gains and losses upon sale, are included in other noninterest
expense.
Premises and Equipment
Premises, leasehold improvements and furniture and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization
are generally computed using the straight-line method over the estimated useful
lives of the assets. Ranges of useful lives for computing depreciation and
amortization are 25 to 35 years for premises, 5 to 20 years for leasehold
improvements and 5 to 15 years for furniture and equipment.
Major improvements and alterations to premises and leaseholds are capitalized.
Leasehold improvements are amortized over the shorter of the terms of the
respective leases or the estimated useful lives of the improvements. Interest
costs relating to the construction of certain fixed assets are capitalized at
the Bank's weighted-average cost of liabilities.
Other Assets
Included in other assets are intangible assets, such as goodwill and core
deposit intangibles. Goodwill is the excess of cost over net assets of acquired
entities while core deposit intangibles represent the net present value of the
future income streams related to deposits acquired through mergers or
acquisitions. In October 1997, we acquired J. Bush & Co., and goodwill related
to this transaction is being amortized using the straight-line method over a
15-year period. All other goodwill is being amortized using the straight-line
method over 25 years. Core deposit intangibles are amortized on an accelerated
basis over 10 years. We had unamortized goodwill of $8.0 million and $8.6
million at December 31, 1999 and 1998, respectively. The unamortized core
deposit intangibles totaled $2.2 million and $5.2 million at December 31, 1999
and 1998, respectively.
Venture Capital Investments
Venture capital investments of RCP, a wholly owned subsidiary of our company,
totaled $39.5 million at December 31, 1999, and $3.1 million at December 31,
1998. The investments are accounted for at fair value, with valuation gains and
losses taken into income. For the year ended December 31, 1999, investment
valuation gains totaled $2.0 million, and were included in noninterest income. A
$267 thousand minority interest expense associated with RCP is included on the
Consolidated Statements of Income, net of taxes, for 1999. RCP also had
unfunded venture capital commitments totaling $24.6 million at December 31,
1999.
-102-
<PAGE>
Income Taxes
We record a provision for income taxes based upon the amounts of current taxes
payable (or refundable) and the change in net deferred tax assets or liabilities
during the year. Deferred tax assets and liabilities are recognized for the tax
effects of differing carrying values of assets and liabilities for tax and
financial statement reporting purposes that will reverse in future periods.
Using our judgment and estimates concerning the likelihood of realization in
future periods, deferred tax assets are reduced by a valuation allowance as
necessary.
Benefit Plans
We maintain a non-contributory defined benefit pension plan for substantially
all our employees and substantially all the employees of our subsidiaries. The
net periodic pension expense includes a service cost component and an interest
cost component, reflecting the expected return on plan assets, and the effect of
deferring and amortizing certain actuarial gains and losses, prior service
costs, and the unrecognized net transition asset over 12 years. The net periodic
pension expense is based on management's estimates and judgment through
actuarial assumptions and computations.
We also provide health care and a portion of the life insurance benefits for
retired employees. The estimated cost of retiree health insurance benefits is
accrued for active employees. As of January 1, 1998, we no longer provide life
insurance benefits for persons retiring on or after January 1, 1998. We
recognized a transition asset, which is being amortized over 20 years, when we
adopted the current accounting treatment for postretirement benefits. The
accrual of postretirement benefit costs is based on our judgment and estimates
through actuarial assumptions and computations.
Earnings Per Common Share
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. The weighted-average shares outstanding were 28,463,825;
30,603,384; and 30,422,822 for 1999, 1998, and 1997. The dilutive effect of
stock option plans on weighted-average shares outstanding was 552,100;
1,032,096; and 1,164,568, for the same periods, respectively.
Foreign Currency Translation
The functional currency amounts of assets and liabilities of foreign entities
are translated into U.S. dollars at year-end exchange rates. Income and expense
items are translated using appropriate weighted-average exchange rates for the
period. Functional currency to U.S. dollar translation gains and losses, net of
related hedge transactions, are credited or charged directly to the accumulated
other comprehensive income section of shareholders' equity, Foreign Exchange
Translation Adjustments.
Foreign Exchange Income
Open foreign currency trading and exchange positions, including spot and forward
exchange contracts, are valued monthly; the resulting profits and losses are
recorded in other noninterest income. The amount of net foreign exchange trading
gains included in the accompanying Consolidated Statements of Income was $3.5
million for 1999, $3.2 million for 1998, and $2.3 million for 1997.
Financial Derivatives
Gains and losses on futures and forward contracts to hedge certain
interest-sensitive assets and liabilities are amortized over the life of the
hedged transaction as an adjustment to yield. Fees received or paid when
entering certain derivative transactions are deferred and amortized over the
lives of the agreements.
Interest rate agreements are entered into as hedges against fluctuations in the
interest rates of specifically identified assets or liabilities. The notional
amounts of the contracts do not affect our total assets or liabilities. Net
receivables or payables under agreements designated as hedges are recorded as
adjustments to interest income or interest expense related to the hedged asset
or liability. Gains or losses resulting from early termination of interest rate
agreements are deferred and amortized over the remaining terms of the
agreements.
Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 requires that certain financial activity typically disclosed in
shareholders' equity be reported in the financial statements as an adjustment to
net income in determining comprehensive income (loss). Items applicable to our
company include activity in foreign exchange translation adjustments and
unrealized gain (loss) on securities available for sale. Items identified as
comprehensive income are reported in the Consolidated Statements of Condition
and the Consolidated Statements of Changes in Shareholders' Equity, under
separate captions. SFAS No.130 was effective for our company on January 1, 1998,
including the restatement of prior periods reported, consistent with this
pronouncement.
-103-
<PAGE>
Segments
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. 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 us to allocate resources and
measure performance. We are required to disclose profit (loss), revenues and
assets for each segment identified, including reconciliations of these items to
the consolidated results. We also are required to disclose the basis for
identifying the segments and the types of products and services within each
segment. SFAS No.131 was effective for our company on January 1, 1998, including
the restatement of prior periods reported consistent with this pronouncement.
New Financial Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 will require us to record derivative
instruments, such as interest rate swap agreements, on the Consolidated
Statements of Condition as assets or liabilities, measured at fair value.
Currently we treat 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. The original
effective date for implementation of SFAS No. 133 would have been January 1,
2000; however, it has been delayed until January 1, 2001, as a result of SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133." We do not anticipate any
material impact from the implementation of SFAS No. 133.
-104-
<PAGE>
NOTE 2. SECURITIES
SECURITIES AVAILABLE FOR SALE
DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
GROSS GROSS BOOK/ GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 289,242 $ -- $21,234 $ 268,008 $113,677 $ -- $1,927 $111,750
Government Agencies Securities 479,297 -- 4,840 474,457 391,165 181 2 391,344
Mortgage-Backed Securities 518,418 13 34,697 483,734 424,152 249 898 423,503
Other Securities 63,685 -- -- 63,685 43,577 927 373 44,131
====================================================================================================================================
Total Securities Available for Sale $1,350,642 $ 13 $60,771 $1,289,884 $972,571 $1,357 $3,200 $970,728
====================================================================================================================================
</TABLE>
Gross gains from the sale of securities totaled $2.7 million during the year,
while gross losses totaled $1.5 million, compared with gross gains of $18.1
million and gross losses of $3.1 million for 1998. At December 31, 1999, a $39.5
million unrealized loss, net of tax, was recorded in shareholders' equity
(included in accumulated other comprehensive income (loss)), compared to a $1.2
million unrealized loss, net of tax, in 1998. Securities available for sale
pledged to secure deposits and other borrowings amounted to $1.02 billion at
December 31, 1999, and $727.4 million at December 31, 1998.
The "Other Securities" category consists of $33.1 million of Federal Home Loan
Bank of Atlanta ("FHLB-Atlanta") stock, $9.4 million of Federal Reserve stock,
and $21.2 million of U.S. Treasury money market mutual funds at year-end 1999.
The FHLB-Atlanta and Federal Reserve stock have no readily available market
value quotation, however their year-end book values are an approximation of
their market values.
-105-
<PAGE>
The maturity distribution of securities at December 31, 1999 follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
GOVERNMENT MORTGAGE-
U.S.TREASURY AGENCIES BACKED OTHER
SECURITIES SECURITIES SECURITIES SECURITIES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Within 1 year
Amortized Cost $ -- $205,364 $ -- $21,190 $ 226,554
Book/Market -- 205,068 -- 21,190 226,258
Yield 1 -- 5.68% -- 4.62% 5.58%
After 1 but within 5 years
Amortized Cost 175,844 241,962 -- -- 417,806
Book/Market 173,789 239,170 -- -- 412,959
Yield 1 5.46% 5.64% -- -- 5.56%
After 5 but within 10 years
Amortized Cost -- 31,971 17,547 -- 49,518
Book/Market -- 30,219 16,161 -- 46,380
Yield 1 -- 6.53% 6.00% -- 6.34%
After 10 years
Amortized Cost 113,398 -- 500,871 42,495 656,764
Book/Market 94,219 -- 467,573 42,495 604,287
Yield 1 5.25% -- 6.41% 6.70% 6.23%
====================================================================================================================================
Total Securities Available for Sale
Amortized Cost $289,242 $479,297 $518,418 $63,685 $1,350,642
Book/Market 268,008 474,457 483,734 63,685 1,289,884
Yield 1 5.38% 5.72% 6.40% 6.01% 5.92%
====================================================================================================================================
</TABLE>
1 Weighted-average yield to maturity at December 31, 1999.
NOTE 3. LOANS AND RESERVE FOR LOAN LOSSES
The following schedule details the composition of the loan portfolio at
year-end:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and Financial $ 667,393 $ 668,778
Real Estate-
Commercial/Construction 415,304 409,586
Residential Mortgage 1,219,740 1,276,257
Home Equity 315,520 314,347
Consumer 73,158 69,419
Foreign 517,012 522,032
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 3,208,127 3,260,419
Net Deferred Loan Fees, Costs,
Premiums and Discounts (6,146) (2,284)
====================================================================================================================================
Loans $3,201,981 $3,258,135
====================================================================================================================================
</TABLE>
A summary of nonperforming and renegotiated loans, loans contractually past-due
90 days or more and potential problem loans at year-end follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual Loans $41,534 $26,831
Renegotiated Loans 1,263 2,920
Past-Due Loans 7,429 25,269
Potential Problem Loans 2,013 --
====================================================================================================================================
</TABLE>
The nonaccrual loans of $41.5 million and $26.8 million at December 31, 1999,
and December 31, 1998, respectively do not include renegotiated loans that also
are not accruing interest. At December 31, 1999, nonaccrual loans included $975
thousand of foreign loans, and renegotiated loans included $1.2 million of
foreign loans. At December 31, 1998, nonaccrual loans included no foreign loans,
while renegotiated loans included $2.8 million of foreign loans. During 1999,
$72 thousand was transferred from nonaccrual loans to other real estate owned,
while there were no transfers from nonaccrual loans to other real estate owned
in 1998.
-106-
<PAGE>
An analysis of the changes in the reserve for loan losses follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 54,455 $ 52,381 $ 64,486
Provision for Loan Losses 2,500 -- (12,000)
Loans Charged Off 16,947 4,122 3,244
Less:Recoveries on Charged-Off Loans 1,709 6,102 3,716
- ------------------------------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 15,238 (1,980) (472)
Foreign Exchange Translation Adjustments (262) 94 (577)
====================================================================================================================================
Balance, December 31 $ 41,455 $ 54,455 $ 52,381
====================================================================================================================================
</TABLE>
Foreign exchange translation adjustments in the reserve for loan losses were
$(262) thousand and $94 thousand in 1999 and 1998, respectively. These
adjustments relate to reserves for the Bank's London branch and RBEL, recorded
in British pounds sterling, and are made to account for changes in our reserve
for loan losses resulting from fluctuating foreign exchange rates.
Included in our nonaccrual and renegotiated loans are certain impaired loans.
Impaired loans totaling $42.0 million at December 31, 1999, were comprised of
$40.0 million in domestic loans and $2.0 million in foreign loans. At December
31, 1998, domestic and foreign impaired loan balances were $26.0 million and
$2.8 million, respectively. The 1999 average investments in impaired loans were
$33.6 million in domestic loans and $1.9 million in foreign loans. For 1998, the
average investments for domestic and foreign impaired loans were $9.5 million
and $1.1 million, respectively.
All impaired loans had an allocated reserve for loan losses at December 31, 1999
and 1998. The allocated reserves on impaired loans were $9.8 million for 1999
and $14.1 million for 1998.
Consistent with our method for nonaccrual loans, cash payments received on
impaired loans are generally applied to principal. The pro forma interest income
that would have been earned in 1999 and 1998, if such loans had not been
classified as impaired, was $3.1 million and $817 thousand, respectively. In
1999, $186 thousand was included in net interest income for impaired loans,
while none was included in 1998.
Our charge-off policy for impaired loans is consistent with our policy for loan
charge-offs to the reserve; impaired loans are charged-off when, in our opinion,
the impaired loan cannot be fully collected. Collateral-dependent impaired loans
are measured at the fair value of the collateral. All other impaired loans are
measured based on the present value of expected cash flows.
NOTE 4. TRANSACTIONS WITH RELATED PARTIES
In the ordinary course of banking business, loans are made to officers and
directors of our company and its affiliates as well as to their associates. In
our opinion, these loans are consistent with sound banking practices and do not
involve more than the normal risk of collectibility. At December 31, 1999 and
1998, loans to executive officers and directors of our company and its
affiliates, including loans to their associates, totaled $81.5 million and $77.9
million, respectively. During 1999, loan additions were $103.6 million, loan
repayments were $110.0 million, and other changes were $10.0 million. Other
changes in loans to officers and directors during the year represent changes in
the composition of our board of directors.
In addition to the transactions set forth above, our banking subsidiaries had
$411 thousand of letters of credit outstanding at December 31, 1999, to related
parties. There were no related party loans that were impaired, nonaccrual, past
due, restructured or potential problems at December 31, 1999.
-107-
<PAGE>
In the third quarter of 1999, Perpetual Corporation, a company directly owned by
Mr. Allbritton (Chairman of the Board and Chief Executive Officer of our
company), and another company indirectly owned by Mr. Allbritton, purchased our
company's corporate aircraft for $10.3 million. The aircraft had a book value of
$6.5 million, and as a result of the sale, our company recorded a gain on sale
of $3.8 million.
Also during 1999, Allbritton Communications Company ("ACC"), a company
indirectly owned by Mr. Allbritton, paid the Bank $376 thousand to lease space
in an office building owned by the Bank under a lease that has been extended
through 2001. ACC paid $383 thousand and $689 thousand in 1998 and 1997,
respectively, to lease space from the Bank. In addition, ACC reimbursed us $80
thousand in both 1999 and 1998 for use of an entertainment suite at a sports
stadium.
In 1999, Riggs Bank, through advertising agencies, purchased advertising time on
WJLA-TV and NewsChannel 8. These companies are indirectly owned by Mr.
Allbritton. The payments totaled $227 thousand and $250 thousand for WJLA-TV and
NewsChannel 8, respectively.
During 1998 our company paid ACC $1.0 million for a sublicense agreement to
obtain an equal share of ACC's interest in an entertainment suite at a separate
sports complex. This transaction was at market value based on a recent sale of a
similar entertainment suite.
During 1997, we purchased equipment from Wang Federal, Inc. Ronald Cuneo (a
member of our Board of Directors in 1997) was President of Wang Federal, Inc. at
the time of the purchase. Total expenditures equaled $1.3 million in 1997 and
were capitalized.
NOTE 5. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreclosed Property - Domestic $ 908 $1,638
Foreclosed Property - Foreign -- 42
- ------------------------------------------------------------------------------------------------------------------------------------
Total Foreclosed Property 908 1,680
Less: Reserve for Other Real
Estate Owned -- --
====================================================================================================================================
Total Other Real Estate Owned $ 908 $1,680
====================================================================================================================================
</TABLE>
An analysis of the changes in the reserves for other real estate owned follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ -- $ -- $2,154
Additions:
Provision for Other
Real Estate Owned Losses 23 1,036 1,437
- ------------------------------------------------------------------------------------------------------------------------------------
Total Additions 23 1,036 1,437
Deductions:
Loss on Sales/Selling Expenses -- -- 1,111
Writedowns 23 1,036 2,478
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deductions 23 1,036 3,589
Foreign Exchange Translation
Adjustments -- -- (2)
====================================================================================================================================
Balance, December 31 $ -- $ -- $ --
====================================================================================================================================
</TABLE>
-108-
<PAGE>
NOTE 6. PREMISES AND EQUIPMENT
Investments in premises and equipment at year-end were as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premises and Land $184,172 $ 175,377
Furniture and Equipment 108,113 113,738
Leasehold Improvements 45,865 45,231
Accumulated Depreciation
and Amortization (135,310) (131,275)
====================================================================================================================================
Total Premises and
Equipment, Net $202,840 $ 203,071
====================================================================================================================================
</TABLE>
Depreciation and amortization expense amounted to $12.1 million in 1999, $11.5
million in 1998 and $11.7 million in 1997.
At December 31, 1999, we are committed to the following future minimum lease
payments under non-cancelable operating lease agreements covering equipment and
premises. These commitments expire intermittently through 2018 in varying
amounts.
<TABLE>
<CAPTION>
OPERATING
LEASES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 7,412
2001 6,856
2002 5,747
2003 4,731
2004 3,717
2005 and thereafter 12,672
====================================================================================================================================
Total Minimum Lease Payments $41,135
====================================================================================================================================
</TABLE>
Total minimum operating lease payments included in the preceding table have not
been reduced by future minimum payments from sublease rental agreements that
expire intermittently through 2001. Minimum sublease rental income for 2000 is
expected to be approximately $57 thousand. Rental expense for all operating
leases (cancelable and non-cancelable), less rental income for leased
properties, consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Expense $8,862 $8,947 $9,037
Rental Income (52) (96) (102)
====================================================================================================================================
Net Rental Expense $8,810 $8,851 $8,935
====================================================================================================================================
</TABLE>
In the normal course of business, we also lease space in buildings we own. This
rental income amounted to $2.3 million in 1999, $2.3 million in 1998 and $2.0
million in 1997. Minimum lease commitments from buildings owned for 2000 total
approximately $2.1 million, compared with $2.2 million in 1999.
During 1999, we recorded a gain on sale of the corporate aircraft of $3.8
million. The aircraft had a book value of $6.5 million and was sold for $10.3
million. A replacement aircraft was acquired in the third quarter of 1999, with
final payment made at that time. Initial payments on the new aircraft were made
in 1998. Payments on the new aircraft totaled $39.4 million.
In September of 1999, we opened our new International Financial Center in
Washington, D.C. This center houses our embassy banking, international
correspondent banking, international private banking, letters of credit and
international consulting services departments. The center also houses our
completely renovated historic Dupont Circle Branch.
NOTE 7. TIME DEPOSITS, $100 THOUSAND OR MORE
The aggregate amount of time deposits in domestic offices, each with a minimum
denomination of $100 thousand, was $717.2 million and $522.7 million at December
31, 1999 and 1998, respectively. The average rate on time deposits of $100
thousand or more in domestic offices for 1999 was 4.36% compared with the
average rate of 4.40% paid during 1998. A majority of time deposits in foreign
offices were in denominations of $100 thousand or more.
Total time deposits at December 31, 1999, had the following scheduled
maturities:
<TABLE>
<CAPTION>
<S> <C>
2000 $1,498,331
2001 33,813
2002 9,767
2003 6,597
2004 4,531
2005 and thereafter 8,550
- ------------------------------------------------------------------------------------------------------------------------------------
Total $1,561,589
====================================================================================================================================
</TABLE>
-109-
<PAGE>
NOTE 8. BORROWINGS
Short-Term Borrowings
Short-term borrowings outstanding at year-end and other related information
follow:
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED
AND REPURCHASE AGREEMENTS OTHER SHORT-TERM BORROWINGS
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31 $424,508 $353,303 $327,579 $407,694 $21,077 $24,929
Average Amount Outstanding 1 371,891 396,438 266,828 178,017 18,824 17,563
Weighted-Average Rate Paid 1 4.58% 4.90% 5.09% 4.37% 2.16% 5.10%
Maximum Amount Outstanding at any
Month-End 424,508 547,934 346,086 426,571 27,014 26,522
====================================================================================================================================
</TABLE>
1 Average amounts are based on daily balances. Average rates are computed by
dividing actual interest expense by average amounts outstanding.
Federal funds purchased consisted of borrowings from other financial
institutions that matured overnight. Repurchase agreements are transactions with
customers and brokers secured by investment securities. At both December 31,
1999 and 1998, we had one repurchase agreement with a customer that individually
exceeded 10% of total shareholders' equity. These repurchase agreements were for
$76.9 million and $62.4 million respectively.
Other short-term borrowings were primarily borrowings from the Federal Home Loan
Bank of Atlanta at December 31, 1999, and from other financial institutions at
December 31, 1998. The balance outstanding to the Federal Home Loan Bank of
Atlanta on December 31, 1999, was $400.3 million with an average rate of 4.99%.
It has an average maturity of 8.75 years, but is callable in 2000. Other
short-term borrowings also includes U.S. Treasury demand notes which consist of
Treasury tax and loan funds transferred to interest-bearing demand notes with no
fixed maturity, subject to call by the Federal Reserve.
Unused lines of credit totaled approximately $1.38 billion and $1.49 billion at
December 31, 1999 and 1998, respectively. Of these totals, $400.3 million and
$800.0 million, respectively, were secured by a blanket lien agreement with the
Federal Home Loan Bank of Atlanta. At December 31, 1999, another portion was
secured by commercial loans totaling $359.6 million.
Long-Term Debt
Long-term debt outstanding at year-end and other related information follow:
<TABLE>
<CAPTION>
BALANCE OUTSTANDING
INTEREST RATE DECEMBER 31,
DECEMBER 31, 1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Parent Corporation:
Fixed-Rate Subordinated Debentures due 2009 9.65% $66,525 $ 66,525
Fixed-Rate Subordinated Notes due 2006 -- -- 125,000
====================================================================================================================================
Total Long-Term Debt $66,525 $191,525
====================================================================================================================================
</TABLE>
-110-
<PAGE>
Fixed-Rate Subordinated Debentures Due 2009
On June 6, 1989, we issued $100 million of 9.65% Subordinated Debentures due
June 15, 2009. In April 1990, $33.5 million was repurchased in the open market,
leaving an outstanding balance of $66.5 million. These unsecured subordinated
obligations may not be redeemed prior to maturity. These debentures qualify as
Tier II capital for regulatory purposes. Expenses relating to the issuance of
the debentures are being amortized to maturity on a straight-line basis.
Fixed-Rate Subordinated Notes Due 2006
In July 1999, we completed the redemption of $125.0 million of 8.50%
Subordinated Notes due 2006 at the price of 104.25%. They originally had been
issued on February 1, 1994, and priced at par. These notes qualified as Tier II
capital for regulatory purposes. Expenses relating to the issuance of the notes
were being amortized to maturity on a straight-line basis. At the time of the
redemption, the remaining issuance costs of $2.5 million were recognized along
with a premium of $5.3 million, resulting in a loss of $7.8 million. This loss
is included on the Consolidated Statements of Income for 1999 as an
extraordinary loss, net of taxes, totaling $5.1 million.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Risk
In the normal course of business, we enter into various transactions that, in
accordance with generally accepted accounting principles, are not included on
the Consolidated Statements of Condition. These transactions are referred to as
"off-balance sheet" commitments and differ from our balance sheet activities in
that they do not give rise to funded assets or liabilities. We enter into
derivative transactions to manage our own risks arising from movements in
interest and currency rates. We also offer currency products to our customers to
meet their financing objectives and to manage their currency rate risk.
Off-balance sheet activities involve varying degrees of credit, interest rate or
liquidity risk in excess of amounts recognized on the Consolidated Statements of
Condition. We believe that financial derivatives, such as interest rate
agreements, can be an important element of prudent balance sheet and interest
rate risk management. We seek to minimize our exposure to loss under these
commitments by subjecting them to credit approval and monitoring procedures.
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to Extend Credit:
Commercial $ 701,191 $ 821,776
Real Estate:
Commercial/Construction 31,634 46,670
Mortgage 29,552 14,595
Home Equity 164,842 189,544
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 226,028 250,809
Consumer 108,425 97,085
====================================================================================================================================
Total Commitments to
Extend Credit $1,035,644 $1,169,670
Letters of Credit:
Commercial $ 99,011 $ 74,729
Standby - Performance 9,209 11,386
Standby - Financial 29,402 30,619
====================================================================================================================================
Total Letters of Credit $ 137,622 $ 116,734
Derivative Instruments:
Foreign Currency Contracts -
Commitments to Purchase $ 112,226 $ 138,727
Commitments to Sell 317,837 225,846
Interest Rate Agreements -
Swaps 126,786 114,696
Purchased Options 629 647
====================================================================================================================================
</TABLE>
-111-
<PAGE>
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer provided there
is no violation of any condition established in the contract. Commitments to
extend credit normally have fixed expiration dates or termination clauses and
may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements. We evaluate each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary, is based upon our credit evaluation of the
customer. Of the $1.04 billion of commitments at December 31, 1999, $635.4
million are scheduled to expire in 2000.
Concentration of Credit Risk
We regularly assess the quality of our commercial credit exposures and assign
risk ratings to substantially all extensions of credit in our commercial, real
estate and international portfolios. We seek to identify, as early as possible,
problems that may result from economic downturns or deteriorating conditions in
certain markets or with respect to specific credits. Lending officers have the
primary responsibility of monitoring credit quality, identifying problem credits
and recommending changes in risk ratings. When signs of credit deterioration are
detected, credit or other specialists may become involved to minimize our
exposure to future credit losses. Our independent loan review function provides
an assessment of credit ratings, credit quality and the credit management
process. This assessment is achieved through regular reviews of loan
documentation, collateral, risk ratings and problem loan classifications.
Credit risk is reduced by maintaining a loan portfolio that is diverse in terms
of type of loan, as well as industry and borrower concentration, thus minimizing
the adverse impact of any single event or set of occurrences.
Geographically, our domestic loans are concentrated in the Washington, D.C.,
metropolitan area. Loans originated by our United Kingdom subsidiary represent
76% of foreign loans and are predominantly to borrowers located in the United
Kingdom.
At December 31, 1999, approximately $611.1 million or 19% of our loan portfolio
consisted of loans secured by real estate, excluding single-family residential
loans, of which approximately 68% and 32% were secured by properties located in
the Washington, D.C., area and in the United Kingdom, respectively. In addition,
we had $908 thousand in other real estate owned at December 31, 1999.
Approximately 48% of our loan portfolio is secured by the primary residence of
the borrower. At December 31, 1999, residential mortgage loans were $1.22
billion and home equity loans were $315.5 million.
Letters of Credit
There are two major types of letters of credit: commercial and standby.
Commercial letters of credit are normally short-term instruments used to finance
a commercial contract for the shipment of goods from seller to buyer. Commercial
letters of credit are contingent upon the satisfaction of specified conditions;
therefore, they represent a current exposure if the customer defaults on the
underlying transaction.
Standby letters of credit can be either financial or performance-based.
Financial standby letters of credit obligate us to disburse funds to a third
party if our customer fails to repay an outstanding loan or debt instrument.
Performance standby letters of credit obligate us to disburse funds if our
customer fails to perform some contractual or non-financial obligation. Our
policies generally require that all standby letter of credit arrangements
contain security and debt covenants similar to those contained in loan
agreements.
Foreign Currency Contracts
Foreign currency contracts include commitments to purchase and sell foreign
currencies in the spot and forward markets. We utilize these products to manage
our exposure to movements in currency rates and to generate revenue by assisting
customers in managing their foreign currency exposure. These products normally
include the exchange of currency at an agreed upon rate at some time in the
future. Risks associated with these contracts include credit risk and currency
risk. Credit risk relates to the ability of the counterparty to meet its
obligation under the contract and is limited to the costs of replacing the
contract at prevailing rates. Currency risk arises from changes in the market
value of the positions.
-112-
<PAGE>
We enter foreign currency contracts to hedge foreign currency risk. Hedges
ensure that we will have a specific currency at a specific rate at the maturity
of the contract. Additional contracts are entered to serve customer needs. We
have established limits on the aggregate amounts of contracts used for
non-hedging purposes, as well as trading gaps, counterparty limits and country
limits.
At December 31, 1999, commitments to purchase and sell foreign exchange
contracts were $112.2 million and $317.8 million, respectively. At year-end
1999, we had approximately $92.8 million in commitments to sell foreign exchange
contracts for the purpose of hedging our Sterling equity investment (RBEL) and
French Franc equity investment(Riggs National Bank (Europe) S.A.). We had
approximately $109.0 million in commitments to sell foreign exchange contracts
for the purpose of hedging intercompany loans between the Bank and our United
Kingdom operations. The remaining foreign exchange contracts are related to
customer transactions.
Interest-Rate Agreements and Contracts
Financial derivatives, such as interest rate swaps, provide us with the tools to
effectively manage the balance sheet and interest rate risk. These financial
derivatives are entered into as hedges against fluctuations in the interest rate
of specifically identified assets or liabilities.
At December 31, 1999, we had three open interest rate swaps with a total
notional amount of $25.0 million. These swaps extend the maturities of certain
short-term liabilities at the current funding rates to protect these liabilities
against rising interest rates. These agreements were contracted in October and
December, 1999, and entail the payment of a blended 6.80% fixed rate and the
receipt of a floating rate equal to three-month LIBOR. The swaps reset quarterly
and mature in 2004.
At December 31, 1998, we had an open interest rate swap with a notional amount
of $25.0 million. This agreement was contracted in January 1996 and effectively
converted a portion of the fixed rate real estate mortgage loan portfolio into a
floating rate asset. The swap agreement entailed the payment of a 5.36% fixed
rate and the receipt of a floating rate equal to three-month LIBOR. The swap
reset quarterly and matured in January 1999.
Derivatives are also used by RBEL to manage its interest rate risk. Interest
rate swaps are used to convert fixed rate loan assets into floating rate assets.
There were 30 different interest rate swap agreements outstanding at December
31, 1999, for RBEL totaling $101.8 million. The RBEL swaps had notional amounts
ranging from $1.6 million to $12.3 million, with an average notional amount of
$3.4 million. The maturity dates range from March 2000 to October 2004. The swap
agreements entail the payment of a fixed rate and the receipt of a floating
rate. The fixed rate payments averaged 6.74% and the variable rates received
averaged 5.92% at December 31, 1999.
-113-
<PAGE>
INTEREST-RATE SWAP AGREEMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
WEIGHTED- ACCRUED ACCRUED NET
NOTIONAL UNREALIZED AVERAGERATE INTEREST INTEREST INTEREST
AMOUNT GAIN (LOSS)1 RECEIVE PAY RECEIVABLE PAYABLE INC. (EXP)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive variable/pay fixed $ 25,000 $ 33 6.19% 6.80% $ 142 $ 154 $ (12)
Receive variable/pay fixed -
Riggs Bank Europe Limited 101,786 1,361 5.92 6.74 1,458 1,690 (981)
====================================================================================================================================
Total Interest-Rate Swap
Agreements $126,786 $1,394 $1,600 $1,844 $(993)
====================================================================================================================================
</TABLE>
1 Unrealized gain (loss)obtained from third-party market quotes for replacement
of derivative positions.
Our notional amount of interest-rate swap activity for
the year ended December 31, 1999, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, TERMINATIONS/ DECEMBER 31,
1998 ADDITIONS MATURITIES CALLS 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-Rate Swaps:
Receive variable/pay fixed $ 25,000 $ 25,000 $ 25,000 $ -- $ 25,000
Riggs Bank Europe Limited 89,696 12,090 -- -- 101,786
====================================================================================================================================
Total $114,696 $ 37,090 $ 25,000 $ -- $126,786
====================================================================================================================================
</TABLE>
Other Commitments
During the first quarter of 1998, we renegotiated our contract for the
management of operations directly associated with our computer and
telecommunications functions. The contract expires in 2003, with payments for
the remaining years of the contract of approximately $38.8 million, with $13.5
million of expense in 1999. Total expense under this contract was $11.8 million
in 1998 versus $17.7 million under the previous contract in 1997.
Litigation
In the normal course of business, we are involved in various types of
litigation. In our opinion, based on our assessment and consultation with
outside counsel, litigation that is currently pending against us will not have
a material impact on the financial condition or future operations of our
company.
-114-
<PAGE>
NOTE 10. RESERVE BALANCES, FUNDS RESTRICTIONS
AND CAPITAL REQUIREMENTS
Reserve Balances
The Bank must maintain reserves against deposits and Eurocurrency liabilities in
accordance with Regulation D of the Federal Reserve Act (the "Act"). The total
average balances maintained with the Federal Reserve amounted to $21.4 million
in 1999 and $22.6 million in 1998.
Funds Restrictions
The Act imposes restrictions upon the amount of loans or advances that banks,
such as Riggs Bank N.A., may extend to our company and our non-bank subsidiaries
("affiliates"). Loans by any bank to any one affiliate are limited to 10% of the
bank's capital stock and surplus. Further, aggregate loans by any one bank to
all of its affiliates may not exceed 20% of its capital stock and surplus. In
addition, the Act requires that borrowings by affiliates be secured by
designated amounts of collateral.
The National Bank Act limits dividends payable by national banks without
approval of the OCC to net profits retained in the current and preceding two
calendar years, plus additional amounts for dividends in excess of a given
year's earnings. The payment of dividends by our company's national bank
subsidiaries may also be affected by other factors, such as requirements for the
maintenance of adequate capital.
Cash dividends paid by Riggs Bank to Riggs National Corporation in 1999, 1998,
and 1997 were $42.0 million, $129.0 million, and $112.0 million respectively.
Riggs Bank N.A. had combined net income of $189.7 million for 1999, 1998, and
1997.
Capital Requirements
Our company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory (and possibly additional
discretionary) actions by regulators that, if undertaken, could have a direct
material effect on our company's and Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
our company and the Bank must meet specific capital guidelines that involve
quantitative measures of our company's and the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. Our company's and the Bank's capital amounts and classification also
are subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
-115-
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require our company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of Total and Tier I capital to risk-weighted
assets (as defined in the regulations), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1999, that our company and
the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized our company and the Bank must maintain total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institutions' categories. Our company's and the Bank's actual
capital amounts and ratios also are presented in the table.
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) MINIMUM TO BE WELL
REQUIREMENTS CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to Risk-Weighted Assets):
Consolidated $827 23.55% $281 8.0% $351 10.0%
Riggs Bank N.A. 469 13.86 271 8.0 338 10.0
Tier I Capital (to Risk-Weighted Assets):
Consolidated 495 14.09 140 4.0 211 6.0
Riggs Bank N.A. 427 12.63 135 4.0 203 6.0
Tier I Leverage (to Average Assets):
Consolidated 495 8.59 230 4.0 288 5.0
Riggs Bank N.A. 427 7.91 216 4.0 270 5.0
AS OF DECEMBER 31, 1998
Total Capital (to Risk-Weighted Assets):
Consolidated $972 27.51% $283 8.0% $353 10.0%
Riggs Bank N.A. 457 13.43 272 8.0 340 10.0
Tier I Capital (to Risk-Weighted Assets):
Consolidated 517 14.63 141 4.0 212 6.0
Riggs Bank N.A. 414 12.17 136 4.0 204 6.0
Tier I Leverage (to Average Assets):
Consolidated 517 9.33 222 4.0 277 5.0
Riggs Bank N.A. 414 8.26 200 4.0 251 5.0
</TABLE>
-116-
<PAGE>
NOTE 11. COMMON AND PREFERRED STOCK
Common Stock
We are authorized to issue 50 million shares of Common Stock, par value $2.50
(the "Common Stock"). At December 31, 1999, we had 31,615,495 shares issued and
28,314,697 shares outstanding. On October 14, 1998, the Board of Directors
approved a plan authorizing the purchase of up to three million shares of our
Common Stock in the open market, subject to market conditions. During 1999, we
purchased 2.1 million shares at an average price of $19.85. During 1998, we
purchased 275 thousand shares of Common Stock at an average price of $19.79. The
shares purchased are recorded as additions to Treasury Stock in 1999 and 1998.
Preferred Stock
On October 21, 1993, we issued four million shares of 10.75% Non-cumulative
Perpetual Preferred Stock, Series B ("Series B Preferred"), in transactions
exempt from the registration requirements of the Securities Act of 1933. The
Series B Preferred shares had a liquidation preference of $25 per share, no
preemptive rights, limited public market and were non-voting (subject to certain
limited exceptions).
On October 1, 1998, we called for the redemption of all four million shares
outstanding of the Series B Preferred Stock. The redemption price was $27.25 per
share plus accrued but unpaid dividends. This resulted in a one-time charge of
$13.8 million to undivided profits in 1998.
Minority Interest in Preferred Stock of Subsidiaries
On December 13, 1996, Riggs Capital, one of our wholly owned subsidiaries,
issued 150 thousand shares of its 8.625% Trust Preferred Securities, Series A.
The Trust Preferred Securities, Series A, have a liquidation preference of
$1,000 per share and are not redeemable until December 31, 2006, with a final
maturity on December 31, 2026. Dividends are payable semi-annually on June 30
and December 31 of each year and are cumulative and deferrable for a period not
to exceed five years. Riggs Capital invested all of the proceeds of the sale of
the Trust Preferred Securities, Series A, in Junior Subordinated Deferrable
Interest Debentures, Series A, issued by our company on December 13, 1996. The
Trust Preferred Securities also qualify as Tier I Capital, with certain
limitations, and are accounted for as a minority interest (see Note 1, "Summary
of Significant Accounting Policies").
On March 12, 1997, Riggs Capital II, one of our wholly owned subsidiaries,
issued 200 thousand shares of 8.875% Trust Preferred Securities, Series C, with
a liquidation preference of $1,000 per share. Dividends are payable
semi-annually on June 30 and December 31 of each year. The Trust Preferred
Securities, Series C, cannot be redeemed until March 15, 2007, and have a
maturity of March 15, 2027. Riggs Capital II invested all of the proceeds from
its common and preferred stock sales in Junior Subordinated Deferrable Interest
Debentures, Series C, issued by our company on March 12, 1997, at a rate of
8.875%, with comparable interest payment dates and maturity to the Trust
Preferred Securities, Series C. Interest is cumulative and deferrable on the
Junior Subordinated Deferrable Interest Debentures for a period not to exceed
five years and thus is also cumulative and deferrable for the same periods for
the Trust Preferred Securities, Series C. The Trust Preferred Securities qualify
as Tier I Capital for regulatory purposes with certain limitations, and are
accounted for as a minority interest (see Note 1, "Summary of Significant
Accounting Policies").
-117-
<PAGE>
NOTE 12. DISCLOSURE ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each major class of financial instrument for which it is practicable to estimate
that value:
Cash and Money Market Assets
For short-term investments that reprice or mature in 90 days or less, the
carrying amounts are a reasonable estimate of fair value. Money market assets
include federal funds sold, reverse repurchase agreements and time deposits with
other banks.
Securities
Fair values are based on quoted market prices or dealer quotes. Quoted market
prices were not available for $42.5 million of securities at year-end 1999 and
$26.8 million at year-end 1998. These securities were comprised of Federal
Reserve and Federal Home Loan Bank-Atlanta stock and we believe that these
assets' carrying values approximate their fair value.
Venture Capital Investments
Fair values are based on quoted market prices when available. If a quoted market
price is not available, information and techniques that estimate the market
price determine fair value. These estimates are based upon various factors and
may include fundamental analytical data, a discounted cash flow analysis,
comparable company analysis, a multiple of revenues analysis, the nature and
duration of restrictions on investments, and the price at which subsequent
independent investors purchased interests in investments. For investments in
external venture capital funds, the fund generally provides fair values.
Loans
The fair values of loans are estimated by discounting the expected future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. For
short-term loans, defined as those maturing or repricing in 90 days or less, we
believe the carrying amounts are a reasonable estimate of fair value. Criticized
loans are predominantly collateral-dependent; therefore, their carrying values,
net of related reserves, are a reasonable estimate of fair value.
Deposit Liabilities
The fair values of demand deposit, savings and NOW accounts and money market
deposit accounts are the amounts payable on demand at the reporting date. The
fair values of investment and negotiable certificates of deposit, and foreign
time deposits with a repricing or maturity date extending beyond 90 days, are
estimated using discounted cash flows at the rates currently offered for
deposits of similar remaining maturities.
Short-Term Borrowings
For short-term liabilities, defined as those repricing or maturing in 90 days
or less, the carrying amounts are a reasonable estimate of fair value.
Long-Term Debt
For our long-term debt, fair values are based on dealer quotes.
Commitments to Extend Credit and Other
Off-Balance Sheet Financial Instruments
The fair values of loan commitments and letters of credit, both standby and
commercial, are assumed to equal their carrying values, which are immaterial.
Extensions of credit under these commitments, if exercised, would result in
loans priced at market terms.
The fair values of financial derivatives are equal to their replacement values.
The replacement value is defined as the amount we would receive or pay to
terminate the agreement at the reporting date, taking into account the current
market rate of interest and the current creditworthiness of the derivative
counterparties.
Foreign Exchange Contracts
The fair values of foreign exchange contracts represent the net asset or
liability already recorded by our company, since these contracts are revalued on
a daily basis.
Changes in interest rates, assumptions or estimation methodologies may have a
material effect on these estimated fair values. As a result, our ability to
actually realize these derived values cannot be assured. Reasonable
comparability between financial institutions may not be likely because of the
wide range of permitted valuation techniques and numerous estimates that must be
made, given the absence of active secondary markets for many of the financial
instruments. In addition, the estimated fair values exclude non-financial
assets, such as premises and equipment, and certain intangibles. Thus, the
aggregate fair values presented do not represent the underlying market value or
entity value of our company.
-118-
<PAGE>
Estimated Fair Values of Financial Instruments
The estimated fair values of our financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Due from Banks $ 149,712 $ 149,712 $ 155,003 $ 155,003
Federal Funds Sold and Reverse Repurchase Agreements 346,000 346,000 75,000 75,000
Time Deposits with Other Banks 413,528 413,528 696,181 696,181
Securities Available for Sale 1,289,884 1,289,884 970,728 970,728
Venture Capital Investments 39,525 39,525 3,093 3,093
Total Net Loans 3,160,526 3,149,899 3,203,680 3,313,479
Financial Liabilities:
Deposits 4,175,333 4,175,878 4,144,848 4,148,140
Short-Term Borrowings 832,202 832,202 374,380 374,380
Long-Term Debt 66,525 67,381 191,525 206,176
Off-Balance Sheet Commitments-
Asset (Liability):
Foreign Exchange Contracts 358 358 502 502
Interest Rate Swaps (244) 1,150 70 (3,530)
====================================================================================================================================
</TABLE>
NOTE 13. INCOME TAXES
Deferred income taxes are recorded using enacted tax laws and rates for the
years in which taxes are expected to be paid. In addition, deferred tax assets
are recognized for tax loss and tax credit carryforwards, to the extent that
realization of such assets is more likely than not.
Income, before taxes, minority interest, and extraordinary loss, relating to the
operations of domestic offices and foreign offices was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Offices $76,963 $ 99,651 $89,289
Foreign Offices 6,859 11,231 3,896
====================================================================================================================================
Total $83,822 $110,882 $93,185
====================================================================================================================================
</TABLE>
The current and deferred portions of the income tax provision were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Provision
(Benefit):
Federal $9,675 $25,299 $17,921
State (2,965) 4,671 1,868
Foreign (222) 64 (79)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Current
Provision 6,488 30,034 19,710
Deferred Provision
(Benefit):
Federal 15,303 1,488 6,801
State 2,852 (352) (1,821)
Foreign 2,310 (2,082) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deferred
Provision (Benefit) 20,465 (946) 4,980
====================================================================================================================================
Provision for Income
Tax Expense $26,953 $29,088 $24,690
====================================================================================================================================
</TABLE>
-119-
<PAGE>
At December 31, 1999, and 1998, we maintained a valuation allowance of
approximately $1.0 million to reduce the net deferred tax asset to $25.6 million
and $25.4 million, respectively.
The net deferred tax asset is included in other assets in the Consolidated
Statements of Condition. We believe that it is more likely than not that the net
deferred tax asset will be realized. The components of income tax liabilities
(assets) that result from temporary differences in the recognition of revenue
and expenses for income tax and financial reporting purposes at December 31,
1999, and 1998 are detailed in the table below:
Reconciliation of Statutory Tax Rates to Effective
Tax Rates:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Tax Computed at
Federal Statutory Rate of
35% for 1999, 1998
and 1997 $29,338 $38,809 $32,615
Add (Deduct):
State Tax, Net of
Federal Tax Benefit (73) 2,661 2,766
Tax-Exempt Loan
Interest (2,465) (1,201) (975)
Amortization of Fair Value
Adjustments 123 123 (63)
Amortization of
Core Deposits 231 231 231
Reversal of Valuation
Allowance -- (5,869) (9,316)
Other, Net (201) (5,666) (568)
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Income
Tax Expense $26,953 $29,088 $24,690
====================================================================================================================================
Effective Tax Rate 32.2% 26.2% 26.5%
====================================================================================================================================
</TABLE>
Sources of Temporary Differences Resulting in Deferred Tax Liabilities (Assets):
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Excess Tax Over Book
Depreciation $ 1,656 $ (763)
Pension Plan and Post-Retirement 6,520 5,959
Discount Accretion, Net
of Securities Gains 371 275
RREIC Payment Deferral 2,765 --
Accrual to Cash Basis Conversion 572 588
Other, Net 10,164 2,777
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities 22,048 8,836
Allowance for Loan Losses (16,888) (22,364)
Other Real Estate Owned (1,736) (1,736)
Other Tax Credit Carryforward (2,106) (2,106)
Net Operating Loss Carryforward (2,408) (4,296)
Capitalized Costs (1,607) (769)
Unrealized Securities Gains
and Losses (21,265) (645)
Other, Net (2,548) (3,312)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets (48,558) (35,228)
Valuation Allowance 884 991
====================================================================================================================================
Net Deferred Tax Asset $(25,626) $(25,401)
====================================================================================================================================
</TABLE>
-120-
<PAGE>
NOTE 14. BENEFIT PLANS
Pension Plans
Riggs National Corporation
Under our non-contributory defined benefit pension plan, available to
substantially all employees who qualify with respect to age and length of
service, benefits are normally based on years of service and the average of the
highest base annual salary for a consecutive five-year period prior to
retirement.
Our funding policy is to contribute an amount at least equal to the minimum
required contribution under the Employee Retirement Income Security Act.
The assets of our pension plan consist of an Immediate Participation Guarantee
contract with a life insurance company and funds held in trust by our company.
The monies held in trust are invested primarily in fixed-income and equity
pooled funds.
Riggs Bank Europe Limited
Prior to October 1, 1998 Riggs Bank Europe Limited operated a defined benefit
pension plan. Effective October 1, 1998, future service benefits are being
provided on a defined contribution basis. The majority of active members and a
number of deferred eligible retirees opted to convert their past service rights
to the defined contribution plan elective under the plan. The assets of the plan
are held separately from the Bank in trustee-administered funds.
As a result of the settlement of the liabilities for those retirees who elected
to convert their past service rights to the new defined contribution plan, we
recognized a gain of $3.6 million in 1998. Any unamortized gains, together with
any future gains or losses, are being amortized over a period of 12 years. No
further pension benefits accrue under the prior plan effective October 1, 1998.
Postretirement Benefits
We and our subsidiaries provide certain health care and life insurance benefits
for retired employees. Three benefit plans are provided: medical and
hospitalization insurance, dental insurance and life insurance. As of January 1,
1998, we no longer provide life insurance benefits for persons retiring on or
after January 1, 1998. Substantially all active employees may become eligible
for benefits if they reach normal retirement age or if they retire earlier with
at least 10 years service. Similar benefits for active employees are provided
through an insurance company and several health maintenance organizations. We
recognize the cost of providing those benefits by expensing the annual insurance
premiums, which were $4.5 million in 1999, $3.8 million in 1998 and $2.7 million
in 1997.
We account for postretirement benefits under SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." SFAS No. 106
requires accrual of the expected cost of benefits during the years that the
employee renders the necessary service. Adoption of SFAS No. 106 in 1993
resulted in an accumulated transition obligation of $13.0 million, which we
elected to recognize over a 20-year period. We incurred $1.7 million in 1999 for
postretirement health and life insurance expenses, which included $357 thousand
relating to the amortization of the transition obligation. This compares to $1.4
million in health and life insurance expenses for 1998 and $1.6 million for
1997, with transition obligation amortization of $357 thousand and $453
thousand, respectively.
-121-
<PAGE>
CHANGE IN PENSION BENEFIT OBLIGATION
<TABLE>
<CAPTION>
RIGGS NATIONAL CORPORATION RIGGS BANK EUROPE LIMITED
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit Obligation at Beginning of Year $79,668 $76,167 $4,890 $ 13,106
Service Cost (Benefit) 742 (403) -- 481
Interest Cost 5,282 4,996 238 748
Actuarial Loss (Gain) 9,208 (2,210) -- --
Actuarial (Gain) Loss Due to Discount Rate (10,854) 7,317 1,054 3,151
Benefits Paid (4,282) (6,199) -- (549)
Settlements -- -- (517) (12,161)
Other 1 -- -- (137) 114
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit Obligation at End of Year $79,764 $79,668 $5,528 $ 4,890
====================================================================================================================================
</TABLE>
1 Represents Foreign Exchange Translation Adjustments
CHANGE IN PLAN ASSETS
<TABLE>
<CAPTION>
RIGGS NATIONAL CORPORATION RIGGS BANK EUROPE LIMITED
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fair Value of Plan Assets at
Beginning of Year $88,184 $88,278 $8,083 $ 17,771
Actual Return on Plan Assets 691 6,105 960 2,994
Settlements -- -- (517) (12,161)
Plan Participants' Contribution -- -- (484) (125)
Benefits Paid (4,282) (6,199) -- (549)
Other 1 -- -- (226) 153
- ------------------------------------------------------------------------------------------------------------------------------------
Fair Value of Plan Assets at End of Year $84,593 $88,184 $7,816 $ 8,083
- ------------------------------------------------------------------------------------------------------------------------------------
Funded Status $ 4,829 $ 8,516 $2,288 $ 3,193
Unrecognized Net Actuarial Loss (Gain) 15,245 10,159 (545) (1,275)
Unrecognized Net Transition Asset -- -- -- (149)
Unrecognized Prior Service Cost (606) (718) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid Pension Cost $19,468 $17,957 $1,743 $ 1,769
====================================================================================================================================
</TABLE>
1 Represents Foreign Exchange Translation Adjustments
-122-
<PAGE>
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
RIGGS NATIONAL CORPORATION RIGGS BANK EUROPE LIMITED
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount Rate 8.00% 6.75% 5.75% 5.00%
Expected Return on Plan Assets 8.00 9.00 5.75 5.00
Rate of Compensation Increase 4.00 4.00 N/A N/A
COMPONENTS OF NET PERIODIC PENSION COST
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Service Cost (Benefit) $ 742 $ (403) $ 484 $ 606
Interest Cost 5,282 4,996 238 748
Expected Return on Plan Assets (7,711) (7,720) (393) (941)
Amortization of Transition Amount -- -- (142) (220)
Amortization of Prior Service Cost (112) (112) -- --
Recognized Net Actuarial Loss (Gain) 289 -- (103) (173)
Settlements -- -- (107) (3,609)
Other 1 -- -- 4 119
- ------------------------------------------------------------------------------------------------------------------------------------
Net Periodic (Benefit) Cost $ (1,510) $(3,239) $ (19) $(3,470)
====================================================================================================================================
</TABLE>
1 Represents Foreign Exchange Translation Adjustments
The funded status of the postretirement projected benefit obligation is as
follows:
<TABLE>
<CAPTION>
RIGGS NATIONAL CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Benefit Obligation at Beginning
of Year $15,943 $14,463
Service Cost 624 434
Interest Cost 847 903
Actuarial (Gain) Loss (2,889) --
Actuarial (Gain) Loss due
to Discount Rate (2,597) 2,562
Benefits Paid (1,000) (972)
Plan Amendments -- (1,447)
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit Obligation at
End of Year $ 10,928 $15,943
- ------------------------------------------------------------------------------------------------------------------------------------
Unrecognized Net Actuarial Loss $ (485) $(4,883)
Unrecognized Prior Service Cost 696 1,043
Unrecognized Transition
Obligation (4,638) (4,994)
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued Postretirement
Benefit Cost $ 6,501 $ 7,109
====================================================================================================================================
</TABLE>
The net periodic costs for postretirement health and life insurance benefits are
as follows:
<TABLE>
<CAPTION>
RIGGS NATIONAL CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Cost $ 624 $ 434
Interest Cost 847 903
Amortization of Transition
Amount 357 357
Amortization of Prior Service
Costs (348) (348)
Recognized Net Actuarial Loss 185 100
- ------------------------------------------------------------------------------------------------------------------------------------
Net Periodic Benefit Cost $1,665 $1,446
====================================================================================================================================
</TABLE>
-123-
<PAGE>
The assumed health care cost trend rate averaged 8.00% for 1999, gradually
decreasing to 6.00% by the year 2003 and remaining constant thereafter. An
average rate of 8.00% was used in 1998. A discount rate of 8.00% was used at
December 31, 1999 and a rate of 6.75% was used at December 31, 1998 to determine
the projected postretirement benefit obligation. Increasing the assumed health
care cost trend rate by one percentage point would increase the net periodic
postretirement benefit cost for 1999 by $223 thousand and increase the
accumulated postretirement benefit obligation at December 31, 1999, by $1.4
million. Decreasing the assumed health care cost trend rate by one percentage
point would decrease the net periodic postretirement benefit cost for 1999 by
$179 thousand and decrease the accumulated postretirement benefit obligation at
December 31, 1999, by $1.2 million.
Stock Option Plans
The Board of Directors and shareholders of our company approved stock option
plans in 1993, 1994, and 1996 under which options to purchase shares of common
stock of our company may be granted to key employees. The exercise price cannot
be less than the fair market value of the common stock at the date of grant. For
options under these plans, the vesting periods have ranged from zero to three
years. The total number of shares of common stock reserved for issuance upon
exercise of options granted is 1,250,000, 1,250,000 and 9,000,000 for the 1993,
1994 and 1996 Plans, respectively. Unless previously terminated by the Board of
Directors, the 1993, 1994 and 1996 Plans will terminate on March 10, 2003,
February 9, 2004 and March 26, 2006, respectively.
A summary of the stock option activity under the 1993, 1994 and 1996 Plans
follows:
<TABLE>
WEIGHTED-
STOCK AVERAGE
OPTIONS EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996 2,650,250 $11.22
Granted 771,000 20.29
Exercised 188,442 9.60
Terminated 10,000 17.43
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 3,222,808 $13.46
Granted 1,708,000 30.00
Exercised 48,559 10.58
Terminated 23,949 18.70
====================================================================================================================================
Outstanding at December 31, 1998 4,858,300 $19.28
Granted 1,595,750 19.50
Exercised 60,150 11.04
Terminated 179,082 23.66
====================================================================================================================================
Outstanding at December 31, 1999 6,214,818 $19.29
====================================================================================================================================
</TABLE>
Members of the Board of Directors of our company are eligible to participate in
the 1997 Non-employee Directors Stock Option Plan ("the 1997 Plan"). Under the
1997 Plan, options to purchase up to 600,000 shares of common stock may be
granted to non-employee directors of our company or a subsidiary. The exercise
price cannot be less than the fair market value of the common stock at the date
of grant, with vesting occurring at the date of grant. Unless previously
terminated by the Board of Directors, the 1997 Plan will terminate on July 8,
2007.
A summary of the stock option activity under the 1997 Plan follows:
<TABLE>
<CAPTION>
WEIGHTED-
STOCK AVERAGE
OPTIONS EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997 307,500 $20.50
Granted 2,500 21.00
Exercised 45,000 20.50
Terminated -- --
====================================================================================================================================
Outstanding at December 31, 1998 265,000 $20.50
Granted 57,500 17.56
Exercised -- --
Terminated -- --
====================================================================================================================================
Outstanding at December 31, 1999 322,500 $19.98
====================================================================================================================================
</TABLE>
-124-
<PAGE>
We account for our stock option plans under Accounting Principles Board Opinion
No. 25, and are providing the fair value-based disclosures required on a
proforma basis (see Note 1, Summary of Significant Accounting Policies).
Accordingly, the stated net income and earnings per share in the Consolidated
Statements of Income, in addition to the proforma net income and earnings per
share reflecting the compensation costs for stock options granted in 1999, 1998
and 1997, are disclosed in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As Reported $31,594 $61,847 $50,879
Proforma 23,285 48,182 42,039
Earnings Per Share:
As Reported - Basic $ 1.11 $ 1.25 $ 1.32
- Diluted 1.09 1.21 1.27
Proforma - Basic $ 0.82 $ .80 $ 1.03
- Diluted 0.80 .78 0.99
Weighted-Average Fair
Value of Options
Granted $ 8.65 $ 15.68 $ 10.24
Weighted-Average
Assumptions:
Expected Lives (Years) 9.94 9.99 9.87
Risk-Free Interest Rate 6.48% 4.72% 5.80%
Expected Volatility 29.30% 37.28% 35.43%
Expected Dividends
(Annual Per Share) $ 0.20 $ 0.20 $ 0.20
====================================================================================================================================
</TABLE>
We did not record any compensation costs in 1999, 1998 or 1997 relating to our
stock option plans. In addition, no significant modifications to the plans were
made during the periods. The fair values of the stock options outstanding are
used to determine the proforma impact of the options to compensation expense.
Net income and earnings per share were based on the Black-Scholes option pricing
model for each grant made, using the key assumptions detailed above.
At December 31, 1999, additional weighted-average details for all stock options
outstanding follow:
<TABLE>
<CAPTION>
VESTED OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
RANGE OF STOCK OPTIONS WEIGHTED-AVERAGE STOCK OPTIONS
EXERCISE OUTSTANDING REMAINING CONTRACTUAL WEIGHTED-AVERAGE OUTSTANDING WEIGHTED-AVERAGE
PRICE AT DECEMBER 31, 1999 LIFE (YEARS) EXERCISE PRICE AT DECEMBER 31, 1999 EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.00 to $12.15 1,337,550 5.1 $10.61 1,337,550 $10.61
$12.16 to $18.22 1,064,600 6.7 12.66 1,064,600 12.66
$18.23 to $21.26 2,501,833 8.6 19.83 1,910,341 19.93
$21.27 to $27.33 70,000 8.3 24.94 53,334 25.46
$27.34 to $30.38 1,563,335 8.2 30.22 1,299,725 30.31
====================================================================================================================================
Total 6,537,318 7.5 $19.32 5,665,550 $18.80
====================================================================================================================================
</TABLE>
-125-
<PAGE>
Other Benefit Plans
We have a Supplemental Executive Retirement Plan to provide supplemental
retirement income and preretirement death benefits to certain key employees. The
amount of benefits is based on the participant's corporate title, functional
responsibility and service as a member of the Board of Directors. Upon the later
of a participant's termination of employment or attainment of age 62, the
participant will receive the vested portion of the supplemental retirement
benefit, payable for the life of the participant, but for no more than 15 years.
At December 31, 1999, we had a $3.6 million pension benefit obligation for this
supplemental plan, compared with $3.3 million at year-end 1998. Accrued pension
costs were $2.4 million at year-end 1999 and $2.0 million at year-end 1998. This
supplemental plan has no assets and incurred $433 thousand in net periodic costs
in 1999, compared with $413 thousand and $369 thousand for 1998 and 1997,
respectively.
We sponsor a defined contribution plan under Section 401(k) of the Internal
Revenue Code, that is available to substantially all employees (the "401(k)
Plan"). The Board of Directors also approved a matching program for the 401(k)
Plan in 1996, equating to 100% of the first one-hundred dollars contributed and
50% on the balance of contributions made thereafter, up to 6% of the employee's
eligible earnings. The Board of Directors also approved a discretionary profit
sharing contribution into the 401(k) Plan of up to 2% of the employee's eligible
earnings in 1998 and 1997, based on our financial performance during those
years. There was no 401(k) Plan profit sharing contribution made in 1999.
Expenses relating to both of these programs totaled $2.1 million and $1.8
million for 1998 and 1997, respectively.
We have a deferred compensation plan to allow non-employee directors to defer
directors' fees. Under the plan, non-employee directors may elect to defer fees
and have the deferred amounts treated as having been invested in cash, shares of
our Common Stock, or a combination of cash and stock.
-126-
<PAGE>
NOTE 15. FOREIGN ACTIVITIES
Foreign activities are those conducted with customers domiciled outside the
United States, regardless of the location of the banking office. Foreign
business activity is integrated within our company. As a result, it is not
possible to definitively classify the business of most operating activities as
entirely domestic or foreign. The Foreign Consolidated Statements of Condition
shown below reflect the portion of our company's Consolidated Statements of
Condition derived from transactions with customers who are domiciled outside the
United States.
FOREIGN CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Deposits with Banks in Foreign Countries:
Interest-Bearing $ 350,978 $ 555,081 $ 173,963
Other 9,343 8,538 6,633
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits with Banks in Foreign Countries 360,321 563,619 180,596
Loans to Foreign Customers:
Governments and Official Institutions 67,554 74,676 50,606
Banks and Financial Institutions 2,730 9,451 8,506
Commercial and Industrial and Commercial Property 388,182 390,217 291,077
Other 51,607 42,353 36,911
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans, Net of Unearned Discount 510,073 516,697 387,100
Less: Reserve for Loan Losses 8,732 10,617 15,219
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 501,341 506,080 371,881
Pool Funds Provided, Net 1 257,794 274,625 831,292
Other Assets 49,813 50,568 44,334
====================================================================================================================================
Total Assets $1,169,269 $ 1,394,892 $ 1,428,103
====================================================================================================================================
Liabilities
Foreign Deposits:
Banks in Foreign Countries $ 84,383 $ 218,183 $ 164,160
Governments and Official Institutions 291,957 272,573 254,215
Other 499,380 615,746 723,768
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 2 875,720 1,106,502 1,142,143
Short-Term Borrowings 152,627 141,876 161,805
Other Liabilities 140,922 146,514 124,155
====================================================================================================================================
Total Liabilities $1,169,269 $ 1,394,892 $ 1,428,103
====================================================================================================================================
Supplemental Data on Foreign Deposits
Demand $ 122,855 $ 125,695 $ 149,287
Savings, NOW and Money Market 228,910 243,511 468,821
Time 3 523,955 737,296 524,035
====================================================================================================================================
Total Foreign Deposits $ 875,720 $ 1,106,502 $ 1,142,143
====================================================================================================================================
</TABLE>
1 Pool Funds Provided, Net are amounts contributed by foreign activities to fund
domestic activities.
2 Foreign deposits in domestic offices totaled $455.2 million, $494.4 million
and $656.9 million at December 31, 1999, 1998 and 1997, respectively.
3 A majority of time deposits are in amounts of $100 thousand or more.
-127-
<PAGE>
The table below reflects changes in the reserve for loan losses on
loans to customers domiciled outside the United States. Allocations of
the provision for loan losses are based upon actual charge-off experience and
additional amounts deemed necessary in relation to risks inherent in the foreign
loan portfolio.
The table below reflects foreign assets by geographical location for the last
three years and selected categories of the Consolidated Statements of Income.
Loans made to, or deposits placed with, a branch of a foreign bank located
outside the foreign bank's home country are considered as loans to, or deposits
with, the foreign bank. To measure profitability of foreign activity, we have
established a funds pricing system for units that are users or providers of
funds. Noninterest income and expense allocations are based on earning assets
identified in each geographical area.
FOREIGN RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $10,617 $15,219 $15,218
Provision for Loan Losses (179) (4,776) 221
Loans Charged Off 1,970 937 593
Less: Recoveries on
Charged-Off Loans 526 1,016 666
- ------------------------------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 1,444 (79) (73)
Foreign Exchange
Translation Adjustments (262) 95 (293)
====================================================================================================================================
Balance, December 31 $ 8,732 $10,617 $15,219
====================================================================================================================================
</TABLE>
GEOGRAPHICAL PERFORMANCE
<TABLE>
<CAPTION>
INCOME BEFORE
TAXES, MINORITY
TOTAL ASSETS TOTAL TOTAL INTEREST, AND NET
DECEMBER 31, REVENUE EXPENSES EXTRAORDINARY LOSS INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Middle East and Africa 1999 $ 93,439 $ 8,162 $ 7,454 $ 708 $ 480
1998 73,417 5,102 4,227 875 645
1997 45,895 6,188 5,276 912 670
- ------------------------------------------------------------------------------------------------------------------------------------
Europe 1999 $ 585,168 $45,300 $41,367 $ 3,933 $ 2,666
1998 643,835 51,766 42,890 8,876 6,548
1997 454,233 65,880 56,181 9,699 7,129
- ------------------------------------------------------------------------------------------------------------------------------------
Asia/Pacific 1999 $ 9,602 $ 643 $ 588 $ 55 $ 37
1998 8,435 1,491 1,235 256 189
1997 7,129 1,056 900 156 115
- ------------------------------------------------------------------------------------------------------------------------------------
South and Central America 1999 $ 23,623 $ 2,552 $ 2,331 $ 221 $ 150
1998 58,462 5,340 4,423 917 676
1997 48,285 6,575 5,607 968 711
- ------------------------------------------------------------------------------------------------------------------------------------
Caribbean 1999 $ 198,584 $24,853 $22,694 $ 2,159 $ 1,464
1998 332,362 28,746 23,816 4,930 3,637
1997 32,369 1,496 1,276 220 162
- ------------------------------------------------------------------------------------------------------------------------------------
Other 1999 $ 1,059 $ 141 $ 128 $ 13 $ 9
1998 3,756 461 381 80 59
1997 8,900 2,686 2,290 396 291
====================================================================================================================================
Total Foreign 1 1999 $ 911,475 $81,651 $74,562 $ 7,089 $ 4,806
1998 1,120,267 92,906 76,972 15,934 11,754
1997 596,811 83,881 71,530 12,351 9,078
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Foreign 1999 16% 19% 21% 8% 15%
to Consolidated 1998 20 20 22 14 19
1997 10 20 22 13 18
====================================================================================================================================
</TABLE>
1 Foreign assets at December 31, 1999, 1998 and 1997, exclude net pool funds
contributed by foreign activities to fund domestic activities.
-128-
<PAGE>
NOTE 16. PARENT CORPORATION FINANCIAL STATEMENTS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Earnings from Subsidiaries 1 $54,643 $ 74,878 $ 63,819
Interest on Time Deposit Placements 14,894 23,911 --
Interest on Reverse Repurchase Agreements 140 2,685 26,187
Interest and Dividends on Securities Available for Sale 3,884 3,772 --
Other Operating Income 2,171 1,598 1,065
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 75,732 106,844 91,071
Operating Expenses
Interest Expense 44,227 49,108 45,411
Other Operating Expenses 4,113 2,594 1,334
- ------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 48,340 51,702 46,745
Income before Taxes 27,392 55,142 44,326
Applicable Income Tax Benefit 2 (9,263) (6,705) (6,553)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Item 36,655 61,847 50,879
Extraordinary Loss, Net of Taxes (5,061) -- --
====================================================================================================================================
Net Income $31,594 $ 61,847 $ 50,879
====================================================================================================================================
</TABLE>
1 For the purpose of parent company only financial activity, "Earnings from
Subsidiaries" are included in the revenues of the parent corporation.
2 Applicable income taxes are provided for based on parent corporation income
only, and do not reflect the tax expense or benefit of the subsidiaries'
operations.
STATEMENTS OF CONDITION
DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 1,190 $ 231
Time Deposits with Other Banks 181,000 469,000
Intercompany Reverse Repurchase Agreements 3,350 7,700
Securities Available for Sale (at Market Value) 98,640 4,671
Investment in Subsidiaries 450,881 439,113
Other Assets 31,080 29,909
====================================================================================================================================
Total Assets $766,141 $950,624
====================================================================================================================================
Liabilities
Other Liabilities $ 1,095 $ 5,563
Long-Term Debt:
Subordinated Debentures due 2009 66,525 66,525
Subordinated Notes due 2006 -- 125,000
Junior Subordinated Deferrable Interest Debentures, Series A, due 2026 154,640 154,640
Junior Subordinated Deferrable Interest Debentures, Series C, due 2027 206,168 206,168
- ------------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 427,333 552,333
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 428,428 557,896
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 337,713 392,728
====================================================================================================================================
Total $766,141 $950,624
====================================================================================================================================
</TABLE>
-129-
<PAGE>
PARENT CORPORATION FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 31,594 $ 61,847 $ 50,879
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Increase in Other Assets, excluding Premises & Equipment (2,988) (8,549) (5,512)
Decrease in Other Liabilities (4,468) (122) (1,419)
(Undistributed) Overdistributed Earnings of Subsidiaries (12,643) 54,122 --
Extraordinary Losses on Redemption of Long-Term Debt 7,786 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Adjustments (12,313) 45,451 (6,931)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 19,281 107,298 43,948
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchase of Securities Available for Sale (99,969) (133) (4,000)
Proceeds from Sales of Securities Available for Sale 4,132 -- --
Dividends from Subsidiaries in Excess of Earnings -- -- 48,181
Net Decrease (Increase) in Premises (3) -- 4,457
Net Increase in Investment in Subsidiaries (37,453) -- (6,168)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Investing Activities (133,293) (133) 42,470
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Proceeds from the Issuance of Long-Term Debt
and Trust Preferred Securities -- -- 206,168
Repayments of Long-Term Debt (130,312) -- --
Net Proceeds from Issuance of Common Stock 830 1,834 2,571
Dividend Payments - Preferred Shares -- (9,854) (10,750)
- Common Shares (5,706) (6,123) (6,079)
Redemption of Preferred Stock -- (109,000) --
Repurchase of Common Stock (42,191) (5,443) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (177,379) (128,586) 191,910
- ------------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (291,391) (21,421) 278,328
Cash and Cash Equivalents at Beginning of Year 476,931 498,352 220,024
====================================================================================================================================
Cash and Cash Equivalents at End of Year $(185,540) $ 476,931 $498,352
Supplemental Disclosures:
Interest Paid $ 48,602 $ 48,815 $ 46,334
Income Tax Refunds (662) -- (4,842)
====================================================================================================================================
</TABLE>
-130-
<PAGE>
NOTE 17. SEGMENT PROFITABILITY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL RIGGS & RIGGS NATIONAL
(IN THOUSANDS) BANKING BANKING COMPANY TREASURY OTHER RECONCILIATION CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income
Interest Income $ 188,632 $ 54,723 $ 11,164 $ 108,681 $ 50,546
Interest Expense 57,035 63,276 16,023 36,197 51,031
Funds Transfer Income (Expense) (8,175) 38,270 17,527 (57,102) 9,480
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income,
Tax-Equivalent 123,422 29,717 12,668 15,382 8,995
Provision for Loan Losses (2,500) -- -- -- --
Tax-Equivalent Adjustment (2,814) -- -- (430) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 118,108 $ 29,717 $ 12,668 $ 14,952 $ 8,995 $ -- $ 184,440
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income
Noninterest Income - External
Customers $ 39,595 $ 3,007 $ 54,028 $ 2,699 $ 7,297
Intersegment Noninterest Income 2,566 4,178 482 2 3,184
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 42,161 $ 7,185 $ 54,510 $ 2,701 $ 10,481 $ (10,412) $ 106,626
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense
Depreciation and Amortization $ 7,433 $ 704 $ 920 $ 14 $ 7,638
Direct Expense 59,548 22,025 35,097 3,313 80,964
Overhead and Support 59,374 11,113 13,347 1,747 (85,581)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 126,355 $ 33,842 $ 49,364 $ 5,074 $ 3,021 $ (10,412) $ 207,244
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes,
Minority Interest, and
Extraordinary Loss $ 33,914 $ 3,060 $ 17,814 $ 12,579 $ 16,455 $ -- $ 83,822
====================================================================================================================================
====================================================================================================================================
Total Average Assets $2,763,725 $836,759 $204,796 $1,944,381 $1,078,466 $(1,245,534) $5,582,593
====================================================================================================================================
</TABLE>
Our reportable segments are strategic business units that provide diverse
products and services within the financial services industry. We have 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 our Washington, D.C. based
embassy-banking business and the London-based banking subsidiary, RBEL. The
Riggs & Company segment is a division providing trust and investment management
services to a broad customer base. The Treasury segment is responsible for asset
and liability management throughout our company. "Other" consists of our
unallocated parent company income and expense, net interest income from
unallocated equity and foreclosed real estate activities.
We evaluate segment performance based on income before taxes, minority interest,
and extraordinary loss. The accounting policies of the segments are
substantially the same as those described in Note 1, Summary of Significant
Accounting Policies. We account 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. Geographic
financial information is provided in Note 15, Foreign Activities.
Reconciliations are provided from the segment totals to our consolidated
financial statements. The reconciliations of noninterest income and noninterest
expense offset as these items result from intercompany transactions. The
reconciliation of net income before taxes and minority interest includes a $12.0
million addition in 1997 from the Corporation reducing the reserve for loan
losses. For years in which we have 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.
-131-
<PAGE>
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL RIGGS & RIGGS NATIONAL
(IN THOUSANDS) BANKING BANKING COMPANY TREASURY OTHER RECONCILIATION CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income:
Interest Income $ 192,335 $ 53,195 $ 12,750 $ 106,536 $ 61,871
Interest Expense 72,381 66,004 14,724 31,653 48,584
Funds Transfer Income (Expense) 15,382 41,734 14,309 (77,814) 6,389
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 135,336 28,925 12,335 (2,931) 19,676
Tax-Equivalent Adjustment (1,209) -- -- (1,780) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 134,127 $ 28,925 $ 12,335 $ (4,711) $ 19,676 $ -- $ 190,352
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Noninterest Income - External
Customers $ 39,442 $ 7,116 $ 48,386 $ 17,586 $ 1,752
Intersegment Noninterest Income -- 4,426 442 2 1,766
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 39,442 $ 11,542 $ 48,828 $ 17,588 $ 3,518 $ (6,636) $ 114,282
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Depreciation and Amortization $ 7,006 $ 624 $ 1,614 $ 14 $ 6,921
Direct Expense 55,217 20,671 29,215 1,483 77,623
Overhead and Support 63,850 9,387 10,309 1,434 (84,980)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 126,073 $ 30,682 $ 41,138 $ 2,931 $ (436) $ (6,636) $ 193,752
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes
and Minority Interest $ 47,496 $ 9,785 $ 20,025 $ 9,946 $ 23,630 $ -- $ 110,882
====================================================================================================================================
====================================================================================================================================
Total Average Assets $2,656,497 $723,158 $204,269 $1,850,848 $1,184,302 $(1,052,363) $5,566,711
====================================================================================================================================
</TABLE>
-132-
<PAGE>
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL RIGGS & RIGGS NATIONAL
(IN THOUSANDS) BANKING BANKING COMPANY TREASURY OTHER RECONCILIATION CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income:
Interest Income $ 174,564 $ 37,085 $ 12,062 $ 140,397 $ 54,239
Interest Expense 72,304 57,507 12,500 47,458 45,437
Funds Transfer Income (Expense) 23,754 47,447 11,798 (93,822) 10,822
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 126,014 27,025 11,360 (883) 19,624
Tax-Equivalent Adjustment (1,121) -- -- (2,728) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 124,893 $ 27,025 $ 11,360 $ (3,611) $ 19,624 $ -- $ 179,291
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Noninterest Income - External
Customers $ 38,952 $ 3,891 $ 39,921 $ 4,857 $ 303
Intersegment Noninterest Income -- 3,491 3,753 6 1,486
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 38,952 $ 7,382 $ 43,674 $ 4,863 $ 1,789 $ (8,736) $ 87,924
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Depreciation and Amortization $ 7,104 $ 524 $ 1,254 $ 18 $ 7,214
Direct Expense 54,332 18,491 29,145 1,729 74,955
Overhead and Support 63,006 9,120 11,199 1,024 (84,349)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 124,442 $ 28,135 $ 41,598 $ 2,771 $ (2,180) $ (8,736) $ 186,030
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes
and Minority Interest $ 39,403 $ 6,272 $ 13,436 $ (1,519) $ 23,593 $ 12,000 $ 93,185
====================================================================================================================================
====================================================================================================================================
Total Average Assets $2,393,464 $525,684 $192,653 $2,418,662 $1,057,786 $(1,336,135) $5,252,114
====================================================================================================================================
</TABLE>
-133-
<PAGE>
NOTE 18. COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
BEFORE TAX
TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Twelve Months Ended December 31, 1999:
Foreign Currency Translation Adjustments $ (1,920) $ 672 $ (1,248)
Unrealized Gain (Loss) on Securities:
Unrealized Holding Gain (Loss) Arising During Period (57,760) 20,216 (37,544)
Less: Reclassification Adjustment for (Gains)
Losses Included in Net Income (1,154) 404 (750)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gain (Loss) (58,914) 20,620 (38,294)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income $(60,834) $ 21,292 $(39,542)
====================================================================================================================================
Twelve Months Ended December 31, 1998:
Foreign Currency Translation Adjustments $ (734) $ 257 $ (477)
Unrealized Gain (Loss) on Securities:
Unrealized Holding Gain (Loss) Arising During Period 10,042 (3,515) 6,527
Less: Reclassification Adjustment for (Gains)
Losses Included in Net Income (15,023) 5,258 (9,765)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gain (Loss) (4,981) 1,743 (3,238)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income $ (5,715) $ 2,000 $ (3,715)
====================================================================================================================================
Twelve Months Ended December 31, 1997:
Foreign Currency Translation Adjustments $ (3,051) $ 1,068 $ (1,983)
Unrealized Gain (Loss) on Securities:
Unrealized Holding Gain (Loss) Arising During Period 7,758 (2,715) 5,043
Less: Reclassification Adjustment for (Gains)
Losses Included in Net Income (3,500) 1,225 (2,275)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gain (Loss) 4,258 (1,490) 2,768
- ------------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss) $ 1,207 $ (422) $ 785
====================================================================================================================================
</TABLE>
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN (LOSS) OTHER
TRANSLATION ON COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Twelve Months Ended December 31, 1999
Balance, December 31, 1998 $(1,349) $ (1,199) $ (2,548)
Current Period Change (1,248) (38,294) (39,542)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $(2,597) $(39,493) $(42,090)
====================================================================================================================================
Twelve Months Ended December 31, 1998
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
Current Period Change (477) (3,238) (3,715)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $(1,349) $ (1,199) $ (2,548)
====================================================================================================================================
Twelve Months Ended December 31, 1997
Balance, December 31, 1996 $ 1,111 $ (729) $ 382
Current Period Change (1,983) 2,768 785
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
====================================================================================================================================
</TABLE>
-134-
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
TO OUR SHAREHOLDERS:
We are responsible for the integrity of all financial data included in this
Annual Report. The consolidated financial statements and related notes are
prepared in accordance with generally accepted accounting principles and include
certain amounts based on management's best estimates and judgment. Financial
information beyond the consolidated financial statements is presented in a
manner consistent with the Corporation's financial statements.
We maintain a system of accounting internal controls that includes an internal
audit program. The internal control system provides reasonable assurance that
assets are safeguarded against loss from unauthorized use or disposition,
transactions are properly authorized and accounting records are reliable for the
timely preparation of financial statements. The foundation of the internal
control system is our Code of Ethics, which provides a guide to all employees
consistent with the highest standards of business conduct. The internal control
system is further supported by our policies and established accounting
procedures. The internal control system is monitored and modified continually to
improve the system and respond to changes in business environment and
operations.
The Board of Directors has an Audit Committee composed of four outside
directors. The Committee meets periodically with the independent public
accountants, internal auditors and management to determine the effectiveness of
the internal control system and to review the scope and/or results of audits and
other related matters. The independent public accountants and internal auditors
have direct access to the Corporation's Audit Committee.
The consolidated financial statements have been audited by Arthur Andersen LLP,
independent public accountants, in accordance with generally accepted auditing
standards, whose audit includes a review of the system of internal controls,
test of accounting records and other auditing procedures considered necessary to
formulate an opinion on the consolidated financial statements. We recognize that
there are inherent limitations within any system of internal controls, including
ours, which relate to the overall cost of the internal control system and the
resulting effectiveness thereof. We believe that our system of internal controls
provides reasonable assurance that financial data are recorded properly and in a
timely manner for the preparation of reliable financial statements.
/s/JOE L. ALLBRITTON /s/TIMOTHY C. COUGHLIN /s/JOHN L. DAVIS
- -------------------- ---------------------- ----------------
Joe L. Allbritton Timothy C. Coughlin John L. Davis
Chairman of the Board and President Chief Financial Officer
Chief Executive Officer
-135-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO RIGGS NATIONAL CORPORATION:
We have audited the accompanying consolidated statements of condition of RIGGS
NATIONAL CORPORATION (a Delaware corporation) and its subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of Riggs National Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Riggs National
Corporation and its subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ARTHUR ANDERSEN LLP
- ----------------------
Vienna, VA,
January 19, 2000
-136-
<PAGE>
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1999
UNAUDITED FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $81,527 $80,809 $84,649 $87,458
Interest Expense 35,701 34,971 37,288 39,543
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 45,826 45,838 47,361 47,915
Less: Provision for Loan Losses -- -- -- 2,500
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 45,826 45,838 47,361 45,415
Noninterest Income 24,330 25,351 29,616 27,329
Noninterest Expense 50,155 50,209 51,634 55,246
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Taxes, Minority Interest and Extraordinary Loss 20,001 20,980 25,343 17,498
Applicable Income Tax Expense 7,298 6,420 8,089 5,146
Minority Interest in Income of Subsidiaries, Net of Taxes 4,987 4,986 4,987 5,254
====================================================================================================================================
Net Income before Extraordinary Loss 7,716 9,574 12,267 7,098
Extraordinary Loss, Net of Taxes -- -- 5,061 --
====================================================================================================================================
Net Income 7,716 9,574 7,206 7,098
Less: Dividends on Preferred Stock -- -- -- --
Excess of Call Price over Carrying Amount of Preferred Stock -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Available for Common Shareholders $ 7,716 $ 9,574 $ 7,206 $ 7,098
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share
Before Extraordinary Loss -Basic $ .27 $ .34 $ .43 $ .25
-Diluted .26 .33 .42 .25
====================================================================================================================================
Earnings (Loss) Per Share -Basic $ .27 $ .34 $ .25 $ .25
-Diluted .26 .33 .25 .25
====================================================================================================================================
</TABLE>
CONSOLIDATED FINANCIAL RATIOS AND OTHER INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income to Average:
Earning Assets .62% 1.21% 1.06% 1.56% 2.13%
Total Assets .57 1.11 .97 1.40 1.92
Shareholders' Equity 9.14 13.61 11.69 16.48 28.25
- ------------------------------------------------------------------------------------------------------------------------------------
Average:
Loans to Deposits 77.50% 75.50% 66.97% 67.19% 67.91%
Shareholders' Equity to Loans 10.79 14.72 16.35 15.64 12.22
Shareholders' Equity to Deposits 8.36 11.11 10.95 10.51 8.30
Shareholders' Equity to Assets 6.19 8.17 8.28 8.48 6.80
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31:
Reserve for Loan Losses to Total Loans 1.29% 1.67% 1.82% 2.44% 2.20%
Common Shareholders 2,315 2,466 2,754 3,058 3,236
Employees 1,589 1,598 1,580 1,519 1,576
Banking Offices 60 60 62 63 65
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Dividend Payout Ratio 18.35% 16.53% 15.75% 8.38% n/a
Average Common Shares Outstanding 28,463,825 30,603,384 30,422,822 30,317,572 30,257,585
Book Value per Common Share $11.93 $12.93 $12.04 $10.88 $9.30
====================================================================================================================================
</TABLE>
-137-
<PAGE>
<TABLE>
<CAPTION>
1998 1997
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$86,932 $87,068 $93,772 $86,030 $77,069 $83,120 $83,717 $ 86,886
39,247 39,706 45,020 39,477 35,652 37,527 38,529 39,793
- ------------------------------------------------------------------------------------------------------------------------------------
47,685 47,362 48,752 46,553 41,417 45,593 45,188 47,093
-- -- -- -- -- -- -- (12,000)
- ------------------------------------------------------------------------------------------------------------------------------------
47,685 47,362 48,752 46,553 41,417 45,593 45,188 59,093
28,137 25,227 32,890 28,028 19,641 21,089 24,242 22,952
47,408 47,070 50,134 49,140 43,812 45,660 44,998 51,560
- ------------------------------------------------------------------------------------------------------------------------------------
28,414 25,519 31,508 25,441 17,246 21,022 24,432 30,485
7,792 5,987 9,206 6,103 4,069 5,454 6,625 8,542
4,987 4,986 4,987 4,987 2,711 4,932 4,986 4,987
====================================================================================================================================
15,635 14,546 17,315 14,351 10,466 10,636 12,821 16,956
-- -- -- -- -- -- -- --
====================================================================================================================================
15,635 14,546 17,315 14,351 10,466 10,636 12,821 16,956
2,688 2,687 2,688 1,791 2,688 2,687 2,688 2,687
-- -- -- 13,808 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$12,947 $11,859 $14,627 $ (1,248) $ 7,778 $ 7,949 $10,133 $ 14,269
- ------------------------------------------------------------------------------------------------------------------------------------
$ .42 $ .39 $ .48 $ (.04) $ .26 $ .26 $ .33 $ .47
.41 .37 .46 (.04) .25 .25 .32 .45
====================================================================================================================================
$ 42 $ .39 $ .48 $ (.04) $ .26 $ .26 $ .33 $ .47
.41 .37 .46 (.04) .25 .25 .32 .45
====================================================================================================================================
</TABLE>
QUARTERLY STOCK INFORMATION 1
<TABLE>
<CAPTION>
DIVIDENDS
PRICE RANGE DECLARED
HIGH LOW AND PAID 2
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 Fourth Quarter $18.313 $12.063 $.05
Third Quarter 20.625 16.00 .05
Second Quarter 20.938 15.75 .05
First Quarter 20.625 16.25 .05
- ------------------------------------------------------------------------------------------------------------------------------------
1998 Fourth Quarter $26.25 $19.00 $.05
Third Quarter 30.25 22.00 .05
Second Quarter 30.625 26.688 .05
First Quarter 28.25 23.25 .05
- ------------------------------------------------------------------------------------------------------------------------------------
1997 Fourth Quarter $28.50 $21.625 $.05
Third Quarter 24.00 19.75 .05
Second Quarter 20.625 17.375 .05
First Quarter 22.00 17.25 .05
====================================================================================================================================
</TABLE>
1 The stock information listed above represents high and low sales prices as
reported on the NASDAQ National Market System, based on daily closing prices.
2 See Note 10 to the Financial Statements.
-138-
<PAGE>
THREE-YEAR FOREIGN AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
1999 1998 1997
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(IN THOUSANDS) BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, Net of Unearned Discounts $ 500,097 $36,842 7.37% $ 425,938 $35,609 8.36% $ 299,367 $23,574 7.87%
Time Deposits with Other Banks 413,198 20,709 5.01 485,477 27,136 5.59 124,979 7,350 5.88
Pool Funds Provided, Net 1 336,975 18,095 5.37 364,692 20,130 5.52 822,831 47,065 5.72
- ------------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and
Average Rate Earned 1,250,270 75,646 6.05 1,276,107 82,875 6.49 1,247,177 77,989 6.25
Less: Reserve for Loan Losses 9,590 11,635 15,197
Cash and Due from Banks 24,722 25,178 24,526
Premises and Equipment, Net 16,094 16,544 15,587
Other Assets 16,497 12,814 9,231
====================================================================================================================================
Total Assets $1,297,993 $1,319,008 $1,281,324
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings, NOW and Money Market $ 248,698 $ 6,689 2.69% $ 278,519 $ 9,426 3.38% $ 445,874 $18,186 4.08%
Other Time 656,616 36,486 5.56 626,153 37,336 5.96 451,864 25,927 5.74
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 905,314 43,175 4.77 904,672 46,762 5.17 897,738 44,113 4.91
Short-Term Borrowings 129,810 5,239 4.04 142,218 6,973 4.90 111,558 5,631 5.05
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and
Average Rate Incurred 1,035,124 48,414 4.68 1,046,890 53,735 5.13 1,009,296 49,744 4.93
Demand Deposits 122,483 134,358 152,382
Other Liabilities and
Shareholders' Equity 140,386 137,760 119,646
====================================================================================================================================
Total Liabilities and
Shareholders' Equity $1,297,993 $1,319,008 $1,281,324
====================================================================================================================================
Net Interest Income and Spread $27,232 1.37% $29,140 1.36% $28,245 1.32%
====================================================================================================================================
Net Interest Margin on Earning Assets 2.18% 2.28% 2.26%
====================================================================================================================================
</TABLE>
1 Pool Funds Provided, Net, are amounts contributed by foreign activities to
fund domestic activities.
-139-
Exhibit 21
Subsidiaries of Riggs National Corporation
Riggs Bank N.A. National banking association organized under
the laws of the United States of America
Riggs Capital Business trust established in Delaware
Riggs Capital II Business trust established in Delaware
Riggs Capital III Business trust established in Delaware
Riggs Capital Partners LLC Limited liability company organized in
Delaware
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K, into the Riggs National
Corporation's previously filed registration statements, listed as follows:
Form Registration Statement Number
---- -----------------------------
S-8 333-76281
S-8 333-50185
S-8 333-50181
S-3 333-26447, 333-26447-01
S-3 333-21297, 333-21297-01
S-8 333-14609
S-8 33-56485
S-8 33-52451
S-8 33-51711
/s/ Arthur Andersen LLP
Vienna, VA
March 24, 2000
POWER OF ATTORNEY
Know all men by these presents that each person whose signature appears
below constitutes and appoints Joseph M. Cahill his true and lawful
attorney-in-fact and with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign the Form 10-K for the Riggs
National Corporation for the fiscal year ending December 31, 1999, and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing required and necessary to be done in and about the premises, or fully to
all intent and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Chairman of the Board
/s/JOE L. ALLBRITTON Chief Executive Officer 1/19/00
- -------------------- ------------------
Joe L. Allbritton (signature) Date
/s/ROBERT L. ALLBRITTON Director 1/19/00
- ----------------------- ------------------
Robert L. Allbritton (signature) Date
/s/TIMOTHY C. COUGHLIN Director 1/19/00
- ---------------------- -----------------
Timothy C. Coughlin (signature) Date
/s/JOHN M. FAHEY, JR. Director 1/19/00
- --------------------- -----------------
John M. Fahey, Jr. (signature) Date
/S/LAWRENCE I. HEBERT Director 1/19/00
- --------------------- -----------------
Lawrence I. Hebert (signature) Date
/s/STEVEN B. PFEIFFER Director 1/19/00
- --------------------- -----------------
Steven B. Pfeiffer (signature) Date
/s/JOHN E.V. ROSE Director 1/24/00
- ----------------- -----------------
John E. V. Rose (signature) Date
/s/ROBERT L. SLOAN Director 1/19/00
- ------------------ -----------------
Robert L. Sloan (signature) Date
/s/JACK VALENTI Director 1/19/00
- --------------- ----------------
Jack Valenti (signature) Date
/s/WILLIAM L. WALTON Director 1/19/00
- -------------------- ----------------
William L. Walton (signature) Date
/s/EDDIE N. WILLIAMS Director 1/19/00
- -------------------- ----------------
Eddie N. Williams (signature) Date
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K DATED DECEMBER 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 149,712
<INT-BEARING-DEPOSITS> 413,528
<FED-FUNDS-SOLD> 346,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,289,884
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,201,981
<ALLOWANCE> 41,455
<TOTAL-ASSETS> 5,830,149
<DEPOSITS> 4,175,333
<SHORT-TERM> 832,202
<LIABILITIES-OTHER> 68,376
<LONG-TERM> 66,525
<COMMON> 79,039
0
0
<OTHER-SE> 258,674
<TOTAL-LIABILITIES-AND-EQUITY> 5,830,149
<INTEREST-LOAN> 230,577
<INTEREST-INVEST> 70,135
<INTEREST-OTHER> 33,731
<INTEREST-TOTAL> 334,443
<INTEREST-DEPOSIT> 110,094
<INTEREST-EXPENSE> 147,503
<INTEREST-INCOME-NET> 186,940
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,154
<EXPENSE-OTHER> 207,244
<INCOME-PRETAX> 83,822
<INCOME-PRE-EXTRAORDINARY> 83,822
<EXTRAORDINARY> 5,061
<CHANGES> 0
<NET-INCOME> 31,594
<EPS-BASIC> 1.11
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 3.76
<LOANS-NON> 41,534
<LOANS-PAST> 7,429
<LOANS-TROUBLED> 1,263
<LOANS-PROBLEM> 2,013
<ALLOWANCE-OPEN> 54,455
<CHARGE-OFFS> 16,947
<RECOVERIES> 1,709
<ALLOWANCE-CLOSE> 41,455
<ALLOWANCE-DOMESTIC> 32,723
<ALLOWANCE-FOREIGN> 8,732
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
