UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1217953
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 Pennsylvania Avenue, N.W., Washington, D.C. 20005
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 887-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $2.50 par value 28,316,197
----------------------------- ---------------
(Title of Class) (Outstanding at April 30, 2000)
<PAGE>
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three months ended March 31, 2000 and 1999 3
Consolidated Statements of Condition
March 31, 2000 and 1999, and December 31, 1999 4
Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 6
Notes to the Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17-19
PART II.OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Change in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(unaudited) THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARCH 31,
-----------------------------
2000 1999
==================================================================================================================================
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $59,348 $57,874
Interest and Dividends on Securities Available for Sale 20,339 14,313
Interest on Time Deposits with Other Banks 5,589 7,234
Interest on Federal Funds Sold and Reverse Repurchase Agreements 4,805 2,106
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 90,081 81,527
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 626 687
Money Market Deposit Accounts 9,498 8,356
Time Deposits in Domestic Offices 12,242 10,013
Time Deposits in Foreign Offices 7,899 8,299
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 30,265 27,355
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Repurchase Agreements and Other Short-Term Borrowings 9,165 3,978
Long-Term Debt 1,618 4,368
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 10,783 8,346
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 41,048 35,701
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 49,033 45,826
Less: Provision for Loan Losses 600 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 48,433 45,826
NONINTEREST INCOME
Trust and Investment Advisory Income 13,598 12,605
Service Charges and Fees 9,608 9,451
Venture Capital Investment Gains, Net 7,036 --
Other Noninterest Income 1,989 2,188
Securities Gains, Net 310 86
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 32,541 24,330
NONINTEREST EXPENSE
Salaries and Employee Benefits 24,528 22,258
Occupancy, Net 4,931 4,666
Data Processing Services 5,200 4,561
Furniture and Equipment 3,059 2,565
Other Real Estate Owned Expense (Income), Net (37) 16
Other Noninterest Expense 16,163 16,089
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 53,844 50,155
- ----------------------------------------------------------------------------------------------------------------------------------
Income before Taxes and Minority Interest 27,130 20,001
Applicable Income Tax Expense 9,640 7,298
Minority Interest in Income of Subsidiaries, Net of Taxes 5,938 4,987
==================================================================================================================================
Net Income
$11,552 $ 7,716
EARNINGS PER SHARE- Basic $ .41 $ .27
Diluted .41 .26
DIVIDENDS DECLARED AND PAID PER SHARE $ .05 $ .05
</TABLE>
-3-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(unaudited) MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 2000 1999 1999
==================================================================================================================================
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 167,220 $ 131,305 $ 149,712
Federal Funds Sold and Reverse Repurchase Agreements 287,000 136,000 346,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 454,220 267,305 495,712
Time Deposits with Other Banks 362,749 625,464 413,528
Securities Available for Sale (at Market Value) 1,231,628 1,290,431 1,289,884
Venture Capital Investments 64,789 11,182 39,525
Loans 3,130,549 3,186,352 3,201,981
Reserve for Loan Losses (38,237) (53,004) (41,455)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 3,092,312 3,133,348 3,160,526
Premises and Equipment, Net 201,264 202,013 202,840
Other Real Estate Owned 908 1,679 908
Other Assets 222,799 187,019 227,226
==================================================================================================================================
Total Assets $5,630,669 $5,718,441 $5,830,149
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 763,424 $ 685,052 $ 729,030
Interest-Bearing Deposits:
Savings and NOW Accounts 375,288 390,046 395,024
Money Market Deposit Accounts 1,507,513 1,508,927 1,489,690
Time Deposits in Domestic Offices 901,292 965,778 1,068,920
Time Deposits in Foreign Offices 633,362 625,938 492,669
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,417,455 3,490,689 3,446,303
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 4,180,879 4,175,741 4,175,333
Repurchase Agreements and Other Short-Term Borrowings 588,173 395,617 832,202
Other Liabilities 91,997 257,732 68,376
Long-Term Debt 66,525 191,525 66,525
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,927,574 5,020,615 5,142,436
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES 350,000 350,000 350,000
- ----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at March 31, 2000 and 1999, and
December 31, 1999
Shares Issued - 31,616,995 at March 31, 2000, 31,556,545 at
March 31, 1999 and 31,615,495 at December 31, 1999 79,042 78,891 79,039
Surplus - Common Stock 161,450 160,773 161,439
Undivided Profits 220,819 191,047 210,682
Accumulated Other Comprehensive Loss (36,859) (11,528) (42,090)
Treasury Stock - 3,300,798 shares at March 31, 2000 and 1999,
and December 31, 1999 (71,357) (71,357) (71,357)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 353,095 347,826 337,713
==================================================================================================================================
Total Liabilities and Shareholders' Equity $5,630,669 $5,718,441 $5,830,149
</TABLE>
-4-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK OTHER TOTAL
$2.50 UNDIVIDED COMPREHENSIVE TREASURY SHAREHOLDERS'
PAR SURPLUS PROFITS INCOME (LOSS) STOCK EQUITY
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 78,888 $160,760 $184,794 $ (2,548) $(29,166) $392,728
Comprehensive Income:
Net Income 7,716 $ 7,716
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for
Sale, Net
of Reclassification (7,881) (7,881)
Adjustments
Foreign Exchange
Translation Adjustments (1,099) (1,099)
---------------
Total Other Comprehensive
Income (Loss) (8,980)
===============
Total Comprehensive Income (Loss) $ (1,264)
Issuance of Common Stock for
Stock Option Plans-1,200 Shares 3 13 16
Cash Dividends -
Common Stock, $.05 per Share (1,463) (1,463)
Common Stock Repurchase-
2,125,000 shares (42,191) (42,191)
===================================================================================================================================
Balance, March 31, 1999 $ 78,891 $160,773 $191,047 $(11,528) $(71,357) $347,826
Balance, December 31, 1999 $ 79,039 $161,439 $210,682 $(42,090) $(71,357) $337,713
Comprehensive Income:
Net Income 11,552 $ 11,552
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for
Sale, Net
of Reclassification 5,472 5,472
Adjustments
Foreign Exchange
Translation Adjustments (241) (241)
---------------
Total Other Comprehensive
Income (Loss) 5,231
===============
Total Comprehensive Income (Loss) $ 16,783
Issuance of Common Stock for
Stock Option Plans, 1,500 Shares 3 11 14
Cash Dividends -
Common Stock, $.05 per Share (1,415) (1,415)
===================================================================================================================================
Balance, March 31, 2000 $ 79,042 $161,450 $220,819 $(36,859) $(71,357) $353,095
</TABLE>
(1) - See Notes to the Financial Statements for gross unrealized gains or losses
arising during each period and the tax effect on each item of comprehensive
income.
-5-
<PAGE>
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
==============================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 11,552 $ 7,716
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses 600 --
Depreciation Expense and Amortization of Leasehold Improvements 3,434 2,909
Gains on Sale of Securities Available for Sale (310) (86)
Decrease in Other Assets 1,481 11,120
Increase in Other Liabilities 23,621 208,882
- ------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 28,826 222,825
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 40,378 230,541
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease In Time Deposits with Other Banks 50,779 70,717
Principal Collections and Maturities of Securities Available for Sale 361,455 1,012,799
Proceeds from Sales of Securities Available for Sale 212,280 54,056
Purchases of Securities Available for Sale (506,751) (1,398,597)
Net Decrease in Loans 67,688 70,586
Net Increase in Venture Capital Investments (25,264) (8,089)
Net Increase in Premises and Equipment (1,858) (1,851)
Other, Net (74) (253)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities 158,255 (200,632)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in:
Demand, NOW, Savings and Money Market Deposit Accounts 32,481 2,999
Time Deposits (26,935) 27,894
Repurchase Agreements and Other Short-Term Borrowings (244,029) 21,237
Proceeds from the Issuance of Common Stock 14 16
Dividend Payments - Common (1,415) (1,463)
Repurchase of Common Shares -- (42,191)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided By Financing Activities (239,884) 8,492
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (241) (1,099)
- ------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (41,492) 37,302
Cash and Cash Equivalents at Beginning of Period 495,712 230,003
==============================================================================================================================
Cash and Cash Equivalents at End of Period $454,220 $ 267,305
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ -- $ --
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 40,139 $ 37,670
Income Tax Payments -- --
</TABLE>
-6-
<PAGE>
RIGGS NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
In our opinion, the accompanying unaudited financial statements contain all
normal recurring adjustments necessary for a fair presentation of the interim
period results, in conformity with generally accepted accounting principles
applied on a consistent basis and which require the use of our estimates. These
statements should be read in conjunction with the financial statements and
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 1999. Certain reclassifications have been made to prior-period
amounts to conform with the current period's presentation. The results of
operations for the first three months of 2000 are not necessarily indicative of
the results to be expected for the full 2000 year.
NOTE 2. EARNINGS PER SHARE
Earnings per share computations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
---------------------------------- -----------------------------------
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Income Available to Common Shareholders $11,552 $11,552 $7,716 $7,716
Weighted-Average Shares Outstanding 28,315,631 28,315,631 28,994,671 28,994,671
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 47,188 n/a 633,945
----------------- ---------------- ----------------- -----------------
Adjusted Weighted-Average Shares Outstanding 28,315,631 28,362,819 28,994,671 29,628,616
Basic EPS $ .41 $ .27
Diluted EPS $ .41 $ .26
</TABLE>
NOTE 3. OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Before-Tax Tax
Amount (Expense) Net-of-Tax
Benefit Amount
=============================================================================================================================
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000:
Foreign Currency Translation Adjustments $ (371) $ 130 $ (241)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 8,728 (3,055) 5,673
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (310) 109 (201)
- -----------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) 8,418 (2,946) 5,472
=============================================================================================================================
Other Comprehensive Income (Loss) $ 8,047 $(2,816) $ 5,231
THREE MONTHS ENDED MARCH 31, 1999:
Foreign Currency Translation Adjustments $ (1,691) $ 592 $(1,099)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period (12,038) 4,213 (7,825)
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (86) 30 (56)
- ----------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) (12,124) 4,243 (7,881)
============================================================================================================================
Other Comprehensive Income (Loss) $(13,815) $ 4,835 $(8,980)
</TABLE>
-7-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
<TABLE>
<CAPTION>
Foreign Accumulated
Currency Unrealized Other
Translation Gain (Loss) Comprehensive
Adjustments on Securities Income (Loss)
============================================================================================================================
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000:
Balance, December 31, 1999 $(2,597) $(39,493) $(42,090)
Current-Period Change (241) 5,472 5,231
============================================================================================================================
Balance, March 31, 2000 $(2,838) $(34,021) $(36,859)
THREE MONTHS ENDED MARCH 31, 1999:
Balance, December 31, 1998 $(1,349) $ (1,199) $ (2,548)
Current-Period Change (1,099) (7,881) (8,980)
============================================================================================================================
Balance, March 31, 1999 $(2,448) $ (9,080) $(11,528)
</TABLE>
NOTE 4. SEGMENT PROFITABILITY
<TABLE>
<CAPTION>
===================================================================================================================================
INTER- RIGGS RIGGS
THREE MONTHS ENDED NATIONAL RIGGS & CAPITAL RECON- NATIONAL
MARCH 31, 2000 BANKING BANKING COMPANY TREASURY PARTNERS OTHER CILIATION CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST INCOME
Interest Income $ 49,208 $ 16,020 $ 1,454 $ 38,156 $ -- $ 11,808
Interest Expense 13,898 19,808 3,085 15,168 -- 14,215
Funds Transfer Income (4,472) 12,882 4,606 (18,058) 52 4,990
(Expense)
---------------------------------------------------------------------------------------------------------
Net Interest Income 30,838 9,094 2,975 4,930 52 2,583
(Loss),
Tax-Equivalent
Provision for Loan Losses (300) (300) -- -- -- --
Tax Equivalent Adjustment (824) -- -- (636) -- 21
---------------------------------------------------------------------------------------------------------
Net Interest Income (Loss)$ 29,714 $ 8,794 $ 2,975 $ 4,294 $ 52 $ 2,604 $ -- $ 48,433
---------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest $ 9,519 $ 1,034 $14,035 $ 936 $ 6,966 $ 51
Income-External Customers
Intersegment Noninterest 887 1,087 88 -- 78 723
Income
----------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 10,406 $ 2,121 $14,123 $ 936 $ 7,044 $ 774 $ (2,863) $ 32,541
----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and $ 1,712 $ 241 $ 404 $ 4 $ 5 $ 2,205
Amortization
Direct Expense 16,283 7,294 8,850 1,016 522 18,171
Overhead and Support 12,572 3,341 3,199 399 12 (19,523)
----------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 30,567 $ 10,876 $12,453 $ 1,419 $ 539 $ 853 $ (2,863) $ 53,844
----------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes$ 9,553 $ 39 $ 4,645 $ 3,811 $ 6,557 $ 2,525 $ -- $ 27,130
and Minority Interest
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Total Average Assets $2,814,838 $960,909 $98,947 $2,497,173 $50,960 $941,306 $(1,580,087) $5,784,046
===================================================================================================================================
</TABLE>
Our reportable segments are strategic business units that provide diverse
products and services within the financial services industry. We have six
reportable segments: Banking, International Banking, Riggs & Company, Treasury,
Riggs Capital Partners and Other. The Banking segment provides traditional
banking services such as lending and deposit taking to retail, corporate and
commercial customers. The International Banking segment includes the
Corporation's Washington, D.C.- based embassy banking business and the
London-based banking subsidiary, Riggs Bank Europe Limited. Riggs & Company is a
division that provides trust and investment management services to a broad
customer base. The Treasury segment is responsible for asset and liability
management throughout our company. Riggs Capital Partners LLC is our venture
capital subsidiary, and specializes in equity investments in privately-held
high-growth companies. "Other" consists of our unallocated parent company income
and expense, net interest income from unallocated equity and foreclosed real
estate activities of Riggs Bank N.A., our principal banking subsidiary.
-8-
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
We evaluate segment performance based on net income before taxes and minority
interest. The accounting policies of the segments are substantially the same as
those described in the summary of significant accounting policies. 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.
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. 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.
<TABLE>
<CAPTION>
===================================================================================================================================
INTER- RIGGS RIGGS
THREE MONTHS ENDED NATIONAL RIGGS & CAPITAL RECON- NATIONAL
MARCH 31, 1999 BANKING BANKING COMPANY TREASURY PARTNERS OTHER CILIATION CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST INCOME
Interest Income $ 46,450 $ 15,060 $ 1,446 $ 22,912 $ -- $ 13,333
Interest Expense 15,098 17,733 2,231 5,577 -- 11,907
Funds Transfer Income 1,002 10,539 3,301 (15,779) (129) 1,066
(Expense)
-----------------------------------------------------------------------------------------------------------
Net Interest Income 32,354 7,866 2,516 1,556 (129) 2,492
(Loss),
Tax-Equivalent
Tax Equivalent Adjustment (478) -- -- (353) -- 2
-----------------------------------------------------------------------------------------------------------
Net Interest Income (Loss)$ 31,876 $ 7,866 $ 2,516 $ 1,203 $ (129) $ 2,494 $ -- $ 45,826
-----------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest $ 9,584 $ 1,030 $ 12,912 $ 397 $ 172 $ 235
Income-External Customers
Intersegment Noninterest -- 1,004 148 -- -- 879
Income
-----------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 9,584 $ 2,034 $ 13,060 $ 397 $ 172 $ 1,114 $ (2,031) $ 24,330
-----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and $ 1,888 $ 183 $ 203 $ 3 $ -- $ 1,781
Amortization
Direct Expense 14,881 5,448 8,560 376 497 18,366
Overhead and Support 14,057 2,729 2,650 435 1 (19,872)
-----------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 30,826 $ 8,360 $ 11,413 $ 814 $ 498 $ 275 $ (2,031) $ 50,155
-----------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes$ 10,634 $ 1,540 $ 4,163 $ 786 $ (455) $ 3,333 $ -- $ 20,001
and Minority Interest
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Total Average Assets $2,723,786 $929,655 $100,848 $1,716,562 $9,616 $1,119,855 $(1,102,472) $5,497,850
===================================================================================================================================
</TABLE>
NOTE 5. NEW FINANCIAL ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. SFAS No. 133 will require us to record derivative
instruments, such as interest-rate swap agreements, on the Consolidated
Statement of Condition as assets or liabilities, measured at fair value.
Currently 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. SFAS No.
137, issued in June 1999, deferred the effective date for implementation of SFAS
No. 133 to January 1, 2001. We do not anticipate any material impact from the
implementation of SFAS No. 133.
-9-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
We earned $11.6 million of net income for the first quarter of 2000 compared to
$7.7 million for the same period a year ago. Diluted earnings per share were
$.41 compared to $.26 for the same period in the prior year.
The increase in net income for the first quarter was mostly due to $7.0 million
in venture capital gains from our recently formed venture capital subsidiary,
Riggs Capital Partners LLP. Noninterest income increased 8% as a result of an
increase in trust and advisory fee income at Riggs & Company, our private client
services division, of $1.0 million. These increases in noninterest income were
partially offset by a $3.7 increase in noninterest expense.
Return on average assets was .80% for the three months ended March 31, 2000,
compared to .57% for the same period a year ago. Return on average stockholder's
equity was 13.72% compared to 8.61% in the prior period.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis (net interest income plus an
amount equal to the tax savings on tax-exempt interest) totaled $50.5 million in
the first quarter of 2000, increasing $3.8 million from the first quarter of
1999. The increase from the prior year's quarter was primarily due to a
reduction in interest expense due to the redemption of $125 million in
subordinated notes, and increases in interest income of $6.3 million and $1.8
million, respectively, on the securities and loans portfolio. These items were
partially offset by increases in interest expense on our interest-bearing
deposits and short-term borrowings.
NET INTEREST INCOME CHANGES (1)
<TABLE>
<CAPTION>
Three Months Ended
MARCH 31, 2000 VS 1999
----------------------------------
DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE
=====================================================================================================================
<S> <C> <C> <C>
Interest Income:
Loans, Including Fees $1,634 $ 181 $1,815
Securities Available for Sale 1,711 4,584 6,295
Time Deposits with Other Banks 1,436 (3,081) (1,645)
Federal Funds Sold and Reverse
Repurchase Agreements 488 2,211 2,699
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Income 5,269 3,895 9,164
Interest Expense:
Interest-Bearing Deposits 2,524 386 2,910
Repurchase Agreements and Other
Short-Term Borrowings 1,991 3,196 5,187
Long-Term Debt 243 (2,993) (2,750)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Expense 4,758 589 5,347
=====================================================================================================================
Net Interest Income $ 511 $3,306 $3,817
</TABLE>
(1) - The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change in
volume) has been allocated between rate and volume variances based on the
percentage relationship of such variances to each other. Income and rates are
computed on a tax-equivalent basis using a Federal income tax rate of 35% and
local tax rates as applicable.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------------------- ----------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, Including Fees (2) $3,180,822 $60,167 7.61 % $3,198,165 $58,352 7.40 %
Securities Available for Sale (3) 1,303,723 20,959 6.47 1,016,963 14,664 5.85
Time Deposits with Other Banks 384,768 5,589 5.84 615,598 7,234 4.77
Federal Funds Sold and Reverse Repurchase Agreements 333,637 4,805 5.79 176,341 2,106 4.84
- ------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 5,202,950 91,520 7.07 5,007,067 82,356 6.67
Reserve for Loan Losses (41,518) (54,213)
Cash and Due from Banks 144,671 144,799
Other Assets 477,943 400,197
==============================================================================================================================
Total Assets $5,784,046 $5,497,850
LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS' EQUITY
Interest-Bearing Deposits $3,621,803 $30,265 3.36 % $3,517,378 $27,355 3.15 %
Repurchase Agreements and Other Short-Term Borrowings 717,586 9,178 5.14 400,953 3,978 4.02
Long-Term Debt 66,525 1,605 9.70 191,525 4,368 9.25
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 4,405,914 41,048 3.75 4,109,856 35,701 3.52
Demand Deposits 613,827 621,604
Other Liabilities 75,698 53,122
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Shareholders' Equity 338,607 363,268
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest and
Shareholders' Equity $5,784,046 $5,497,850
==============================================================================================================================
NET INTEREST INCOME AND SPREAD $50,472 3.32 % $46,655 3.15 %
==============================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.90 % 3.78 %
</TABLE>
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - The averages and rates for the securities available for sale portfolio are
based on amortized cost.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2000, excluding
securities gains, totaled $32.2 million, an increase of $8.0 million from the
same period a year ago. This increase was mostly due to a $7.0 million venture
capital investment gain at Riggs Capital Partners, our venture capital
subsidiary. Also contributing to the increase in noninterest income for the
current quarter was $13.6 million in trust and investment advisory income at
Riggs & Company, an increase of $1.0 million, or 8%, over the same period a year
ago. Riggs & Company is our private client services division.
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 2000 was $53.8 million,
an increase of 7% from the $50.2 million reported for the three months ended
March 31, 1999. This increase was a result of added personnel costs during the
year, partially related to new business initiatives, and other noninterest
expense, such as data processing costs and legal fees related to these business
initiatives.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
FINANCIAL CONDITION
SECURITIES
Securities available for sale totaled $1.23 billion at March 31, 2000, compared
to $1.29 billion at year-end 1999 and March 31, 1999. The activity for the first
three months included purchases of securities available for sale totaling $506.8
million, which were more than offset by maturities, curtailments and sales of
securities available for sale totaling $573.7 million. The weighted-average
durations and yields for the portfolio, adjusted for anticipated prepayments,
were approximately 3.6 years and 5.99%, respectively, at March 31, 2000.
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 DECEMBER 31, 1999
------------------------------- ------------------------------ -------------------------------
AMORTIZED MARKET/ AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE COST BOOK VALUE
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury Securities $ 289,117 $ 274,793 $ 188,397 $ 179,274 $ 289,242 $ 268,008
Government Agencies Securities 436,016 431,259 541,288 541,258 479,297 474,457
Mortgage-Backed Securities 512,042 478,783 532,183 526,516 518,418 483,734
Other Securities 46,793 46,793 42,532 43,383 63,685 63,685
================================================================================================================================
Total $1,283,968 $1,231,628 $1,304,400 $1,290,431 $1,350,642 $1,289,884
</TABLE>
LOANS
At March 31, 2000, loans outstanding amounted to $3.13 billion, decreasing
slightly from the December 31, 1999 total of $3.20 billion. The decrease in
loans from December 31, 1999 was primarily attributed to decreases in commercial
and financial loans of $45.8 million and foreign loans of $33.8 million, which
was partially offset by increases in real estate commercial/construction and
home equity loans.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2000 1999 1999
================================================================================================================
<S> <C> <C> <C>
Commercial and Financial $ 621,609 $ 691,090 $ 667,393
Real Estate - Commercial/Construction 428,746 379,580 415,304
Residential Mortgage 1,211,855 1,231,855 1,219,740
Home Equity 322,564 309,879 315,520
Consumer 68,917 71,701 73,158
Foreign 483,219 505,335 517,012
- ----------------------------------------------------------------------------------------------------------------
Total Loans 3,136,910 3,189,440 3,208,127
Net Deferred Loan Fees,
Premiums and Discounts (6,361) (3,088) (6,146)
================================================================================================================
Loans $3,130,549 $3,186,352 $3,201,981
</TABLE>
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2000 1999
================================================================================================================================
<S> <C> <C>
Balance, January 1 $41,455 $54,455
Provision for loan losses 600 --
Loans charged-off 4,659 1,629
Less: Recoveries on charged-off loans 915 432
- --------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs (recoveries) 3,744 1,197
Foreign exchange translation adjustments (74) (254)
================================================================================================================================
Balance, March 31 $38,237 $53,004
</TABLE>
ASSET QUALITY
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccrual loans, renegotiated loans and
other real estate owned (net of reserves), totaled $42.1 million at March 31,
2000, a $1.6 million decrease from the year-end 1999 total of $43.7 million and
a $12.0 million increase from the March 31, 1999 total. The increase in
nonperforming assets from the first quarter of 1999 was mainly due to two
nonperforming loans in which we have participated with other major banks. These
credits are an $8.1 million loan to a health care entity and a $4.8 million loan
to a computer equipment manufacturing and service company that were both placed
on nonaccrual in the third quarter of 1999. These two credits are considered
impaired. Impaired loans also include a $25.0 million loan to a commercial real
estate financing company that went to nonaccrual in the fourth quarter of 1998.
Impaired loans totaled $40.5 million at March 31, 2000. The assigned reserve
for loan losses for impaired loans was $8.3 million at March 31, 2000.
PAST-DUE AND POTENTIAL PROBLEM LOANS
Past-due loans consist of residential real estate loans, commercial and
industrial loans, and consumer loans that are in the process of collection and
that are accruing interest. Past-due loans increased $1.1 million during the
first three months of 2000 to $8.5 million, with most of the increase in
secured, residential real estate loans. Potential problem loans decreased $632
thousand from December 31, 1999.
NONPERFORMING ASSETS AND PAST-DUE LOANS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2000 1999 1999
=======================================================================================================================
<S> <C> <C> <C>
NONPERFORMING ASSETS:
Nonaccrual Loans (1) $40,014 $26,681 $41,534
Renegotiated Loans 1,212 1,772 1,263
Other Real Estate Owned, Net 908 1,679 908
=======================================================================================================================
Total Nonperforming Assets $42,134 $30,132 $43,705
PAST-DUE LOANS (2) $ 8,487 $ 8,950 $ 7,429
POTENTIAL PROBLEM LOANS $ 1,381 $ 1,031 $ 2,013
</TABLE>
(1) - Loans (other than consumer) that are in default in either principal or
interest for 90 days or more that are not well-secured and in the process of
collection, or that are, in management's opinion, doubtful as to the
collectibility of either interest or principal.
(2) - Loans contractually past due 90 days or more in principal or interest that
are well-secured and in the process of collection.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
DEPOSITS
Deposits are our primary and most stable source of funds. Deposits totaled $4.18
billion at March 31, 2000, virtually unchanged from the December 31, 1999 and
March 31, 1999 deposit totals. Changes in the composition of total deposits from
year-end 1999 included a decrease in time deposits in domestic offices of $167.6
million, partially offset by increases in time deposits in foreign offices of
$140.7 million, money market deposits of $17.8 million, and demand deposits of
$34.4 million.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings decreased by $244.0 million from the year-end 1999
balance, and increased $192.6 million from the March 31, 1999 balance. These
changes reflect borrowings and partial calls of $400 million in advances from
the Federal Home Loan Bank of Atlanta (FHLB). During 1999, we borrowed $400
million, all callable during the year 2000, at an average rate of 4.99%. $200
million was called by the FHLB in the first quarter 2000. $100 million of the
remaining available credit has a final maturity of ten years, with the other
$100 million maturing in five years. Short-term borrowings are an additional
source of funds that we have utilized to meet certain asset/liability and daily
cash management objectives, and are used to generate cash and maintain adequate
levels of liquidity.
The decrease in long-term debt from the March 31, 1999 balance was due to our
redemption in July 1999 of $125 million of 8.5% subordinated notes due in 2006,
at the price of 104.25%. General corporate funds were used to retire the debt.
We recorded an extraordinary expense of $5.1 million, after tax, in the third
quarter 1999 as a result of the redemption.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2000 1999 1999
======================================================================================================================
<S> <C> <C> <C>
Repurchase Agreements and Other Short-Term Borrowings $588,173 $395,617 $832,202
Subordinated Debentures due 2009 66,525 66,525 66,525
Subordinated Notes due 2006 -- 125,000 --
- ----------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 66,525 191,525 66,525
======================================================================================================================
Total Short-Term Borrowings and Long-Term Debt $654,698 $587,142 $898,727
</TABLE>
LIQUIDITY
We seek to maintain sufficient liquidity to meet the needs of depositors,
borrowers and creditors at a reasonable cost and without undue stress on our
operations and those of our banking subsidiaries. Our Asset/Liability Committee
actively analyzes and manages liquidity in coordination with other areas of the
organization (see "Sensitivity to Market Risk"). At March 31, 2000, our liquid
assets, on a consolidated basis, which include cash and due from banks,
Government obligations and other securities, federal funds sold, reverse
repurchase agreements and time deposits at other banks, totaled $2.05 billion
(36% of total assets). This compares with $2.20 billion (38%) at December 31,
1999, and $2.18 billion (38%) at March 31, 1999. At March 31, 2000, $913.2
million of our assets were pledged to secure deposits and other borrowings. This
compares with pledged assets of $1.02 billion at December 31, 1999, and $807.5
million at March 31, 1999.
Our liquidity position is maintained by a stable source of funds from our core
deposit relationships. We have other sources of funds, such as short-term credit
lines available from several Federal Home Loan Banks and other financial
institutions. In addition, we have a line of credit available through our
membership in the Federal Home Loan Bank of Atlanta (FHLB Atlanta). At March 31,
2000, December 31, 1999, and March 31, 1999, short-term credit lines and the
FHLB Atlanta line of credit available totaled approximately $1.58 billion, $1.38
billion, and $1.50 billion, respectively. Of this availability, $218.2 million,
$423.2 million, and $14.5 million were outstanding at March 31, 2000, December
31, 1999, and March 31, 1999.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
Total shareholders' equity at March 31, 2000 was $353.1 million, an increase of
$15.4 million from year-end 1999 and $5.3 million from a year ago. The increase
from year-end was primarily the result of net income of $11.6 million and net
unrealized securities gains of $5.5 million, after tax. For more information on
our securities portfolio, see the discussion under "Securities" in the
Management's Discussion and Analysis of this Form 10-Q.
Book value per common share was $12.47 as of March 31, 2000 compared to $11.93
at year-end 1999 and $12.31 at March 31, 1999. The decline in book value during
1999 was primarily the result of a decline in the value of the securities
portfolio for the year of $38.3 million, after tax, partially offset by earnings
of $31.6 million. Book value since December 31, 1999 improved due to the
earnings and unrealized securities gains discussed in the preceding paragraph.
Following are our capital ratios and those of our banking subsidiary, Riggs Bank
National Association (Riggs Bank N.A.) at March 31, 2000 and 1999, and December
31, 1999.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, REQUIRED
2000 1999 1999 MINIMUMS
====================================================================================================================
<S> <C> <C> <C> <C>
RIGGS NATIONAL CORPORATION:
Tier I 14.91% 13.30% 14.09% 4.00%
Combined Tier I and Tier II 24.46 26.59 23.55 8.00
Leverage 8.74 8.51 8.59 4.00
RIGGS BANK N.A.:
Tier I 13.55 12.64 12.63 4.00
Combined Tier I and Tier II 14.72 13.89 13.86 8.00
Leverage 8.06 8.51 7.91 4.00
</TABLE>
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. For January 1, 2000
and subsequent dates through the date of this report, we experienced no material
impact as a result of Year 2000 date changes.
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.
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
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 company's 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.
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.
COSTS
The total cost of the Year 2000 project at March 31, 2000, was $7.3 million. The
future cost of completing the Year 2000 project is estimated to be $35 thousand.
The total amount expended to date for 2000 was $212 thousand. The most
significant components of the $7.3 million total estimated cost consisted of 61%
for personnel costs, including consultants and special Year 2000 incentives, and
27% 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.
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 not 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.
-16-
<PAGE>
RIGGS NATIONAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 we have
established the Asset/Liability Committee ("ALCO") to manage interest-rate risk.
The role of this committee is to prudently manage the asset/liability mix of our
company to provide a stable net interest margin while maintaining liquidity and
capital. This entails the management of the overall risk of the company in
conjunction with the acquisition and deployment of funds based upon ALCO's view
of both current and prospective market and economic conditions.
We manage our interest-rate risk through the use of an income simulation model,
which forecasts the impact on net interest income of a variety of different
interest rate scenarios. A "most likely" interest rate scenario is forecasted
based upon an analysis of current market conditions and expectations. The model
then evaluates the impact on net interest income of rates moving significantly
higher or lower than the "most likely" scenario. The results are compared to
risk tolerance limits set by corporate policy. The model's results as of March
31, 2000 and 1999 are shown in the following tables. Current policy establishes
limits for possible changes in net interest income for 12 and 36 month horizons.
The interest rate scenarios monitored by ALCO are based upon a 100 basis point
(1%) gradual increase or decrease in rates over a 12-month time period and a 300
basis point (3%) gradual increase or decrease in rates over a 36-month time
period.
<TABLE>
<CAPTION>
INTEREST-RATE SENSITIVITY ANALYSIS (1)
MOVEMENTS IN INTEREST RATES FROM MARCH 31, 2000
============================================================================================================================
SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ----------------------------------------------------- ---------------------------------- -----------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
- ----------------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (0.8)% 4.3 % (3.0)% 4.8 %
Net Interest Income Increase/(Decrease) $(1,523) $ 7,782 $(16,990) $27,446
</TABLE>
<TABLE>
<CAPTION>
MOVEMENTS IN INTEREST RATES FROM MARCH 31, 1999
============================================================================================================================
SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ----------------------------------------------------- ---------------------------------- -----------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
- ----------------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (.6)% (0.1)% .5 % (1.6)%
Net Interest Income Increase/(Decrease) $(1,177) $ (173) $3,107 $(9,356)
</TABLE>
(1)-Key Assumptions:
Assumptions with respect to the model's projections of the effect of changes in
interest rates on Net Interest Income include:
1. Target balances for various asset and liability classes, which are
solicited from the management of the various units of the Corporation.
2. Interest rate scenarios which are generated by ALCO for the "most likely"
scenario and are dictated by policy for the alternative scenarios.
3. Spread relationships between various interest rate indices, which are
generated by the analysis of historical relationships and ALCO consensus.
4. Assumptions about the effect of embedded options and prepayment speeds:
instruments that are callable are assumed to be called at the first opportunity
if an interest rate scenario makes it advantageous for the owner of the call
to do so. Prepayment assumptions for mortgage products are derived from
accepted industry sources.
5. Reinvestment rates for funds replacing assets or liabilities that are
assumed (through early withdrawal, prepayment, calls, etc.) to run off the
balance sheet, which are generated by the spread relationships.
6. Maturity strategies with respect to assets and liabilities, which are
solicited from the management of the various units of the Corporation.
-17-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
At March 31, 2000, the forecasted impact of rates rising or falling 100 basis
points versus the "most likely" scenario over a 12-month time period was a
change in net interest income not exceeding 5%. For a 300 basis point movement
in rates versus the "most likely" scenario over a 36-month period, the impact on
net interest income did not exceed 5%. The results of the simulation for March
31, 2000 indicated that we were liability sensitive over the 12 and 36-month
time horizons. We were within guidelines for interest rates moving significantly
in either direction.
In managing our interest-rate risk, ALCO uses financial derivative instruments,
such as interest-rate swaps. Financial derivatives are employed to assist in the
management and/or reduction of our interest-rate risk, and can effectively alter
the sensitivity of segments of the statement of condition for specified periods
of time. All of these derivative instruments are considered off-balance-sheet,
as they do not materially affect the level of our assets or liabilities. Along
with financial derivative instruments, the income simulation model includes
short-term financial instruments, investment securities, loans, deposits, and
other borrowings. Interest-rate risk management strategies are discussed and
approved by ALCO prior to implementation.
We find that the methodologies previously discussed provide a meaningful
representation of our interest-rate and market risk sensitivity, though factors
other than changes in the interest rate environment, such as levels of
non-earning assets, and changes in the composition of earning assets, may affect
net interest income. 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.
COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at March 31, 2000 and 1999, and December 31,
1999 are detailed in the table below. At March 31, 2000, our financial
derivative instruments included four swaps with a total notional amount of $30.0
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 1999, December 1999 and
January 2000, and entail the payment of a blended 6.84% fixed rate and the
receipt of a floating rate equal to three-month LIBOR. These swaps reset
quarterly and mature in 2004.
As a result of Riggs Capital Partners venture capital investment activity, we
had venture capital commitments of $22.1 million at March 21, 2000 of which $4.6
million was less than one year.
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL VALUE
-----------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
2000 1999 1999
===========================================================================================================
<S> <C> <C> <C>
Commitments to Extend Credit $928,800 $1,196,279 $1,035,644
Venture Capital Commitments 22,102 -- --
Letters of Credit 130,896 122,556 137,622
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $100,138 $ 137,281 $ 112,226
Commitments to Sell 301,350 224,439 317,837
Futures 1,932 -- --
Interest Rate Agreements
Swaps 124,412 99,372 126,786
Purchased Options 623 630 629
</TABLE>
-18-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK,
CONTINUED
Our interest rate agreement activity for the three months ended March 31, 2000,
is as follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, MARCH 31,
1999 ADDITIONS MATURITIES TERMINATIONS 2000
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Interest Rate Agreements:
Receive variable/pay fixed $ 25,000 $5,000 $ -- $ -- $ 30,000
Riggs Bank Europe Limited 101,786 -- 7,374 -- 94,412
============================================================================================================================
Total $126,786 $5,000 $ 7,374 $ -- $124,412
</TABLE>
-------------------------------------------------------------------
This Quarterly Report on Form 10-Q, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the Quantitative
and Qualitative Disclosures About Market Risk, contains forward-looking
statements, including the references to earnings from venture capital and our
trust and investment advisory fee income. A variety of factors could cause our
actual results and experiences to differ materially from those expressed or
implied by the forward-looking statements. These factors include, but are not
limited to, certain risks and uncertainties that may affect the operations,
performance, development, growth projections and results of our business. These
factors also include the growth of the economy, changes in credit quality or
interest rates, changes in value of venture capital investments in the
technology and other sectors, timing of technology enhancements for products and
operating systems, the impact of competitive products, services and pricing,
customer business requirements, Congressional legislation and similar matters.
-19-
<PAGE>
RIGGS NATIONAL CORPORATION
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on page 21 are incorporated by reference
or filed herewith in response to this item.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
RIGGS NATIONAL CORPORATION
Date: May 5, 2000 /s/ TIMOTHY C. COUGHLIN
---------------- --------------------------------
Timothy C. Coughlin
President
Date: May 5, 2000 /s/ JOHN L. DAVIS
----------------- --------------------------------
John L. Davis
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGES
======================================================================================================
<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. 09756).
(3.2) By-laws of the Registrant with amendments through April 10,
1996 (Incorporated by reference to the Registrant's Form 10-K
for the year ended December 31, 1998, SEC File No. 09756.)
(4.1) Indenture dated June 1, 1989, with respect to $100 million
9.65% Subordinated Debentures due 2009 (Incorporated by
reference to the Registrant's Form 8-K dated June 20, 1989, SEC
File No. 09756.)
(4.2) Indenture dated 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.)
(4.3) 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.)
(27) Financial Data Schedule Exhibit 27
</TABLE>
(Exhibits omitted are not required or not applicable.)
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<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q DATED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000350847
<NAME> RIGGS NATIONAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 167,220
<INT-BEARING-DEPOSITS> 362,749
<FED-FUNDS-SOLD> 287,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,231,628
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,130,549
<ALLOWANCE> 38,237
<TOTAL-ASSETS> 5,630,669
<DEPOSITS> 4,180,879
<SHORT-TERM> 588,173
<LIABILITIES-OTHER> 91,997
<LONG-TERM> 66,525
<COMMON> 79,042
0
0
<OTHER-SE> 274,053
<TOTAL-LIABILITIES-AND-EQUITY> 5,630,669
<INTEREST-LOAN> 59,348
<INTEREST-INVEST> 20,339
<INTEREST-OTHER> 10,394
<INTEREST-TOTAL> 90,081
<INTEREST-DEPOSIT> 30,265
<INTEREST-EXPENSE> 41,048
<INTEREST-INCOME-NET> 49,033
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 310
<EXPENSE-OTHER> 53,844
<INCOME-PRETAX> 27,130
<INCOME-PRE-EXTRAORDINARY> 27,130
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,552
<EPS-BASIC> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 3.90
<LOANS-NON> 40,014
<LOANS-PAST> 8,487
<LOANS-TROUBLED> 1,212
<LOANS-PROBLEM> 1,381
<ALLOWANCE-OPEN> 41,455
<CHARGE-OFFS> 4,659
<RECOVERIES> 915
<ALLOWANCE-CLOSE> 38,237
<ALLOWANCE-DOMESTIC> 30,466
<ALLOWANCE-FOREIGN> 7,771
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
