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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
----------------------------------------------------
(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)
(202) 835-6000
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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
- ------------------- -----------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Common Stock, par value OTC, NASDAQ National Market System
$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. [ ]
The aggregate market value of the Corporation's voting stock held by
non-affiliates of the registrant as of February 29, 1996, was $237,496,018.
The number of shares outstanding of the registrant's common stock, as of
March 27, 1996, was 30,293,464.
DOCUMENT INCORPORATED BY REFERENCE
Portions of Riggs National Corporation's definitive Proxy Statement to
Stockholders are incorporated by reference, except for Items 402 (k) and
(l) of Regulation S-K, in Parts I and III of this Annual Report.
FORM 10-K INDEX
PART I Page(s)
Item 1--Business 3
Item 2--Properties 5
Item 3--Legal Proceedings 5
Item 4--Submission of Matters to a Vote of Security Holders 5
PART II
Item 5--Market for Registrant's Common Equity and
and Related Stockholder Matters 6
Item 6--Selected Financial Data 6
Item 7--Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 8--Financial Statements and Supplementary Data 27
Item 9--Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 63
PART III
Item 10--Directors and Executive Officers of the Registrant (A),63
Item 11--Executive Compensation 65
Item 12--Security Ownership of Certain Beneficial Owners and Management 65
Item 13--Certain Relationships and Related Transactions 65
PART IV
Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K 66
(A) Portions of Riggs National Corporation's definitive Proxy Statement to
Stockholders are incorporated by reference, except for Items 402
(k) and (l) of Regulation S-K, in Parts I and III of this Annual Report.
-2-
PART I
ITEM 1.
BUSINESS
RIGGS NATIONAL CORPORATION
Riggs National Corporation ("the Corporation") is a multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"),
and incorporated in the State of Delaware. The Corporation engages in a variety
of banking-related activities, either directly or through subsidiaries. The
Corporation currently has banking subsidiaries in Washington, D.C.; Virginia;
Maryland; Miami, Florida; London, England; Paris, France; and Nassau, Bahamas.
Additionally, the Corporation provides investment advisory services domestically
through a subsidiary registered under the Investment Advisers Act of 1940.
Subsidiaries of the Corporation located in the Bahamas and France provide trust
and corporate services, as well as traditional banking services.
The Corporation provides a wide range of financial services to a broad
customer base. These include traditional retail banking, corporate and
commercial banking, and trust and investment advisory services. The
Corporation's trust group provides fiduciary and administrative services,
including financial management and tax planning for individuals, investment and
accounting services for corporate and nonprofit organizations, estate planning
and trust administration, as well as bond trusteeship for state and local
governments and public companies.
THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.
The Corporation's principal subsidiary is The Riggs National Bank of Washington,
D.C. ("Riggs-Washington"), a national banking association founded in 1836 and
incorporated under the national banking laws of the United States in 1896.
Riggs-Washington had assets of $4.1 billion, deposits of $3.4 billion, and
stockholder's equity of $399.1 million at December 31, 1995.
Riggs-Washington operates 32 branches and an investment advisory
subsidiary in Washington, D.C., commercial banks in London, England, an Edge Act
subsidiary in Miami, Florida, branch offices in London, England and Nassau,
Bahamas, and a Bahamian bank and trust company. At December 31, 1995,
Riggs-Washington and its subsidiaries had 1,428 full-time equivalent employees.
As part of an additional efficiency enhancement, The Riggs National Bank of
Virginia and The Riggs National Bank of Maryland will be merged with Riggs-
Washington during 1996.
As a commercial bank, Riggs-Washington provides a wide array of
financial services to customers in the Washington, D.C., Metropolitan area,
throughout the United States and internationally.
Riggs-Washington's Corporate and Commercial Banking Groups provide
services to customers ranging from small regional businesses to major
multinational companies. These services include lines of credit, secured and
unsecured term loans, letters of credit, credit support facilities, foreign
currency transactions and cash management.
Riggs-Washington's Trust and Financial Services Group provides fiduciary
and administrative services, including financial management and tax planning for
individuals, investment and accounting services for corporate and non-profit
organizations, estate planning and trust administration, as well as bond
trusteeship for state and local governments and public companies.
Riggs-Washington provides investment advisory services through Riggs
Investment Management Corporation ("RIMCO"), a wholly owned subsidiary
incorporated under the laws of Delaware and registered under the Investment
Advisers Act of 1940.
Riggs-Washington's Retail Banking Group provides a variety of services
including checking, NOW, savings and money market accounts, loans and personal
lines of credit, certificates of deposit and individual retirement accounts.
Additionally, the Retail Banking Group provides 24-hour banking services through
its telebanking operations and a network of Riggs' automated teller machines
("ATMs") as well as national and regional ATM networks.
Riggs-Washington's International Banking Group furnishes a variety of
financial services including issuing letters of credit in connection with trade
and other transactions, taking deposits, foreign exchange, private banking and
cash management. Customers include embassies and foreign missions in Washington,
D.C., foreign governments, central banks, and over 200 correspondent banks
around the world. These services are provided through both domestic and
international offices.
The Riggs Bank and Trust Company (Bahamas) Limited, in Nassau, provides
trust services for international private banking customers. Riggs-Washington
operates a branch in the U.S. Embassy in London which services the Embassy, its
employees and official visitors. In 1991, Riggs-Washington opened a banking
subsidiary under the laws of France. A full service commercial bank, The Riggs
National Bank (Europe) S.A. ("Riggs-Europe") has one branch located in the U.S.
Embassy in Paris. In addition to serving the Embassy, its employees and official
visitors, the Riggs-Europe office also assists the U.S. Government with
disbursement activities for the Department of Defense and Department of State
for all their facilities in Europe.
RIGGS AP BANK LIMITED
Riggs AP Bank Limited ("Riggs AP"), a merchant bank located in London, England
is a wholly owned subsidiary of Riggs-Washington. Riggs AP provides traditional
corporate banking services, commercial property financing, investment banking
services and trade finance. At December 31, 1995, Riggs AP had total assets of
$202.3 million representing 4.3% of the Corporation's total assets and had loans
of $124.6 million, or 67.8% of the Corporation's total foreign loans and 4.9% of
total loans.
-3-
THE RIGGS NATIONAL BANK OF VIRGINIA
The Riggs National Bank of Virginia ("Riggs-Virginia") is a nationally chartered
full-service commercial bank. At December 31, 1995, Riggs-Virginia had assets of
$382.1 million, deposits of $338.9 million and stockholder's equity of $36.9
million. Riggs-Virginia's 16 branches are located in Northern Virginia. At
December 31, 1995, Riggs-Virginia had 98 full-time equivalent employees.
As part of an additional efficiency enhancement, Riggs-Virginia will be
merged with Riggs-Washington during 1996.
THE RIGGS NATIONAL BANK OF MARYLAND
The Riggs National Bank of Maryland ("Riggs-Maryland") is a nationally chartered
full-service commercial bank. At December 31, 1995, Riggs-Maryland had assets of
$224.4 million, deposits of $199.0 million, and stockholder's equity of $16.1
million. Riggs-Maryland's nine branches are all located in Montgomery and Prince
Georges counties, Maryland. At December 31, 1995, Riggs-Maryland had 48
full-time equivalent employees. As part of an additional efficiency
enhancement, Riggs-Maryland will be merged with Riggs-Washington during 1996.
SUPERVISION AND REGULATION
The Corporation and certain of its subsidiaries are subject to the supervision
of and regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). The Corporation's 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 the Corporation
and its 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.
The Corporation is 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." The
following table details the minimum capital levels for each category:
CAPITAL CATEGORY
Combined Tangible
Tier I Tier I and II Leverage Equity
==============================================================================================
Ratios:
Well
Capitalized 6% or above 10% or above 5% or above N/A
Adequately
Capitalized 4% or above 8% or above 4% or above N/A
Under-
Capitalized Less than 4% Less than 8% Less than 4% N/A
Significantly
Undercapitalized Less than 3% Less than 6% Less than 3% N/A
Critically
Undercapitalized N/A N/A N/A 2% or less
Beyond the minimum capital levels, well capitalized institutions may not
be subject to any order or written directive to meet and maintain a specific
capital level.
Each of the bank subsidiaries of the Corporation exceeds current minimum
regulatory capital requirements, and qualifies, at a minimum, as "well
capitalized." The applicable federal bank regulator for a depository institution
may, under certain circumstances, reclassify a "well capitalized" institution as
"adequately capitalized" or require an "adequately capitalized" or
"undercapitalized" institution to comply with supervisory actions as if it were
in the next lower category. Such a reclassification may be made if the
regulatory agency determines that the institution is in an unsafe or unsound
condition (which could include unsatisfactory examination ratings). A summary of
applicable regulatory capital ratios and the minimums required by the OCC under
its capital guidelines for Riggs-Washington, Riggs-Virginia and Riggs-Maryland,
on a historical basis, are shown in the "Notes to Consolidated Financial
Statements--Note 10."
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 Reigle-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 authorizes a bank to merge with a bank in another state
as long as neither of the states has opted out of interstate branching between
the date of enactment of the
-4-
Interstate Act and May 31, 1997. The Interstate Act further provides
that states may enact laws permitting interstate bank merger
transactions prior to June 1, 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.
In August 1995, the FDIC revised its regulations on insurance
assessments to establish a revised assessment rate schedule of 4 to 31 cents per
$100 of deposits in replacement of the then existing schedule of 23 to 31 cents
per $100 of deposits for institutions whose deposits are subject to assessment
by the Bank Insurance Fund ("BIF"). The revised BIF schedule became effective on
June 1, 1995. Assessments collected at the previous assessment schedule that
exceeded the amount due under the revised schedule were refunded, including
interest, from the effective date of the revised schedule. As a result, the
Corporation received a $2.1 million refund in the third quarter of 1995. In
November 1995, the FDIC further reduced the rate structure for BIF by 4 cents
per $100 of deposits, effective January 1996. As a result, the highest-rated
institutions will pay only the statutory annual minimum rate of $2,000 for FDIC
insurance. The deposits of institutions insured by the Savings Association
Insurance Fund ("SAIF") will continue paying premiums on a risk-related basis of
23 to 31 cents per $100 of deposits. Various legislative proposals regarding the
future of the BIF and the SAIF have been reported recently, including a one-time
special assessment for SAIF deposits. The Corporation does not know when and if
any such proposal or any other related proposal may be adopted. See
"Management's Discussion and Analysis--Noninterest Expense" for further details
on FDIC premiums.
There are legal restrictions on the extent to which the Corporation and
its non-bank subsidiaries may borrow or otherwise obtain credit from
Riggs-Washington, Riggs-Virginia, and Riggs-Maryland. Subject to certain limited
exceptions, a bank subsidiary may not extend credit to the Corporation or to any
other affiliate (as defined) in an amount which exceeds 10% of its 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 the Corporation or
to other affiliates. Finally, extensions of credit and other transactions
between a bank subsidiary and the Corporation 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.
ITEM 2.
PROPERTIES
The Corporation owns properties located in Washington, D.C. which house its
executive offices, 13 of its branches and certain operational units of
Riggs-Washington. The Corporation also owns an office building and a residential
property in London, England, and leases various properties in Washington, D.C.;
London, England; Miami, Florida; Northern Virginia; Maryland; and Paris, France.
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of business, the Corporation is involved in various types
of litigation, including litigation with borrowers who are in default under
their loan agreements. In the opinion of management, based on its assessment
and consultation with outside counsel, litigation which is currently pending
against the Corporation will not have a material impact on the financial
condition or future operations of the Corporation as a whole.
The Corporation is contesting in Tax court the disallowance of Brazilian
Foreign Tax Credits by the Internal Revenue Service. The net tax benefit of
these tax credits have not been recognized for financial reporting purposes,
therefore, there will be no adverse impact on earnings if the Internal Revenue
Service were to prevail.
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 1995.
Information required by this Item for Executive Officers of the Registrant
is included in Item 10--"Directors and Executive Officers of the Registrant"
which is incorporated herein by reference.
-5-
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 National
Market tier of The NASDAQ Stock Market under the symbol: "RIGS."
A history of the Corporation's stock prices and dividends can be found
under "Quarterly Stock Information" on Page 61 of this Form 10-K.
As of December 31, 1995, there were 3,236 stockholders of record.
Other information required by this item is set forth in the "Notes
to Consolidated Financial Statements--Notes 10 and 11" on Pages 47 and 48,
respectively, of this Form 10-K.
ITEM 6.
FINANCIAL REVIEW
SELECTED FINANCIAL DATA
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
==============================================================================================
Interest Income $298,799 $266,005 $256,951 $327,540 $474,815
Interest Expense 147,821 112,723 122,130 189,604 319,719
==============================================================================================
Net Interest Income 150,978 153,282 134,821 137,936 155,096
Less: Provision for Loan Losses (55,000) 6,300 69,290 52,067 43,655
==============================================================================================
Net Interest Income after
Provision for Loan Losses 205,978 146,982 65,531 85,869 111,441
Noninterest Income Excluding
Securities Gains, Net 73,493 85,298 88,509 96,200 92,961
Securities Gains, Net 511 226 24,141 34,213 13,692
Provision for Losses on
Accelerated Disposition of Real
Estate Assets -- -- -- -- 49,800
Noninterest Expense 191,834 199,020 266,752 238,403 240,371
==============================================================================================
Income (Loss) before Taxes and
Extraordinary Item 88,148 33,486 (88,571) (22,121) (72,077)
Applicable Income Tax Expense
(Benefit) 346 (533) 5,640 (1,069) (6,130)
==============================================================================================
Income (Loss) before Extraordinary
Item, Net of Taxes 87,802 34,019 (94,211) (21,052) (65,947)
Extraordinary Item - Gain on
Purchase of Debt, Net of Taxes -- -- -- -- 2,486
- ----------------------------------------------------------------------------------------------
Net Income (Loss) $ 87,802 $ 34,019 $ (94,211) $ (21,052) $ (63,461)
Less: Dividends on Preferred Stock 10,750 12,124 1,434 358 --
==============================================================================================
Net Income (Loss) Available for
Common Stock $ 77,052 $ 21,895 $ (95,645) (21,410) $ (63,461)
EARNINGS (LOSS) PER COMMON SHARE:
Income (Loss) before Extraordinary
Item, Net of Taxes $ 2.54 $ .72 $ (3.65) $ (.87) $ (4.79)
Extraordinary Item - Gain on
Purchase of Debt, Net of Taxes -- -- -- -- .18
==============================================================================================
Earnings (Loss) Per Common Share $ 2.54 $ .72 $ (3.65) $ (.87)$ (4.61)
==============================================================================================
Dividends Declared Per Common Share /1/ $ -- $ -- $ -- $ -- $ .05
[FN]
/1/ In addition, a cash dividend of $.15 per common share applicable to the
fourth quarter of 1990 was declared on January 22, 1991, and paid
on February 15, 1991.
-6-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1995, Riggs National Corporation ("the Corporation") achieved record earnings
with total net income of $87.8 million. By comparison, the Corporation had net
earnings of $34.0 million in 1994 and a net loss of $94.2 million in 1993.
Earnings per common share for 1995 and 1994 were $2.54 and $.72, respectively,
compared with a loss per common share of $3.65 in 1993. Earnings for 1995
reflect a $55.0 million reduction in the reserve for loan losses in the third
quarter of 1995, as continued improvement in credit quality resulted in the
recording of this reserve reversal. Net interest income was a significant
component of earnings in 1995, totaling $151.0 million, a slight decrease of
$2.3 million from the prior year's total.
Generally, the Corporation's assets will reprice faster than its
liabilities. With the seven consecutive interest rate increases by the Federal
Reserve in 1994, the Corporation initially experienced an increase in its net
interest margin. As the interest rate increases abated in 1995, combined with
the upward repricing of the liabilities portfolio, the net interest margin
leveled in the first half of 1995 and then declined in the second half of 1995.
During the year, the Corporation had a 102 basis point increase in the cost of
funds, with the net interest margin decreasing from 3.89% at December 31, 1994
to 3.74% at December 31, 1995. Offsetting the increase in the cost of funds
during 1995 was a $69.7 million increase in net earning assets over
interest-bearing liabilities, an improvement from continued reductions in
nonperforming and other noninterest-earning assets.
Key measurements of profitability included the Corporation's net income to
average total assets, net income to average stockholders' equity and the net
interest margin. Net income to average total assets was 1.92% for 1995, compared
with ratios of 0.76% and negative 1.91% for 1994 and 1993, respectively. Net
income to average stockholders' equity was 28.25% for 1995 and 12.01% for 1994,
compared with a negative ratio for 1993. The net interest margin for 1995 was
3.74%, down from a high of 3.89% in 1994, but an increase of 51 basis points
from 3.23% in 1993.
Also affecting 1995 results was a decrease in noninterest expense of $7.2
million (3.6%) along with a decline of $11.5 million (13.5%) in noninterest
income. Noninterest expense totals for 1995 included nonrecurring expenses of
$4.4 million related to occupancy initiatives and $1.2 million for
reorganization and severance-related costs. Noninterest expense totals for 1994
included a $2.1 million restructuring expense reversal. Adjusting for these
items, noninterest expense actually decreased by $14.8 million (7.4%) between
the years.
The reorganization and severance-related expenses recorded in 1995 were
related to several efficiency initiatives implemented in the third quarter. The
Corporation had identified certain areas within its organizational structure to
consolidate functions and/or reduce staff positions. The reorganization
initiatives were completed in the fourth quarter of 1995 and are expected to
generate approximately $8 million in compensation-based savings in 1996.
The occupancy expenses were the result of several initiatives currently
undertaken, including the new technology center to be completed in mid-year
1996, as well as the marketing of office space to third parties that is
currently vacant or that may become available from the previously discussed
reorganization initiatives. Management expects the occupancy initiatives to
generate approximately $6 million in savings in 1996, with greater improvements
expected in 1997 and thereafter.
The decline in noninterest income was partially attributed to the lost
noninterest income from certain foreign subsidiaries sold in 1994 and a $4.7
million gain recorded in 1994 from the settlement of mortgage insurance claims
in the United Kingdom.
On September 28, 1995, the Corporation was notified by the Federal Reserve
Bank of Richmond that the Memorandum of Understanding dated May 14, 1993, was
terminated effective immediately. The now terminated Memorandum of Understanding
was the result of regulatory concern over financial and operational weaknesses
and continued losses related primarily to the Corporation's domestic and United
Kingdom commercial real estate exposure. This termination ended all operating
agreements between the Corporation and its banking regulators.
-7-
EARNING ASSETS
MONEY MARKET ASSETS
Short-term instruments, such as time deposits with other banks, federal funds
sold and resale agreements, represent alternatives for the Corporation for the
deployment of excess funds. These investments are lower-yielding assets that are
highly interest-rate sensitive. Funds available for short-term investments
generally are a function of daily movements in the Corporation's securities,
loans and deposit portfolios, combined with the Corporation's overall
interest-rate risk and asset/liability strategy. At December 31, 1995, total
money market assets increased by $266.2 million (68.6%) when compared with
year-end 1994, the result of fund inflows from the deposit portfolio. The total
average of time deposits with other banks and federal funds sold and resale
agreements increased from $377.4 million in 1994 to $462.5 million in 1995.
SECURITIES
The securities portfolio consists of securities held-to-maturity and securities
available for sale that are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (see Note 1, "Summary of Significant
Accounting Polices" and Note 2, "Securities"). The aggregate securities
portfolio declined $71.4 million (6.9%) from a balance of $1.04 billion at
year-end 1994 to $970.0 million at year-end 1995. The decrease in securities
from 1994 was mainly due to aggregate maturities during 1995 of $632.7 million,
the majority of which were reinvested into securities during the year. The
weighted-average maturity and yield for securities available for sale adjusted
for anticipated prepayments were approximately three years and 6.10%,
respectively, at December 31, 1995. The securities portfolio is part of
management's asset/liability strategy and is a function of short and long-term
investments by the Corporation relative to its interest-bearing liabilities
outstanding.
At December 31, 1995, the aggregate securities portfolio was comprised
entirely of securities available for sale, which totaled $970.0 million. The
increase in this portfolio and the offsetting decrease in the held-to-maturity
portfolio was primarily the result of transferring $446.1 million (book value)
in securities held-to-maturity to the available for sale portfolio in December
1995. This transfer was made in accordance with accounting guidance provided by
the Financial Accounting Standards Board, allowing a reassessment of securities
classifications and transfers between portfolios without the prescribed
accounting for transfers under SFAS No. 115 (see Note 1, "Summary of Significant
Accounting Policies"). Securities available for sale were primarily
mortgage-backed, U.S. Treasury and government agencies securities. Securities
available for sale may be sold in response to changes in interest rates, risk
characteristics and other factors as part of the Corporation's asset/liability
strategy (see "Interest-Rate Risk Management").
MATURITIES OF SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1995
Gross Gross Book/
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
===============================================================================
U.S. Treasury Securities:
Due within 1 year $ 90,470 $ 168 $ 111 $ 90,527
Due after 1 year but
within 5 years 201,044 2,207 -- 203,251
Government Agencies Securities:
Due after 1 year but
within 5 years 252,687 2,143 -- 254,830
Obligations of States and
Political Subdivisions:/1/
Due within 1 year 3,800 900 -- 4,700
Mortgage-Backed Securities:
Due after 1 year but
within 5 years 303,076 629 22 303,683
Due after 5 years but
within 10 years 59,133 -- 216 58,917
Due after 10 years 25,692 25 -- 25,717
Other Securities:
Due within 1 year 8,707 -- -- 8,707
Due after 1 years but
within 5 years 19,674 -- -- 19,674
============================================================================
Total Securities Available
for Sale $ 964,283 $ 6,072 $ 349 $970,006
[FN]
/1/ The securities within the category of "Obligations of States and
Political Subdivisions" are on a nonaccrual basis as of December 31, 1995.
All contractual payments to date have been received. See "Past Due and
Potential Problem Loans/Assets."
-8-
LOANS
Loans, net of premiums, discounts and deferred fees totaled $2.57 billion at
December 31, 1995, an increase of $22.0 million, or 0.9%, from the prior year.
Over the past few years, the quality and overall risk level of the portfolio has
improved as a result of adjustments to its composition, combined with the
Corporation's comprehensive underwriting and review policies. During the year,
the Corporation focused its efforts on new loan production in the commercial and
financial, residential mortgage and home equity portfolios. This strategy
coincided with the improvement in the local economy, particularly in the areas
of employment and small to mid-sized commercial business.
YEAR-END LOANS
December 31,
==========================================================
(In thousands) 1995 1994 1993 1992 1991
=======================================================================================================
Domestic:
Commercial and Financial $ 400,379 $ 400,660 $ 412,006 $ 369,885 $ 532,143
Real Estate-Commercial/
Construction 326,965 323,835 388,442 533,685 619,298
Residential Mortgage 1,286,256 1,317,169 1,149,363 529,382 725,337
Home Equity 251,798 220,910 234,049 273,586 321,690
Consumer 77,804 75,887 82,819 107,382 158,872
===================================================================================================
Total Domestic 2,343,202 2,338,461 2,266,679 1,813,920 2,357,340
Foreign:
Governments and Official
Institutions 30,849 26,013 28,113 29,319 27,377
Banks and Other Financial
Institutions 6,570 11,517 14,999 24,734 28,481
Commercial and Industrial
and Commercial Property 170,971 146,153 192,770 291,496 581,499
Other 15,761 20,875 19,514 25,948 23,886
===================================================================================================
Total Foreign 224,151 204,558 255,396 371,497 661,243
===================================================================================================
Total Loans 2,567,353 2,543,019 2,522,075 2,185,417 3,018,583
Less: Unearned Discount
(Unamortized Premium) and
Net Deferred Fees (4,606) (6,905) (6,058) 4,360 12,116
===================================================================================================
Total Loans, Net of Unearned
Discount (Unamortized
Premium) and Net
Deferred Fees 2,571,959 2,549,924 2,528,133 2,181,057 3,006,467
Less: Reserve for
Loan Losses 56,546 97,039 86,513 84,155 103,674
- ---------------------------------------------------------------------------------------------------
Total Net Loans $2,515,413 $2,452,885 $2,441,620 $2,096,902 $2,902,793
The commercial loan portfolio totaled $400.4 million at year-end 1995, level
with the prior year balance, with originations totaling $213.8 million, or 53.4%
of the 1994 year-end portfolio balance. There were no individual borrowers or
industries representing more than a 10% share of the total loan portfolio.
New residential mortgage loans in 1995 totaled $77.1 million, which was
offset by paydowns and payoffs during the year resulting in a decrease of less
than 3% in the portfolio. Of the $77.1 million residential loans originated in
1995, $53.9 million (70%) were fixed-rate loans, with the remainder being
adjustable-rate loans. The majority of these loans were originated in the
Washington, D.C., Metropolitan area. This contrasts to the loans added in late
1993 and early 1994, which were predominately purchases of loans originated by
others, with properties located throughout the United States. The combination of
these factors has resulted in a residential loan portfolio that is
geographically disbursed, yet has approximately 70% of the residential
portfolio, or 35% of the total loan portfolio, in the Washington, D.C.,
Metropolitan area, with no other region having larger than a 10% concentration
of the total loan portfolio.
The home equity portfolio increased $30.9 million, or 14% in 1995, the
result of several new products introduced in 1994 and 1995. Originations in 1995
totaled $82.9 million. This growth was partially offset by payoffs and paydowns
during the year.
Activity within the foreign, consumer and real estate-commercial/
construction portfolios has either remained flat or had a movement upward, as
the Corporation had limited new lending in these portfolios. Future new loans
within these portfolios will be selective, as the Corporation
anticipates limited investment opportunities within the markets in
the quarters ahead.
-9-
REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1995
Geographic Location
===============================================================
District of United
(In thousands) Columbia Virginia Maryland Kingdom Other Total
=========================================================================================================
Land Acquisition and
Construction
Development $ 31,913 $ 14,253 $ 8,289 $ -- $ -- $ 54,455
Multifamily
Residential 19,166 7,113 5,382 -- -- 31,661
Commercial:
Office Buildings 49,097 40,085 25,471 -- 2,284 116,937
Shopping Centers 11,828 35,421 16,631 -- -- 63,880
Hotels 4,545 5,405 -- -- -- 9,950
Industrial/Warehouse 2,283 11,566 7,743 -- -- 21,592
Churches 10,342 1,614 7,076 -- -- 19,032
Other 3,582 4,612 1,194 -- 70 9,458
=====================================================================================================
Total Commercial 81,677 98,703 58,115 -- 2,354 240,849
=====================================================================================================
Total Domestic Real
Estate-Commercial/
Construction Loans 132,756 120,069 71,786 -- 2,354 326,965
Foreign -- -- -- 101,645 -- 101,645
- -----------------------------------------------------------------------------------------------------
Total Real Estate-
Commercial/
Construction Loans $132,756 $120,069 $ 71,786 $101,645 $ 2,354 $428,610
YEAR-END MATURITIES AND RATE SENSITIVITY
December 31, 1995
================================================
Less Than Over
(In thousands) 1 Year/1/ 1-5 Years 5 Years Total
=========================================================================================================
Maturities:
Commercial and Financial $ 159,667 $ 145,189 $ 95,523 $ 400,379
Real Estate-Commercial/
Construction 101,185 182,084 43,696 326,965
Residential Mortgage 19,373 63,201 1,203,682 1,286,256
Home Equity 156,609 -- 95,189 251,798
Consumer 40,182 31,283 6,338 77,804
Foreign 187,368 22,969 13,814 224,151
- -----------------------------------------------------------------------------------------------------
Total $ 664,384 $ 444,726 $1,458,242 $2,567,353
Rate Sensitivity:
With Fixed Interest Rates $ 183,820 $ 334,946 $1,093,974 $1,612,740
With Floating and
Adjustable Interest Rates 480,564 109,780 364,268 954,613
- -----------------------------------------------------------------------------------------------------
Total $ 664,384 $ 444,726 $1,458,242 $2,567,353
[FN]
/1/ Includes demand loans, loans having no stated schedule of repayments or
maturity, and overdrafts.
-10-
CROSS-BORDER OUTSTANDINGS
The Corporation extends credit to borrowers domiciled outside of the United
States through several of its banking subsidiaries. These assets may be impacted
by changing economic conditions in their respective countries. Management
routinely reviews these credits and continually monitors the international
economic climate and assesses the impact of these changes on foreign domiciled
borrowers.
Cross-border outstandings include loans, acceptances, interest-bearing
deposits with other banks, investments, accrued interest and other monetary
assets, which are denominated in U.S. dollars or other nonlocal currencies. In
addition, cross-border outstandings include legally enforceable guarantees
issued on behalf of nonlocal third parties and local currency outstandings to
the extent they are not funded by local currency borrowings. Cross-border
outstandings are then reduced by tangible liquid collateral and any legally
enforceable guarantees issued by nonlocal third parties on behalf of the
respective country.
At December 31, 1995, the Corporation had no cross-border outstandings
exceeding 1% of total assets to countries experiencing difficulties in repaying
their external debt.
At December 31, 1995, the United Kingdom was the only country with
cross-border outstandings in excess of 1% of the Corporation's total assets that
had loans in either a nonperforming, past-due or problem loan status. Nonaccrual
loans in the United Kingdom totaled $1.7 million at December 31, 1995, compared
with $10.6 million at December 31, 1994. Past-due loans in the United Kingdom
totaled $36 thousand at December 31, 1995, with no potential problems loans
outstanding. In 1994, the United Kingdom did not have any past-due loans and had
$4.3 million in potential problem loans outstanding.
At December 31, 1995, 1994, and 1993, the Corporation did not have any
cross-border outstandings between .75% and 1% of its total assets.
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1%
OF TOTAL ASSETS
Governments Banks and Commercial
and Official Other Financial and
(In thousands) Institutions Institutions Industrial Other Total
=====================================================================================================
As of December 31, 1995
United Kingdom $ 242 $ 22,090 $133,336 $ 25,199 $180,867
=================================================================================================
As of December 31, 1994
United Kingdom 257 57,715 84,725 6,704 149,401
France 36,105 25,011 3 -- 61,119
=================================================================================================
As of December 31, 1993
United Kingdom 765 29,235 154,660 2,170 186,830
=================================================================================================
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1%
OF TOTAL ASSETS WITH NONPERFORMING OR PAST-DUE LOANS
Total
Nonaccrual Renegotiated Nonperforming Past-Due
(In thousands) Loans Loans Loans Loans
=======================================================================================================
As of December 31, 1995
United Kingdom $ 1,714 $ -- $ 1,714 $ 36
===================================================================================================
As of December 31, 1994
United Kingdom 10,634 267 10,901 --
France -- -- -- --
===================================================================================================
As of December 31, 1993
United Kingdom 37,696 834 38,530 4
===================================================================================================
-11-
ASSET QUALITY
NONPERFORMING ASSET SUMMARY
Nonperforming assets, which include nonaccrual loans, renegotiated loans, and
other real estate owned (net of reserves), totaled $45.9 million at year-end
1995, a $29.8 million (39.3%) decrease from the year-end 1994 total of $75.7
million. This significant decrease in nonperforming assets during 1995 was
attributable to sales and paydowns of $30.0 million, nonaccrual and renegotiated
loans returning to accrual status of $3.7 million, and net
charge-offs/writedowns of $10.4 million, which were partially offset by exchange
rate fluctuations of $111 thousand, combined with net additions in 1995 of $14.2
million.
Effective January 1, 1995, the Corporation adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." Impaired loans are generally
defined as nonaccrual loans, excluding large groups of smaller-balance loans
(with similar collateral characteristics), which are collectively evaluated for
impairment. Specific reserves are required to the extent that the fair value of
the impaired loans is less than the recorded investment. The adoption of SFAS
No. 114 was not material to the Corporation's consolidated financial statements
or results from operations. All impaired loans are included in the table below
and are further discussed in Note 3, "Loans and Reserve for Loan Losses."
NONPERFORMING ASSETS AND PAST-DUE LOANS
December 31,
=========================================================
(In thousands) 1995 1994 1993 1992 1991
======================================================================================================
Nonperforming Assets:
Nonaccrual Loans:/1/
Domestic $ 7,542 $ 11,518 $ 85,075 $152,812 $151,114
Foreign 1,784 15,865 45,099 52,613 78,855
==================================================================================================
Total Nonaccrual Loans 9,326 27,383 130,174 205,425 229,969
Renegotiated Loans:/2/
Domestic 3,410 288 29,465 11,806 --
Foreign -- 267 834 -- --
==================================================================================================
Total Renegotiated Loans 3,410 555 30,299 11,806 --
Real Estate Assets Subject to
Accelerated Disposition, Net -- -- -- -- 89,389
Other Real Estate Owned, Net:
Domestic 32,627 44,068 45,049 62,810 7,542
Foreign 570 3,695 7,754 26,579 4,211
==================================================================================================
Total Other Real Estate Owned, Net 33,197 47,763 52,803 89,389 11,753
==================================================================================================
Total Nonperforming Assets, Net $ 45,933 $ 75,701 $213,276 $306,620 $331,111
Past-Due Loans:/3/
Domestic $ 5,423 $ 6,091 $ 3,315 $ 1,369 $ 2,743
Foreign 36 30 4 55 790
==================================================================================================
Total Past-Due Loans $ 5,459 $ 6,121 $ 3,319 $ 1,424 $ 3,533
Total Loans, Net of Unearned Discount
(Unamortized Premium) and
Net Deferred Fees $2,571,959 $2,549,924 $2,528,133 $2,181,057 $3,006,467
Ratio of Nonaccrual Loans to
Total Loans .36% 1.07% 5.15% 9.42% 7.65%
Ratio of Nonperforming Assets to
Total Loans and Other Real Estate
Owned, Net 1.76% 2.91% 8.26% 13.50% 10.97%
[FN]
/1/ Loans (other than consumer) that are contractually past due 90 days or more
in either principal or interest that are not well-secured and in the process
of collection, or that are, in management's opinion, doubtful as to the
collectibility of either interest or principal.
/2/ Loans for which terms have been renegotiated to provide a reduction of
interest or principal as a result of a deterioration in the financial
position of the borrower in accordance with SFAS No. 15. Renegotiated loans
do not include $11.2 million in loans renegotiated at market terms that have
performed in accordance with their respective renegotiated terms. These
performing, market-rate loans are no longer included in nonperforming asset
totals.
/3/ Loans contractually past due 90 days or more in principal or interest that
are well-secured and in the process of collection.
-12-
NONACCRUAL AND RENEGOTIATED LOANS
At December 31, 1995, nonaccrual loans were $9.3 million, or 0.4% of total
loans, compared with $27.4 million, or 1.1% of total loans, at December 31,
1994. Loans (other than consumer) are placed on nonaccrual status when, in
management's 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. Consumer
loans are generally charged off when they become 120 days past due. The $18.1
million reduction in nonaccrual loans during 1995 was due primarily to sales and
repayments of $17.5 million, nonaccrual loans returning to accrual status of
$3.6 million, charge-offs of $6.8 million and transfers of nonaccrual loans to
other real estate owned of $.7 million. These decreases were partially offset by
net additions to nonaccrual loans and an increase in foreign exchange
translation adjustments, totaling $10.4 million and $.1 million, respectively.
Renegotiated loans totaled $3.4 million at December 31, 1995, compared
with $555 thousand at year-end 1994. Renegotiated loans generally consisted of
real estate-commercial/construction loans that were renegotiated to provide a
reduction or deferral of interest or principal as a result of a deterioration in
the financial position of the borrower. Renegotiated loans increased $2.9
million in 1995, the result of two residential development loans totaling $3.3
million that were restructured in the fourth quarter.
PAST-DUE AND POTENTIAL PROBLEM LOANS/ASSETS
Past-due loans consist predominantly of residential real estate and consumer
loans that are well-secured and in the process of collection and on which the
Corporation is accruing interest. Past-due loans decreased $662 thousand in 1995
to $5.5 million.
At December 31, 1995, the Corporation had identified approximately $8.1
million in potential problem loans. These loans are currently performing, but
management believes that they have certain attributes that may lead to
nonaccrual or past-due status in the foreseeable future. These loans primarily
consist of $5.0 million in real estate-commercial/construction loans and $2.5
million in residential mortgage loans.
In addition, the Corporation had $4.7 million in other potential problem
assets at December 31, 1995. In December 1994, the Corporation purchased $10
million, par value, of Orange County, California, variable-rate one-year notes
due in July and August 1995 (the "Notes"), from the Corporation's proprietary
RIMCO Monument Money Market Fund. Due to Orange County's bankruptcy declaration
on December 6, 1994, the Notes are on a nonaccrual basis and are carried at
their estimated fair value. Interest on the Notes is current, but due to the
uncertainty of the outcome of the bankruptcy proceedings, there is no assurance
that future payments will be received. In August 1995, $5 million of the Notes,
which were not part of the bankruptcy proceedings, matured and were paid off. On
July 7, 1995, the Corporation accepted Orange County's offer to extend the
maturity date of the remaining Notes, under similar terms and conditions, to
June 30, 1996. These securities are classified in the securities available for
sale portfolio at December 31, 1995.
INTEREST INCOME ON NONACCRUAL AND
RENEGOTIATED LOANS
December 31,
=======================================================
(In thousands) 1995 1994 1993 1992 1991
=======================================================================================================
Interest Income at Original Terms:
Nonaccrual Loans--
Domestic $ 1,230 $ 3,571 $10,639 $15,155 $19,033
Foreign 1,156 2,476 5,601 3,325 7,741
Renegotiated Loans 54 444 1,845 296 --
- ---------------------------------------------------------------------------------------------------
Total $ 2,440 $ 6,491 $18,085 $18,776 $26,774
Actual Interest Income Recognized:
Nonaccrual Loans--
Domestic Loans $ 214 $ 458 $ 1,506 $ 5,345 $ 2,823
Foreign Loans 186 1,075 2,128 116 1,139
Renegotiated Loans -- -- 346 94 --
- ---------------------------------------------------------------------------------------------------
Total $ 400 $ 1,533 $ 3,980 $ 5,555 $ 3,962
-13-
PROVISION AND RESERVE FOR LOAN LOSSES
The provision for loan losses represents a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the reserve for
loan losses at a level adequate to absorb estimated losses inherent in the loan
portfolio. The Corporation determines the appropriate balance of the reserve for
loan losses based upon an analysis of risk factors that includes: primary source
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, general economic conditions and
other factors existing at the determination date. The loan portfolio is
continually monitored by management to identify loans requiring particular
attention. On a quarterly basis, the Loan Loss Reserve Committee evaluates the
adequacy of the reserve for loan losses and the Board of Directors reviews
management's determination of the reserves. The reserve for loan losses is based
on management's assessment of existing conditions and reflects potential losses
determined to be probable and subject to reasonable estimation.
Based on management's review of the adequacy of the reserve, risk
characteristics within the loan portfolio, current asset quality, lending
levels, economic development and other factors, the reserve for loan losses was
reduced by $55.0 million in the third quarter of 1995. As a result, the
provision for loan losses amounted to a negative $55.0 million for 1995,
compared to a positive provision of $6.3 million for the prior year.
Approximately $41.8 million of the reversal in 1995 related to domestic loans
and $13.2 million related to foreign loans.
The reserve for loan losses was $56.5 million, or 2.20% of total loans, at
December 31, 1995, compared with $97.0 million or 3.81% of total loans, at
December 31, 1994. Net recoveries for 1995 totaled $14.5 million compared with
$3.0 million for 1994. Total net recoveries for 1995 consisted of $10.7 million
from domestic real estate-commercial/construction and $2.3 million from foreign
loans compared with $2.0 million and $1.8 million, respectively, for 1994. The
Corporation's coverage ratio (reserves for loan losses divided by the sum of
nonaccrual and renegotiated loans) was 444% at year-end 1995, compared with 347%
at year-end 1994. The increase in the coverage ratio was impacted by the 66%
decrease in nonaccrual loans, partially offset by the $55.0 million loan loss
reserve reversal in 1995.
The estimated allocation of the reserve for loan losses is shown on the
following page. Reserve for loan loss allocations represent management's
assessment of existing conditions and risk factors within these categories.
RESERVE FOR LOAN LOSSES AND SUMMARY OF CHARGE-OFFS (RECOVERIES)
(In thousands) 1995 1994 1993 1992 1991
=======================================================================================================
Balance, January 1 $ 97,039 $ 86,513 $ 84,155 $103,674 $108,887
Provision for Loan Losses (55,000) 6,300 69,290 52,067 43,655
Loans Charged Off:
Commercial and Financial 243 593 4,703 3,192 7,457
Real Estate-Commercial/Construction 697 6,800 41,170 31,528 27,576
Residential Mortgage -- 409 96 215 25
Home Equity 438 98 201 453 450
Consumer 906 1,511 1,864 2,745 3,864
Foreign 6,106 3,219 31,400 35,575 13,172
===================================================================================================
Total Loans Charged Off 8,390 12,630 79,434 73,708 52,544
===================================================================================================
Recoveries on Charged-Off Loans:
Commercial and Financial 2,084 695 527 616 1,033
Real Estate-Commercial/Construction 11,408 8,847 6,699 3,172 --
Residential Mortgage 84 136 145 15 14
Home Equity 114 4 -- -- 26
Consumer 838 942 938 1,231 908
Foreign 8,400 5,034 4,712 279 1,678
===================================================================================================
Total Recoveries on Charged-Off Loans 22,928 15,658 13,021 5,313 3,659
===================================================================================================
Net Charge-Offs (Recoveries) (14,538) (3,028) 66,413 68,395 48,885
Foreign Exchange Translation Adjustments (31) 1,198 (519) (3,191) 17
- ---------------------------------------------------------------------------------------------------
Balance, December 31 $ 56,546 $ 97,039 $ 86,513 $ 84,155 $103,674
Ratio of Net Charge-Offs (Recoveries) to
Average Loans (.57)% (.12)% 3.04 % 2.66 % 1.43 %
Ratio of Reserve for Loan Losses
to Total Loans 2.20 % 3.81 % 3.42 % 3.86 % 3.45 %
-14-
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
(In thousands) 1995 1994 1993 1992 1991
=======================================================================================================
Commercial and Financial $ 9,334 $ 11,658 $ 8,836 $ 7,775 $ 6,459
Real Estate-Residential and Commercial/
Construction 9,543 11,988 29,544 41,699 46,633
Home Equity and Consumer 2,717 6,178 2,905 3,658 2,323
Foreign 5,030 11,981 19,651 25,266 31,434
Based on Qualitative Factors 29,922 55,234 25,577 5,757 16,825
- ---------------------------------------------------------------------------------------------------
Balance, December 31 $ 56,546 $ 97,039 $ 86,513 $ 84,155 $103,674
DISTRIBUTION OF YEAR-END LOANS
(In thousands) 1995 1994 1993 1992 1991
====================================================================================================
Commercial and Financial 15.6% 15.8% 16.3% 17.0% 17.6%
Real Estate-Residential and Commercial/
Construction 62.9 64.5 61.0 48.6 44.6
Home Equity and Consumer 12.8 11.7 12.6 17.4 15.9
Foreign 8.7 8.0 10.1 17.0 21.9
- ----------------------------------------------------------------------------------------------------
Balance, December 31 100.0% 100.0% 100.0% 100.0% 100.0%
OTHER REAL ESTATE OWNED, NET
Other real estate owned decreased 30.5% to $33.2 million at December 31, 1995,
from $47.8 million at December 31, 1994. The decrease resulted from sales and
repayments of $12.3 million and $3.0 million in writedowns offset by net
additions of $.7 million during the period. Loans are transferred to other real
estate owned when collateral securing the loans is acquired, or deemed to be
acquired, through foreclosure.
At December 31, 1995, residential and commercial land composed 87% of other
real estate owned, with the remainder of the portfolio consisting of office,
industrial, retail and other types of properties. Except for $.6 million of
properties located in the United Kingdom, the remaining other real estate owned
properties were located in the Washington, D.C., Metropolitan area at year-end
1995.
OTHER REAL ESTATE OWNED, NET
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1995
Geographic Location
================================================
District of United
(In thousands) Columbia Virginia Maryland Kingdom Total
=======================================================================================================
Land $ -- $20,777 $ 8,009 $ -- $28,786
Single-Family Residential 143 123 25 -- 291
Multifamily Residential -- 156 -- -- 156
Office Buildings/Retail -- 206 2,972 501 3,679
Industrial/Warehouse 215 -- -- 70 285
- -------------------------------------------------------------------------------------------------------
Total Other Real Estate Owned, Net $ 358 $21,262 $11,006 $ 571 $33,197
-15-
DEPOSITS
Total deposits at December 31, 1995, were $3.89 billion, compared with $3.60
billion at year-end 1994, an increase of $282.4 million, or 7.8%. In addition to
this growth, the composition of the portfolio significantly changed. Domestic
and foreign time deposits increased by $265.7 million, or 29.2%, as the
Corporation's customers took advantage of increases in short-term interest rates
experienced over the past 18 months. The increase in domestic time deposits was
due, in part, to a $108.9 million increase in the balance of time deposits with
the U.S. Treasury. Total noninterest-bearing deposits increased $83.9 million,
or 10.1% in 1995. These increases were contrasted by comparable decreases in
money-market, savings and NOW accounts totaling $67.2 million, or 3.6% in 1995.
Average domestic deposits were $3.41 billion for 1995, down $64.2 million,
or 1.9%, from an average of $3.47 billion for 1994. Average core deposits (total
deposits in domestic offices, excluding negotiable certificates of deposit) were
$3.40 billion, a decline of $58.4 million, or 1.7% from 1994's average balance
of $3.45 billion. Average foreign deposits increased $82.2 million, to $339.6
million, primarily the result of increased deposits in the Nassau, Bahamas
subsidiary.
Since 1994 the Corporation has been conducting a detailed analysis of its
retail banking system, determining the best use of its locations, branch
facilities, product lines and personnel. The Corporation has sold or
consolidated five retail branches as part of this analysis and does not
anticipate any significant future branch sales or consolidations. The
Corporation is actively seeking enhancements to existing branches to attract new
customers and to improve service quality and overall profitability of its
branches. The Corporation is also searching for opportunities to establish new
retail banking branches in strategic locations.
In 1995, the retail banking group formed a marketing team to explore the
current and future prospects of electronic banking for retail banking customers.
Retail banking advertising and product information have been established on a
local-area, on-line service and completion of the Internet Home Page is
anticipated by mid-year 1996. This development group is also analyzing
opportunities for home banking within the Corporation's market and the numerous
delivery configurations available. This research is ongoing, and management
expects to complete this project and to formalize delivery methodologies for
home banking within the next 12 to 18 months.
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS
1995 1994 1993
================== ================== ==================
Average Average Average
(In thousands) Balances Rates Balances Rates Balances Rates
==============================================================================================================
Deposits in Domestic Offices:
Noninterest-Bearing Demand Deposits $ 807,295 $ 786,153 $ 818,142
Savings and NOW Accounts 811,344 2.34% 903,756 2.15% 921,801 2.11%
Money Market Deposits 940,501 3.43 1,029,548 2.59 1,157,883 2.47
Other Core Deposits 836,530 5.11 734,592 3.35 820,235 3.23
==========================================================================================================
Total Average Core Deposits 3,395,670 3,454,049 3,718,061
Negotiable Certificates of Deposit 9,819 5.88 15,669 3.83 25,657 6.61
==========================================================================================================
Total Average Deposits in Domestic Offices 3,405,489 3,469,718 3,743,718
Deposits in Foreign Offices:/1/
Noninterest-Bearing Demand Deposits 9,468 11,496 13,337
Interest-Bearing Bank Deposits 48,903 7.40 47,039 9.85 131,283 10.54
Negotiable Certificates of Deposit -- -- -- 17,182 6.42
Interest-Bearing Non-Bank Deposits 281,253 5.62 198,844 3.83 318,446 3.13
==========================================================================================================
Total Average Deposits in Foreign Offices 339,624 257,379 480,248
- ----------------------------------------------------------------------------------------------------------
Total Average Deposits $3,745,113 $3,727,097 $4,223,966
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements $ 174,923 5.98% $ 150,678 4.56% $ 164,899 2.77%
U.S. Treasury Demand Notes and Other
Short-Term Borrowings 73,694 5.70 61,058 3.71 67,731 2.79
- ----------------------------------------------------------------------------------------------------------
Total Average Short-Term Borrowings $ 248,617 $ 211,736 $ 232,630
[FN]
/1/ The majority of interest-bearing deposits in foreign offices are
denominated in amounts of $100 thousand or more.
-16-
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased and repurchase
agreements, U.S. Treasury demand notes and other borrowed funds. These
short-term obligations are an additional source of funds the Corporation
established to meet certain asset/liability and daily cash management
objectives. Short-term borrowings decreased $92.0 million (31.3%) to $201.5
million at December 31, 1995 compared with $293.4 million at year-end 1994.
Average short-term borrowings for 1995 totaled $248.6 million, up from 1994's
average of $211.7 million. The increase in the average balance during 1995 was
primarily due to average increases in treasury, tax and loan balances in 1995,
which were a temporary source of funds for the Corporation. See Note 8,
"Borrowings," for additional information.
LONG-TERM DEBT
Long-term debt totaled $217.6 million at December 31, 1995 and 1994. Included in
these long-term obligations were floating-rate subordinated notes maturing in
1996, which totaled $26.1 million at year-end 1995. These subordinated notes had
an interest rate of 5.88% at December 31, 1995, a decrease of 68 basis points
from year-end 1994.
Also 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. The
subordinated debentures due in 2009 bear a fixed rate of interest of 9.65% per
annum, and the notes due 2006 bear a fixed rate of interest of 8.50% per annum.
The Corporation's long-term debt is discussed more fully in Note 8,
"Borrowings."
INTEREST-RATE RISK MANAGEMENT
The Corporation's asset/liability management function is controlled by the
Asset/Liability Committee ("ALCO"), which is comprised of representatives who
lead the major divisions within the Corporation. The objective of the group is
to prudently manage the assets and liabilities of the Corporation to provide
both an optimum and stable net interest margin while maintaining adequate levels
of liquidity and capital. This approach entails the management of overall risk
of the organization, in conjunction with the acquisition and deployment of
funds. ALCO monitors and modifies exposure to changes in interest rates based
upon its view of current and prospective market and economic conditions. The
traditional measurement of an organization's exposure to interest-rate
fluctuations, such as interest sensitivity, entails a "static gap" measurement,
which portrays a snapshot of the statement of condition at one point in time.
However, this methodology does not adequately measure the Corporation's exposure
to interest-rate risk. The statement of condition must be viewed within a
dynamic framework in which relationships may vary over time in virtually every
segment of the financial statement.
The Corporation manages interest-rate risk through the use of a simulation
model, allowing for various interest-rate scenarios to be portrayed. The model
forecasts the impact on earnings of these rate scenarios over a 36-month time
horizon, assuming selected changes in the mix of assets and liabilities, spread
relationships, and management actions. A "most likely" scenario is forecasted
based upon a consensus view of the marketplace. Alternatives, which reflect
interest rates moving significantly higher or lower than this view, are also
evaluated, with the results compared against risk tolerance limits established
by corporate policy. The Corporation's current policy establishes limits for
possible fluctuations in net interest income for an ensuing 12-month period
under the "most likely" scenario described above. While the Corporation
maintained a relatively balanced interest-rate risk position at year-end 1994,
the position became more liability sensitive as of December 31, 1995. In both
instances the Corporation was well-insulated against interest rates moving
significantly in either direction. At December 31, 1995, the forecasted impact
of interest rates either steadily rising or falling 300 basis points versus a
"most likely" scenario would reflect a change in net interest income of less
than 2% over an initial 12-month period, and only 3% over the entire 36-month
horizon -- well below the established tolerance levels set by the Corporation.
In managing the Corporation's interest-rate risk, ALCO also utilizes
financial derivatives in the normal course of business. These products might
include interest-rate swaps, caps, collars, floors, futures, and options.
Financial derivatives are employed to assist in the management and/or reduction
of interest-rate risk for the Corporation and can effectively alter the interest
sensitivity of segments of the statement of condition for specified periods of
time. All of these vehicles are considered "off-balance sheet" as they do not
impact the actual level of assets or liabilities of the Corporation.
Management finds that all of the methodologies discussed above provide a
meaningful representation of the Corporation's interest-rate sensitivity, though
factors other than changes in the interest-rate environment, such as levels of
nonearning assets and changes in the composition of earning assets, may impact
net interest income. Management believes its current rate sensitivity level is
appropriate, considering the Corporation's economic outlook and conservative
approach taken in the review and monitoring of the Corporation's sensitivity
position.
-17-
CAPITAL RESOURCES
A fundamental objective of management is to maintain a level of capitalization
that is sufficient to take advantage of favorable investment opportunities and
to promote depositor and investor confidence. In addition, the current economic
and regulatory climate places an increased emphasis on capital strength and the
ability of the Corporation to withstand unfavorable economic and/or business
losses. The Corporation's management monitors its capital levels monthly in
relation to financial forecasts for the year, as well as, internal and external
policies. The Corporation continues to maintain a strong capital position with
one of the highest capital levels relative to other banks in the country.
Total stockholders' equity at December 31, 1995 was $376.7 million, or 7.96%
of total assets, up $109.0 million from year-end 1994. The increase from
year-end 1994 was the result of earnings totaling $87.8 million combined with a
change in net unrealized gains/losses in the securities available for sale
portfolio from a $28.1 million loss at December 31, 1994, to a gain of $3.8
million at year-end 1995. These increases were offset by dividends on preferred
stock of $10.8 million.
The Federal Reserve Board has issued risk-based capital guidelines for bank
holding companies. The guidelines define a two-tier capital framework. Tier I
Capital consists of common and qualifying preferred shareholders' equity less
goodwill and other adjustments. Tier II Capital consists of mandatory
convertible, subordinated and other qualifying term debt, preferred stock not
qualifying as Tier I Capital and the reserve for loan losses up to 1.25 percent
of risk-weighted assets. Under these guidelines, one of four risk weights is
applied to the different on-balance sheet assets. Off-balance sheet items such
as loan commitments and derivatives, are also applied a risk weight after
conversion to balance sheet equivalent amounts. Bank holding companies are
required to meet a minimum ratio of qualifying total (combined Tier I and Tier
II) capital to risk-weighted assets of 8.00%, at least half of which must be
composed of core (Tier I) capital elements. The Corporation's total and core
capital ratios were 21.62% and 13.57%, respectively, at December 31, 1995,
compared with 18.50% and 11.48%, respectively, at December 31, 1994.
The Federal Reserve Board has established an additional capital adequacy
guideline, the leverage ratio, as amended by the Prompt Corrective Action
regulations promulgated under FDICIA, which measures the ratio of Tier I Capital
to quarterly average assets. The minimum leverage ratio guideline is three
percent for the most highly rated bank holding companies. Those that are not in
the most highly rated category, including the Corporation, must maintain at
least a minimum ratio of 4.00% or higher, if determined necessary by the Federal
Reserve Board through its assessment of the Corporation's asset quality,
earnings performance, interest-rate risk and liquidity. The Corporation's
leverage ratio was 8.03% at December 31, 1995, compared with a leverage ratio of
6.42% at the prior year-end.
The Corporation's policy is to ensure that its bank subsidiaries are
capitalized in accordance with regulatory guidelines. The three national bank
subsidiaries of the Corporation are subject to minimum capital ratios prescribed
by the Office of the Comptroller of the Currency ("OCC"), which are the same as
those for the Federal Reserve Board. The following table details the actual and
required minimum ratios for the Corporation and its insured bank subsidiaries.
CAPITAL RATIOS
December 31,
============= Required
1995 1994 Minimums
========================================================================================================
Riggs National Corporation
Tier I 13.57% 11.48% 4.00%
Combined Tier I and Tier II 21.62 18.50 8.00
Leverage/1/ 8.03 6.42 4.00
The Riggs National Bank of Washington, D. C.
Tier I 16.34 13.35 4.00
Combined Tier I and Tier II 17.61 14.64 8.00
Leverage/1/ 9.71 7.39 4.00
The Riggs National Bank of Virginia
Tier I 18.72 18.18 4.00
Combined Tier I and Tier II 19.75 19.43 8.00
Leverage/1/ 9.66 9.74 4.00
The Riggs National Bank of Maryland
Tier I 12.55 13.21 4.00
Combined Tier I and Tier II 13.79 14.46 8.00
Leverage/1/ 7.30 7.33 4.00
[FN]
/1/ Most bank holding companies and national banks, including the Corporation
and the Corporation's national bank subsidiaries, are expected to maintain
at least a 4.00% minimum leverage ratio, or higher, if determined
appropriate by the Federal Reserve Board. The Federal Reserve has not
indicated a requirement higher than 4.00% at December 31, 1995.
-18-
NET INTEREST INCOME
Net interest income is derived by subtracting the cost of funds from the income
received on earning assets. Earning assets are mainly comprised of loans and
securities, while interest-bearing liabilities are deposits and borrowed funds.
Net interest income is impacted by variations in the volume and mix of these
assets and liabilities, as well as fluctuations in interest rates. Net interest
income on a tax-equivalent basis (net interest income plus an amount equal to
the tax savings on tax-exempt interest), totaled $154.3 million for 1995, a
decrease of $2.4 million, or 1.52% from $156.7 million in 1994. The Corporation
experienced a sizable increase during 1995 in average interest-earnings assets,
totaling $90.3 million and an increase of 65 basis points in the average rate
earned. Average loans remained level during the period as the majority of the
increase in average balances occurred in the securities portfolio, which
increased over $63.6 million in 1995. The Corporation also had a $20.6 million
increase in average interest-bearing liabilities that was mostly due to the
increase in average borrowed funds. Thus, the Corporation had a favorable net
increase in average interest-earning assets over interest-bearing liabilities of
$69.7 million. This positive movement, however, was overshadowed by a 102 basis
point increase in the average rate paid on interest-bearing liabilities between
1995 and the prior year. Generally, the Corporation's assets will reprice faster
than its liabilities. With the seven consecutive interest rate increases by the
Federal Reserve in 1994, the Corporation initially experienced an increase in
its net interest margin. As the interest rate increases abated in 1995, combined
with the upward repricing of the liabilities portfolio, the net interest margin
leveled in the first half of 1995 and then declined in the second half of 1995.
The net interest margin (net interest income on a tax-equivalent basis
divided by average earning assets) was 3.74% for 1995, a decrease of 15 basis
points from the 3.89% net interest margin for 1994 because of the aforementioned
changes in earning assets and interest-bearing liabilities. Net interest spread
(the difference between the average tax-equivalent rate earned and the average
rate incurred on interest-bearing liabilities) for 1995 was 2.97%, a 37
basis-point decline from 1994's spread of 3.34%. Interest lost on nonaccrual and
renegotiated loans totaled $2.0 million for 1995, which had the effect of
reducing the net interest margin by approximately five basis points for the
year. In 1994, interest lost totaled $5.0 million and had the effect of reducing
the net interest margin in that year by approximately 12 basis points.
NET INTEREST INCOME CHANGES/1/
1995 Versus 1994 1994 Versus 1993
========================= =========================
Due to Due to Total Due to Due to Total
(In thousands) Rate Volume Change Rate Volume Change
=======================================================================================================
Interest Income:
Loans (Including Fees) $ 15,285 $ (6,504)$ 8,781 $ 7,786 $ 26,275 $ 34,061
Securities Available for Sale 4,681 2,950 7,631 8,461 663 9,124
Securities Held-to-Maturity 5,435 589 6,024 (6,054) (13,713) (19,767)
Time Deposits with Other Banks 2,305 1,728 4,033 1,075 (9,792) (8,717)
Federal Funds Sold and
Reverse Repurchase Agreements 3,502 2,748 6,250 4,477 (11,382) (6,905)
=======================================================================================================
Total Interest Income 31,208 1,511 32,719 15,745 (7,949) 7,796
Interest Expense:
Savings and NOW Accounts 1,702 (1,921) (219) 340 (406) (66)
Money Market Deposit Accounts 8,154 (2,583) 5,571 1,283 (3,346) (2,063)
Time Deposits in Domestic Offices 13,897 3,640 17,537 907 (3,265) (2,358)
Time Deposits in Foreign Offices 2,921 4,619 7,540 (2,197) (10,853) (13,050)
Federal Funds Purchased and
Repurchase Agreements 2,362 1,223 3,585 2,729 (424) 2,305
U.S. Treasury Demand Notes and
Other Borrowings 1,397 538 1,935 580 (199) 381
Long-Term Debt 481 (1,332) (851) 4,019 1,425 5,444
=======================================================================================================
Total Interest Expense 30,914 4,184 35,098 7,661 (17,068) (9,407)
- -------------------------------------------------------------------------------------------------------
Net Interest Income $ 294 $ (2,673)$ (2,379) $ 8,084 $ 9,119 $ 17,203
[FN]
/1/ The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change
in volume) has been allocated between rate and volume variances based on
the percentage relationship of such variances to each other. Income and
rates are computed on a tax-equivalent basis using a Federal income tax
rate of 35% for 1995, 34% for 1994 and 1993, and local tax rates
as applicable.
-19-
THREE-YEAR AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES/1/
1995 1994 1993
========================== =========================== ===========================
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
(In thousands) Balances Expense Rates Balances Expense Rates Balances Expense Rates
=============================================================================================================================
ASSETS
Loans:
Commercial-Taxable $ 399,098 $ 32,126 8.05% $ 381,721 $ 24,734 6.48% $ 279,484 $ 18,921 6.77%
Commercial-Tax-Exempt 33,601 3,797 11.30 61,233 6,547 10.69 83,773 7,686 9.17
Real Estate-Commercial/
Construction 325,987 31,375 9.62 353,006 30,575 8.66 454,657 30,544 6.72
Residential Mortgage 1,310,249 93,179 7.11 1,303,327 92,164 7.07 692,707 53,353 7.70
Home Equity 237,438 21,457 9.04 225,117 17,037 7.57 261,870 18,079 6.90
Consumer 75,874 9,135 12.04 75,663 8,957 11.84 90,255 10,938 12.12
Foreign 160,907 14,610 9.08 201,457 16,884 8.38 319,070 23,316 7.31
========================================================================================================================
Total Loans (Including Fees) 2,543,154 205,679 8.09 2,601,524 196,898 7.57 2,181,816 162,837 7.46
Securities Available for Sale/2/ 634,198 38,750 6.11 582,076 31,119 5.35 565,447 21,995 3.89
Securities Held-to-Maturity 482,164 29,461 6.10 470,690 23,437 4.98 709,845 43,204 6.09
Time Deposits with Other Banks 219,967 13,819 6.28 189,425 9,786 5.17 379,755 18,503 4.87
Federal Funds Sold and
Reverse Repurchase Agreements 242,534 14,389 5.93 187,955 8,139 4.33 483,044 15,044 3.11
========================================================================================================================
Total Earning Assets and
Average Rate Earned 4,122,017 302,098 7.33 4,031,670 269,379 6.68 4,319,907 261,583 6.06
Less: Reserve for Loan Losses 87,894 92,258 85,450
Cash and Due from Banks 203,327 219,609 287,912
Premises and Equipment, Net 151,372 156,525 168,227
Other Assets 184,329 185,031 244,453
========================================================================================================================
Total Assets $4,573,151 $4,500,577 $4,935,049
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 822,666 $ 19,293 2.35% $ 908,582 $ 19,512 2.15% $ 926,363 $ 19,578 2.11%
Money Market Deposit Accounts 949,501 32,518 3.42 1,042,664 26,947 2.58 1,176,873 29,010 2.47
Time Deposits in Domestic Offices 846,356 43,353 5.12 750,258 25,816 3.44 845,892 28,174 3.33
Time Deposits in Foreign Offices 309,832 18,822 6.07 227,943 11,282 4.95 443,359 24,332 5.49
========================================================================================================================
Total Interest-Bearing Deposits 2,928,355 113,986 3.89 2,929,447 83,557 2.85 3,392,487 101,094 2.98
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements 174,923 10,456 5.98 150,678 6,871 4.56 164,899 4,566 2.77
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 73,694 4,203 5.70 61,058 2,268 3.71 67,731 1,887 2.79
Long-Term Debt 217,625 19,176 8.81 232,790 20,027 8.60 213,325 14,583 6.84
========================================================================================================================
Total Interest-Bearing Funds
and Average Rate Incurred 3,394,597 147,821 4.36 3,373,973 112,723 3.34 3,838,442 122,130 3.18
Demand Deposits 816,758 797,650 831,479
Other Liabilities 50,952 45,699 45,215
Stockholders' Equity 310,844 283,255 219,913
========================================================================================================================
Total Liabilities and
Stockholders' Equity $4,573,151 $4,500,577 $4,935,049
Net Interest Income and Spread $154,277 2.97% $156,656 3.34% $139,453 2.88%
========================================================================================================================
Net Interest Margin on
Earning Assets 3.74% 3.89% 3.23%
[FN]
/1/ Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% for 1995, 34% for 1994 and 1993, and local tax
rates as applicable. Loan amounts include nonaccrual and renegotiated
loans. Average foreign assets, excluding net pool funds provided, details
of which can be found on page 62 of this report, were 8.4%, 9.1% and 14.6%
of average total assets for the periods presented, respectively. Average
foreign liabilities were 17.6%, 14.7% and 18.1% of average total
liabilities for the periods presented, respectively.
/2/ The averages and rates for the securities available for sale portfolio
are based on amortized cost.
-20-
NONINTEREST INCOME
Noninterest income for 1995 was $74.0 million, down $11.5 million, or 13.5% from
1994's total of $85.5 million. Excluding securities gains of $511 thousand and
$226 thousand for 1995 and 1994, respectively, and $4.7 million of nonrecurring
noninterest income related to a mortgage insurance settlement recognized in
1994, noninterest income decreased $7.1 million, or 8.8%. Trust income of $29.9
million increased $1.3 million, or 4.7% in 1995 from the Corporation's personal
trust and mutual fund operations. Service charges for 1995 decreased $3.2
million (8.6%) to $33.7 million and international fee income decreased $4.6
million (85.4%) to $786 thousand. The decrease in service charges for 1995 was
primarily due to decreases in transaction-based deposit accounts between the
periods, while the decrease in international commissions and fees was attributed
to the loss of $5.6 million in fee income from the three foreign subsidiaries
sold in the third quarter of 1994. The gain on settlement of mortgage insurance
resulted from the settlement of claims stemming from other real estate owned
properties in the United Kingdom. Foreign exchange income decreased $102
thousand, or 4.5%, in 1995 due primarily to limited foreign exchange
trading-related activities.
NONINTEREST INCOME
Change
====================
(In thousands) 1995 1994 Amount Percent
======================================================================================================
Service Charges $ 33,678 $ 36,836 $ (3,158) (8.6)%
Trust Income 29,934 28,587 1,347 4.7
Foreign Exchange Income 2,169 2,271 (102) (4.5)
International Noncredit Commissions and Fees 786 5,391 (4,605) (85.4)
Gain on Settlement of Mortgage Insurance Claims -- 4,739 (4,739) n/a
Other Noninterest Income 6,926 7,474 (548) (7.3)
=====================================================================================================
Noninterest Income Excluding Securities Gains, Net 73,493 85,298 (11,805) (13.8)
Securities Gains, Net 511 226 285 126.1
- -----------------------------------------------------------------------------------------------------
Total Noninterest Income $ 74,004 $ 85,524 $(11,520) (13.5)%
NONINTEREST EXPENSE
Noninterest expense for the year ended December 31, 1995 was $191.8 million, a
decrease of $7.2 million from $199.0 million for 1994. The decrease in total
noninterest expense, excluding nonrecurring items, was actually larger, the
result of $5.6 million of nonrecurring accruals in the third quarter of 1995 and
a $2.1 million restructuring expense reversal in 1994. Excluding these
nonrecurring items, noninterest expense decreased $14.8 million, or 7.4%.
Of the $5.6 million of nonrecurring expenses in 1995, $4.4 million was for
occupancy related expenses and $1.2 million was for reorganization and
severance-related expenses. The reorganization and severance-related expenses
were related to several efficiency initiatives implemented in the third quarter
and completed in the fourth quarter of 1995. Management expects the
reorganization initiatives to generate approximately $8 million in
compensation-based savings in 1996. The occupancy expenses were the result of
initiatives currently undertaken, including the new technology center to be
completed in mid-year 1996, as well as the marketing of office space to third
parties that is currently vacant or that may become available from the
reorganization initiatives. Management expects the occupancy initiatives to
generate approximately $6 million in occupancy-related expense savings in 1996,
with greater improvements expected in 1997 and thereafter.
Excluding these nonrecurring items, the decrease in noninterest expense
of $14.8 million was primarily due to decreases in Federal Deposit Insurance
Corporation ("FDIC") insurance, legal, furniture and equipment and other
noninterest expenses. Deposit insurance premiums decreased $5.3 million during
1995. Effective June 1995, coinciding with the mandatory 1.25% funding of the
Bank Insurance Fund (BIF) reserve, insurance rates 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. This reduction is expected to generate approximately $6 million in annual
deposit insurance savings, when compared with the previous insurance rates paid,
subject to additional regulation that may be issued relating to the FDIC's
management of mandatory reserve levels and the Financing Corporation's bond
interest
-21-
for the thrift industry that may ultimately be funded in part or in whole by
BIF. Furniture and equipment expense of $8.0 million decreased $1.3 million, or
13.7%, the result of decreases in depreciation expense between the periods.
Other noninterest expense totaled $47.7 million, down $4.0 million, or 8.3%,
from the $52.0 million for 1994. This decrease was primarily the result of $2.5
million in other noninterest expenses related to the three foreign subsidiaries
sold in 1994.
NONINTEREST EXPENSE
Change
=================
(In thousands) 1995 1994 Amount Percent
=====================================================================================================
Salaries and Wages $ 66,184 $ 64,892 $ 1,292 2.0 %
Pensions and Other Employee Benefits 14,319 16,605 (2,286) (13.8)
=====================================================================================================
Total Staff Expense 80,503 81,497 (994) (1.2)
=====================================================================================================
Occupancy, Net 26,415 23,637 2,778 11.8
Data Processing Services 17,043 16,935 108 0.6
Furniture and Equipment 7,960 9,224 (1,264) (13.7)
Advertising and Public Relations 5,576 6,006 (430) (7.2)
FDIC Insurance 4,303 9,601 (5,298) (55.2)
Legal Fees 2,157 3,581 (1,424) (39.8)
Other Real Estate Owned Expense (Income), Net 178 (1,403) 1,581 n/a
Restructuring Expense -- (2,059) 2,059 n/a
Other Noninterest Expense 47,699 52,001 (4,302) (8.3)
- -----------------------------------------------------------------------------------------------------
Total Noninterest Expense $191,834 $199,020 $ (7,186) (3.6)%
INCOME TAXES
The Corporation's provision or benefit for income taxes includes both federal
and state income taxes. The Corporation's 1995 provision for income tax expense
of $.3 million increased from a benefit of $.5 million in 1994. This represents
an effective tax rate of 0.4% for 1995, compared with negative effective tax
rates of 1.6% and 6.4% for 1994 and 1993, respectively. The provision for income
taxes in 1995 was less than the amount determined by application of the federal
statutory income tax rate, principally because of the Corporation's ability to
carry forward previous net operating losses and the reversal of the previously
established valuation allowance.
The Corporation accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes," which primarily requires the use of the asset and
liability method for providing taxes. Under this method, deferred tax assets and
liabilities are recorded from differences between financial statements and tax
based assets and liabilities. The tax effects of these differences are recorded
using anticipated tax rates in the years these differences will reverse.
Additionally, a valuation allowance is established for deferred tax assets in
the event that these assets may not be fully realized. At December 31, 1995, the
Corporation had a net deferred tax asset of $12.1 million, which included a
valuation allowance of $33.7 million. Further tax discussion and a
reconciliation of the effective tax rate to the 1995 federal statutory rate of
35% can be found in Note 13, "Income Taxes."
-22-
FOURTH QUARTER 1995 VS. FOURTH QUARTER 1994
For the fourth quarter of 1995, the Corporation reported net income of $13.0
million, or $.34 per common share, compared with $8.0 million, or $.17 per
common share, for the fourth quarter of 1994. Results for the fourth quarters of
1995 and 1994 reflected no provisions for loan losses. Nonperforming assets
totaled $45.9 million at December 31, 1995, a decrease of $4.2 million for the
fourth quarter of 1995 and a decrease of $29.8 million from $75.7 million at
December 31, 1994.
FOURTH QUARTER CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31,
================== Change
(In thousands, except per share amounts) 1995 1994 Amount
===============================================================================================
Interest Income $74,236 $70,265 $ 3,971
Interest Expense 36,652 31,659 4,993
===============================================================================================
Net Interest Income 37,584 38,606 (1,022)
Less: Provision for Loan Losses -- -- --
===============================================================================================
Net Interest Income after Provision for Loan Losses 37,584 38,606 (1,022)
Noninterest Income 19,323 17,398 1,925
Noninterest Expense 43,819 48,102 (4,283)
===============================================================================================
Income before Income Taxes 13,088 7,902 5,186
Applicable Income Tax Expense (Benefit) 91 (141) 232
- -----------------------------------------------------------------------------------------------
Net Income $12,997 $ 8,043 $ 4,954
Earnings Per Common Share $ .34 $ .17 $ .17
Net interest income on a tax-equivalent basis for the fourth quarter of 1995 was
$38.3 million, a decrease of $1.1 million, or 2.9%, year-to-year, reflecting the
same impact of repricing deposits as experienced throughout 1995. The net
interest margin was 3.70% during the fourth quarter of 1995, down 22 basis
points from fourth quarter of 1994. Interest lost on nonaccrual loans had the
effect of negatively impacting the net interest margin by approximately two
basis points during the fourth quarter of 1995, compared with seven basis points
for the same period in the prior year. The net interest spread was 2.90% for the
quarter ended December 31, 1995, down 41 basis points from that for the same
period in the prior year.
The reserve for loan losses totaled $56.5 million, an increase of $1.2
million during the fourth quarter of 1995. This increase was the result of net
recoveries recorded of $1.4 million, level with net recoveries recorded for the
fourth quarter of 1994.
Noninterest income for the fourth quarter of 1995 was $19.3 million, an
increase of $1.9 million, or 11.1%, when compared with the like period in 1994.
Trust income of $8.4 million increased $1.4 million between the quarters,
stemming primarily from increased revenue from the Corporation's personal trust
operations. Service charges of $8.1 million for 1995's fourth quarter were down
$641 thousand, primarily due to decreases in transaction-based deposit accounts
between the periods. Securities gains/losses increased $1.5 million, the result
of losses realized in 1994 from the Corporation's purchase of $10 million (par
value) of Orange County, California, variable-rate, one-year bonds (see Note 2,
"Securities").
Noninterest expense for the fourth quarter of 1995 totaled $43.8
million, compared with $48.1 million a year earlier, a decrease of $4.3 million,
or 8.9%. Salaries and related benefits of $18.4 million were down $1.2 million
as a result of reduced staff levels. Net occupancy expense was down $526
thousand, to $5.1 million, in the fourth quarter of 1995 because of the
previously mentioned occupancy efficiency programs. FDIC insurance premiums
decreased $2.1 million, totaling $291 thousand for the fourth quarter of 1995,
the result of reduced deposit insurance premiums. Furniture and equipment
expense decreased $73 thousand. Other real estate owned income, net of expense,
was $352 thousand, an increase in revenues of $103 thousand when compared with
1994's fourth-quarter net other real estate owned income, the result of reduced
expense activity within this portfolio. Other noninterest expense totaled $11.6
million for the fourth quarter of 1995, a slight increase of $253 thousand.
-23-
FOURTH QUARTER NET INTEREST INCOME CHANGES/1/
THREE MONTHS ENDED
DECEMBER 31, DUE TO
================= =================
(IN THOUSANDS) 1995 1994 CHANGE RATE VOLUME
===========================================================================================================
Interest Income:
Loans (Including Fees) $51,729 $50,605 $ 1,124 $ 1,383 $ (259)
Securities Available for Sale 10,463 9,302 1,161 (307) 1,468
Securities Held-to-Maturity 5,151 6,225 (1,074) 882 (1,956)
Time Deposits with Other Banks 2,681 2,724 (43) 123 (166)
Federal Funds Sold and Reverse Repurchase Agreements 4,926 2,230 2,696 214 2,482
=======================================================================================================
Total Interest Income 74,950 71,086 3,864 2,295 1,569
Interest Expense:
Savings and NOW Accounts 4,820 5,048 (228) 60 (288)
Money Market Deposit Accounts 8,246 7,392 854 1,402 (548)
Time Deposits in Domestic Offices 11,337 7,703 3,634 1,836 1,798
Time Deposits in Foreign Offices 4,741 3,019 1,722 935 787
Federal Funds Purchased and Repurchase Agreements 2,171 3,401 (1,230) 220 (1,450)
U.S. Treasury Demand Notes and Other
Short-Term Borrowings 560 354 206 25 181
Long-Term Debt 4,777 4,742 35 35 --
=======================================================================================================
Total Interest Expense 36,652 31,659 4,993 4,513 480
- -------------------------------------------------------------------------------------------------------
Net Interest Income $38,298 $39,427 $ (1,129)$ (2,218) $ 1,089
[FN]
/1/ The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change
in volume) has been allocated between rate and volume variances based on the
percentage relationship of such variances to each other. Income and rates
are computed on a tax-equivalent basis using a federal tax rate of 35% for
1995, 34% for 1994 and 1993, and local tax rates as applicable.
1994 VS. 1993
In 1994, the Corporation achieved its first profitable year since 1989, with
total net income of $34.0 million ($.72 per common share) compared with a net
loss of $94.2 million ($3.65 per common share) in 1993. Results for 1994
reflected the benefits of an $18.5 million pretax increase in net interest
income, and reductions of $63.0 million in the provision for loan losses, as
well as reductions of $14.9 million in other real estate owned expense. Net
income to average stockholders' equity was 12.01% for 1994, compared with a
negative ratio for 1993. The net interest margin for 1994 was 3.89%, the highest
margin in over a decade, compared with 3.23% for 1993.
Money market assets, which consist of time deposits with other banks and
federal funds sold and reverse repurchase agreements, declined by $17.7 million,
or 4.4%, compared with year-end 1993, as the Corporation's shift to
higher-yielding, longer-term assets continued, with increases in total average
loans and securities available for sale during the year.
Securities available for sale totaled $598.3 million at December 31, 1994, a
decrease of $109.9 million (15.5%) when compared with $708.1 million at year-end
1993. Average securities available for sale totaled $582.1 million, an increase
of $16.6 million from 1993's average portfolio. In 1994, the impact of a rising
interest-rate environment on bond prices and the Corporation's securities
available for sale portfolio resulted in decreased valuations during 1994 and
the recording of $29.4 million in unrealized losses to stockholders' equity for
the year, for a net unrealized loss balance of $28.1 million at year-end 1994.
Securities held-to-maturity totaled $443.2 million at December 31, 1994,
down $216.9 million, or 32.9%, from the level at December 31, 1993. The average
balance in securities held-to-maturity was $470.7 million for 1994, compared
with $709.8 million for 1993. At December 31, 1994, this portfolio consisted
primarily of U.S. Treasury securities, with 77.4% of the portfolio maturing in
one year or less.
As of December 31, 1994, loans, net of premiums, discounts and deferred
fees, were $2.55 billion, an increase of $21.8 million (0.9%) from the year-end
1993 loan balance. This increase was due, in part, to purchases in the first
quarter of 1994 of $90 million in residential mortgage loans. The purchases,
combined with local-area originations in 1994,
-24-
were partially offset by loan curtailments and payoffs, particularly with
respect to residential mortgage loans and real estate-commercial/construction
loans.
Domestic commercial and financial loans were $400.7 million at December 31,
1994, a decrease of $11.3 million, or 2.8%, from $412.0 million at December 31,
1993. This slight decrease was attributable to curtailments and loan maturities
that were not aggressively repriced at renewal, offset by new commercial loan
originations. Domestic real estate-commercial/construction loans were $323.8
million at December 31, 1994, a decrease of $64.6 million from the level at
year-end 1993, the result of loan curtailments and payoffs, transfers to other
real estate owned and limited new lending by the Corporation in this sector.
Residential mortgage loans totaled $1.32 billion at December 31, 1994, an
increase of $167.8 million (14.6%) from the year-earlier level. This increase
was the result of the local-area originations and purchases in the open market
during 1994. The purchase and origination activity during 1994 was partially
offset by principal curtailments and payoffs, which slowed during 1994 as
refinancings abated with the rise in mortgage rates during the year. Home equity
loans decreased $13.1 million to $220.9 million at December 31, 1994. This
decrease was caused largely by refinancings and the highly competitive nature of
this product in the Washington, D.C., Metropolitan area. Consumer loans were
$75.9 million at year-end 1994, decreasing $6.9 million from $82.8 million at
December 31, 1993, as a result of limited originations of installment loans and
student loans in the domestic markets. Foreign loans totaled $204.6 million at
December 31, 1994, a decrease of $50.8 million from the year-end 1993 total of
$255.4 million. A majority of the decline in the foreign loan portfolio was due
to repayments, as lending activities in the United Kingdom were significantly
reduced because of financial restructuring and limited new lending in the
foreign sector.
Nonperforming assets, which include nonaccrual loans, renegotiated loans,
and other real estate owned (net of reserves), totaled $75.7 million at year-end
1994, a $137.6 million (64.5%) decrease from the year-end 1993 total of $213.3
million. This significant decrease in nonperforming assets during 1994 was
attributable to sales and paydowns of $100.7 million, nonaccrual and
renegotiated loans' returning to accrual status of $36.0 million, and net
charge-offs/writedowns of $15.2 million, which were partially offset by exchange
rate fluctuations of $1.9 million, combined with net additions in 1994 of $12.4
million.
The provision for loan losses totaled $6.3 million for 1994, compared with a
provision of $69.3 million for the prior year. Approximately $14.2 million of
the provision for 1994 related to domestic loans, offset by negative provisions
of $7.9 million related to the foreign loan portfolio. Domestic real
estate-construction and commercial loans accounted for $39.6 million of the 1993
provision total, with the remainder due to loans originated in the United
Kingdom. Net recoveries for 1994 totaled $3.0 million, a significant improvement
from 1993's net charge-offs of $66.4 million. These net recoveries were offset
in 1994 by aggregate net charge-offs totaling $.8 million from domestic
consumer, home equity, residential mortgage, and commercial and financial loans.
The reserve for loan losses was $97.0 million, or 3.81% of total loans, at
December 31, 1994, compared with $86.5 million, or 3.42% of total loans, at
December 31, 1993. The Corporation's coverage ratio was 347.3% at year-end 1994,
up significantly from 53.9% at year-end 1993. Improvement in the coverage ratio
was due to the significant reduction in nonperforming loans.
Total deposits at December 31, 1994, were $3.60 billion, compared with $3.77
billion at year-end 1993, a decrease of $171.0 million, or 4.5%. Average
domestic deposits were $3.47 billion for 1994, down from $3.74 billion for 1993.
Average core deposits (total deposits in domestic offices, excluding negotiable
certificates of deposit) were $3.45 billion, down $264.0 million, or 7.1%, from
1993's balance of $3.72 billion. Average foreign deposits decreased $222.9
million, to $257.4 million, as a result of the Corporation's decision in 1993 to
phase out the deposit-gathering business within its United Kingdom banking
subsidiaries. The declines experienced in 1994 compare with decreases in 1993 of
$663.8 million for total deposits, or 15.0% of total deposits outstanding, with
total average domestic deposits decreasing $168.1 million and total average
foreign deposits decreasing $251.3 million.
Short-term borrowings, comprised of federal funds purchased and repurchase
agreements, U.S. Treasury demand notes and other borrowed funds, totaled $293.4
million at December 31, 1994, a decrease of $160.6 million from the prior
year-end balance. Average short-term borrowings for 1994 totaled $211.7 million,
also down from 1993's average total of $232.6 million. The decreases in
short-term borrowings were the result of rising short-term interest rates in
1994, combined with the overall flattening of the yield curve, thus resulting in
reduced margins from this source of funds.
Long-term debt totaled $217.6 million at December 31, 1994, up slightly from
its balance at December 31, 1993. Long-term debt included floating-rate
subordinated notes maturing in 1996, which totaled $26.1 million at year-end
1994. These subordinated notes had an interest rate of 6.56% at December 31,
1994, an increase of 131 basis points from year-end 1993. Long-term debt also
included $66.5 million of subordinated debentures due in 2009, bearing a fixed
rate of interest of 9.65% per annum. During 1994, the Corporation sold $125.0
million of 8.50% subordinated notes due in February 2006. The notes were sold at
par and are not callable for five years. The notes were sold under a shelf
-25-
registration statement declared effective on January 13, 1994. The net proceeds
from the sale totaled $120.7 million and were used to redeem $51.5 million of
subordinated notes and $69.2 million of subordinated capital notes, both bearing
an interest rate of 5.25% and maturing in 1996.
Total stockholders' equity at December 31, 1994, was $267.7 million, or 6.1%
of total assets, down $25.5 million from the year-end 1993 total. The decrease
during 1994 was the result of earnings totaling $34.0 million, as well as
foreign exchange translation and other activity totaling $1.1 million, which, in
the aggregate, were more than offset by $29.4 million of unrealized losses on
securities in the Corporation's available for sale portfolio, the repurchase of
the Preferred Stock, Series A, totaling $19.1 million and dividends on preferred
stock of $12.1 million. In September 1994, the Corporation repurchased all of
the 764,537 shares of its 7.5% cumulative convertible preferred stock, Series A,
from the Norwich Union Life Insurance Society. This repurchase reduced dividends
payable by $358 thousand in 1994. The Series A preferred shares were convertible
into 2,002,141 shares of common stock. The Corporation's total and core capital
ratios were 18.50% and 11.48%, respectively, at December 31, 1994 and the
leverage ratio was 6.42%.
Net interest income on a tax-equivalent basis totaled $156.7 million for
1994, an increase of $17.2 million, or 12.3%, from the $139.5 million earned in
1993. The positive impact on earnings of a $464.5 million decline in average
interest-bearing liabilities was partially offset by a $288.2 million decrease
in average earning assets. Also having a positive impact on the Corporation's
net interest income was a $148.6 million average decrease in nonperforming
assets between 1993 and 1994, combined with the continued shift to longer-term,
higher-yielding assets from shorter-term investments. Loans were 64.5% of
average earning assets during 1994, compared with 50.5% for 1993. The net
interest margin was 3.89% for 1994, an increase of 66 basis points from the
3.23% net interest margin for 1993. Net interest spread for 1994 was 3.34%, a
46-basis-point improvement from 1993's spread of 2.88%. Interest lost on
nonaccrual and renegotiated loans totaled $5.0 million for 1994, which
negatively impacted the net interest margin by approximately 12 basis points for
the year. In 1993, interest lost totaled $14.1 million and negatively impacted
the net interest margin in that year by approximately 32 basis points.
Noninterest income for 1994 was $85.5 million, down $27.1 million, or 24.1%,
from 1993. Excluding securities gains of $226 thousand and $24.1 million for
1994 and 1993, respectively, and $4.7 million of nonrecurring noninterest income
related to a mortgage insurance settlement recognized in 1994, noninterest
income decreased $8.0 million, or 9.0%. International noncredit commissions and
fees were $5.4 million, a decrease of $4.1 million, or 42.9%, primarily because
of the sale of three foreign investment advisory subsidiaries in the second half
of 1994. The gain on settlement of mortgage insurance claims resulted from the
settlement of claims stemming from other real estate owned properties in the
United Kingdom. Service charges for 1994 of $36.8 million decreased $2.5
million, or 6.4%, primarily because of a decline in deposit balances from a year
earlier. Foreign exchange income decreased $530 thousand, or 18.9%, in 1994, due
primarily to the previously discussed restructuring of Riggs AP Bank and the
exiting of foreign exchange trading-related activities. Other noninterest income
of $7.5 million was down $586 thousand, due primarily to income recognized in
1993 from trading future positions.
Noninterest expense for the year ended December 31, 1994, was $199.0
million, down $67.7 million from $266.8 million for 1993. Noninterest expense
for 1993 included restructuring expense of $34.6 million, of which $20.8 million
related to Riggs AP Bank. Also included in the $34.6 million in restructuring
expense was $13.8 million in expenses related to the implementation of BankStart
'93. Other real estate owned income, net, totaled $1.4 million in 1994, down
110.4% from $13.5 million in net expense in 1993. This decrease is attributed to
the overall decrease in this portfolio during 1994, as well as to the general
improvement in the real estate markets during the year.
Excluding restructuring and other real estate owned expense, noninterest
expense for 1994 was down $16.2 million, or 7.4%, from the total of $218.7
million for 1993. Salaries and related benefits were $81.5 million for 1994, a
decrease of $6.5 million, as a reduction in salary and wage expense combined
with decreases in medical and life insurance premiums, pension expenses and
relocation expenses. Net occupancy expense of $23.6 million was down $2.1
million, or 8.3%, due to decreases in net rent expense of $2.0 million, the
result of increases in rental income from buildings owned and subleases in 1994.
Furniture and equipment expense of $9.2 million decreased $1.9 million, or
17.3%, due to decreases in depreciation and rental expense of $1.2 million, with
the balance of the decrease due to reductions in repair expenses. Other
noninterest expense totaled $52.0 million, down $4.9 million, or 8.5%, from the
$56.9 million for 1993. Accounting for the decrease was $3.8 million of
noncredit-related other losses and $1.1 million in reduced appraisal expenses in
1994.
The Corporation's provision or benefit for income taxes includes both
federal and state income taxes. The Corporation's 1993 provision for income
taxes of $5.6 million resulted from management's analysis of the Corporation's
ability to realize tax benefits previously booked. The 1994 benefit of $.5
million was primarily the result of the favorable settlement of an outstanding
issue with the United Kingdom Inland Revenue.
-26-
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page(s)
(a) The following consolidated financial statements
and related documents are set forth in this
Annual Report on Form 10-K as follows:
Riggs National Corporation and Subsidiaries:
Consolidated Statements of Income 28
Consolidated Statements of Condition 29
Consolidated Statements of Changes
in Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32-57
Management's Report on Financial Statements 58
Report of Independent Public Accountants 59
(b) The following supplementary data is set forth in
this Annual Report on Form 10-K as follows:
Quarterly Financial Information 60-61
Consolidated Financial Ratios and Other Information 60
Quarterly Stock Information 61
-27-
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
==========================
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993
=========================================================================================================
INTEREST INCOME
Interest and Fees on Loans $203,332 $194,525 $160,068
Interest and Dividends on Securities Available for Sale 38,750 30,916 21,995
Interest and Dividends on Securities Held-to-Maturity 28,509 22,639 41,341
Interest on Money Market Assets:
Time Deposits with Other Banks 13,819 9,786 18,503
Federal Funds Sold and Reverse Repurchase Agreements 14,389 8,139 15,044
=====================================================================================================
Total Interest on Money Market Assets 28,208 17,925 33,547
=====================================================================================================
TOTAL INTEREST INCOME 298,799 266,005 256,951
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 19,293 19,512 19,578
Money Market Deposit Accounts 32,518 26,947 29,010
Time Deposits in Domestic Offices 43,353 25,241 28,174
Time Deposits in Foreign Offices 18,822 11,857 24,332
=====================================================================================================
Total Interest on Deposits 113,986 83,557 101,094
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 10,456 6,871 4,566
U.S. Treasury Demand Notes and Other Short-Term Borrowings 4,203 2,268 1,887
Long-Term Debt 19,176 20,027 14,583
=====================================================================================================
Total Interest on Short-Term Borrowings and Long-Term Debt 33,835 29,166 21,036
=====================================================================================================
TOTAL INTEREST EXPENSE 147,821 112,723 122,130
=====================================================================================================
NET INTEREST INCOME 150,978 153,282 134,821
Less: Provision for Loan Losses (55,000) 6,300 69,290
=====================================================================================================
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 205,978 146,982 65,531
NONINTEREST INCOME
Service Charges 33,678 36,836 39,343
Trust Income 29,934 28,587 28,857
International Non-Credit Commissions and Fees 786 5,391 9,448
Gain on Settlement of Mortgage Insurance Claims -- 4,739 --
Other Noninterest Income 9,095 9,745 10,861
Securities Gains, Net 511 226 24,141
=====================================================================================================
TOTAL NONINTEREST INCOME 74,004 85,524 112,650
NONINTEREST EXPENSE
Salaries and Wages 66,184 64,892 69,978
Pensions and Other Employee Benefits 14,319 16,605 18,048
Occupancy, Net 26,415 23,637 25,763
Data Processing Services 17,043 16,935 16,585
Furniture and Equipment 7,960 9,224 11,153
Advertising and Public Relations 5,576 6,006 5,971
FDIC Insurance 4,303 9,601 10,309
Legal Fees 2,157 3,581 4,024
Other Real Estate Owned Expense (Income), Net 178 (1,403) 13,513
Restructuring Expense -- (2,059) 34,554
Other Noninterest Expense 47,699 52,001 56,854
=====================================================================================================
TOTAL NONINTEREST EXPENSE 191,834 199,020 266,752
=====================================================================================================
Income (Loss) before Taxes 88,148 33,486 (88,571)
Applicable Income Tax Expense (Benefit) 346 (533) 5,640
- -----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 87,802 $ 34,019 $ (94,211)
Less: Dividends on Preferred Stock 10,750 12,124 1,434
=====================================================================================================
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ 77,052 $ 21,895 $ (95,645)
=====================================================================================================
EARNINGS (LOSS) PER COMMON SHARE $ 2.54 $ .72 $ (3.65)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-28-
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
=====================
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994
============================================================================================================
ASSETS
Cash and Due from Banks $ 253,414 $ 206,953
Money Market Assets:
Time Deposits with Other Banks 231,374 228,224
Federal Funds Sold and Reverse Repurchase Agreements 423,000 160,000
========================================================================================================
Total Money Market Assets 654,374 388,224
Securities Available for Sale (at Market Value) 970,006 598,277
Securities Held-to-Maturity (Market Value: 1994, $434,993) -- 443,163
Loans 2,571,959 2,549,924
Reserve for Loan Losses 56,546 97,039
========================================================================================================
Total Net Loans 2,515,413 2,452,885
Premises and Equipment, Net 154,770 151,532
Accrued Interest Receivable 29,578 27,904
Other Real Estate Owned, Net 33,197 47,763
Other Assets 121,781 108,964
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $4,732,533 $4,425,665
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 910,887 $ 827,023
Interest-Bearing Deposits:
Savings and NOW Accounts 848,242 900,209
Money Market Deposit Accounts 951,117 966,348
Time Deposits in Domestic Offices 857,036 625,432
Time Deposits in Foreign Offices 317,897 283,782
========================================================================================================
Total Interest-Bearing Deposits 2,974,292 2,775,771
========================================================================================================
Total Deposits 3,885,179 3,602,794
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 186,009 264,878
U.S. Treasury Demand Notes and Other Short-Term Borrowings 15,466 28,559
========================================================================================================
Total Short-Term Borrowings 201,475 293,437
Other Liabilities 51,585 44,146
Long-Term Debt 217,625 217,625
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,355,864 4,158,002
STOCKHOLDERS' EQUITY
Preferred Stock - $1.00 Par Value
Shares Authorized - 25,000,000 at December 31, 1995, and 1994; Liquidation
Preference - $25 per share
Noncumulative Perpetual Series B - 4,000,000 shares at December 31, 1995, and 1994 4,000 4,000
Common Stock - $2.50 Par Value
Shares Authorized - 50,000,000 at December 31, 1995, and 1994
Shares Issued - 31,175,262 at December 31, 1995, and
31,145,212 at December 31, 1994 77,938 77,863
Surplus - Preferred Stock 91,192 91,192
Surplus - Common Stock 156,320 156,123
Foreign Exchange Translation Adjustments (873) (634)
Undivided Profits (Accumulated Deficit) 68,038 (9,014)
Unrealized Gain (Loss) on Securities Available for Sale, Net 3,777 (28,144)
Treasury Stock - 900,798 shares at December 31, 1995, and 1994 (23,723) (23,723)
=========================================================================================================
TOTAL STOCKHOLDERS' EQUITY 376,669 267,663
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,732,533 $4,425,665
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-29-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
UNREALIZED
FOREIGN UNDIVIDED GAIN (LOSS)
PREFERRED COMMON EXCHANGE PROFITS ON SECURITIES TOTAL
STOCK STOCK TRANSLATION (ACCUMULATED AVAILABLE TREASURY STOCKHOLDERS'
(In thousands, except per share amounts) $1.00 PAR $2.50 PAR SURPLUS ADJUSTMENTS DEFICIT) FOR SALE, NET STOCK EQUITY
====================================================================================================================================
Balance, December 31, 1992 $ 765 $ 65,307 $149,804 $ (11,413) $ 64,680 $ -- $ (23,723) $245,420
Issuance of Series B Preferred
Stock - 4,000,000 shares 4,000 91,309 95,309
Issuance of Common
Stock - 5,000,000 shares 12,500 24,451 36,951
Net Loss (94,211) (94,211)
Unrealized Gain on Securities
Available for Sale, Net 1,276 1,276
Foreign Exchange Translation
Adjustments 9,886 9,886
Cash Dividends Declared:
Series A Preferred Stock,
$1.875 Per Share (1,434) (1,434)
===================================================================================================================================
Balance, December 31, 1993 $ 4,765 $ 77,807 $265,564 $ (1,527) $(30,965) $ 1,276 $ (23,723) $293,197
Repurchase of Series A Preferred
Stock - 764,537 shares (765) (18,232) (116) (19,113)
Issuance of Common Stock for
stock option plans - 22,400 shares 56 145 201
Net Income 34,019 34,019
Unrealized Loss on Securities
Available for Sale, Net (29,420) (29,420)
Foreign Exchange Translation
Adjustments 893 893
Cash Dividends Declared:
Series A Preferred Stock,
$1.40625 Per Share (1,075) (1,075)
Series B Preferred Stock,
$2.76215 Per Share (11,049) (11,049)
Other (162) 172 10
==================================================================================================================================
Balance, December 31, 1994 $ 4,000 $ 77,863 $247,315 $ (634) $ (9,014) $ (28,144) $ (23,723) $267,663
Issuance of Common Stock for
stock option plans - 30,050 shares 75 197 272
Net Income 87,802 87,802
Unrealized Gain on Securities
Available for Sale, Net 31,921 31,921
Foreign Exchange Translation
Adjustments (239) (239)
Cash Dividends Declared:
Series B Preferred Stock,
$2.6875 Per Share (10,750) (10,750)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ 4,000 $ 77,938 $247,512 $ (873) $ 68,038 $ 3,777 $(23,723) $376,669
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-30-
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEARS ENDED DECEMBER 31,
================================
(IN THOUSANDS) 1995 1994 1993
==========================================================================================================
Cash Flows from Operating Activities:
Net Income (Loss) $ 87,802 $ 34,019 $ (94,211)
Adjustments to Reconcile Net Income (Loss) to Cash
Provided by Operating Activities:
Provision for Loan Losses (55,000) 6,300 69,290
Provision for Other Real Estate Owned Writedowns 2,868 3,333 11,330
Depreciation Expense and Amortization of Leasehold Improvements 11,662 12,554 13,169
Amortization of Purchase Accounting Adjustments 3,603 3,795 5,673
Provision (Benefit) for Deferred Taxes (7,371) (642) 5,598
Restructuring Charges -- (2,059) 34,554
Gains on Sales of Securities Available for Sale (511) (226) (26,975)
Gains on Sales of Other Real Estate Owned (3,990) (4,711) (2,702)
(Increase) Decrease in Accrued Interest Receivable (1,674) (4,993) 3,822
(Increase) Decrease in Other Assets (18,366) 8,593 19,521
Increase (Decrease) in Other Liabilities 14,810 402 (21,019)
=====================================================================================================
Total Adjustments (53,969) 22,346 112,261
=====================================================================================================
Net Cash Provided by Operating Activities 33,833 56,365 18,050
=====================================================================================================
Cash Flows from Investing Activities:
Net (Increase) Decrease in Time Deposits with Other Banks (3,150) (27,278) 447,506
Proceeds from Maturities of Securities Available for Sale 97,904 122,619 --
Proceeds from Sales of Securities Available for Sale 100,095 193,048 736,310
Purchase of Securities Available for Sale (89,218) (233,885) (879,125)
Proceeds from Maturities of Securities Held-to-Maturity 534,752 1,050,000 768,607
Proceeds from Sales of Securities Held-to-Maturity -- 4,825 --
Purchase of Securities Held-to-Maturity (537,721) (839,042)(1,010,754)
Net Increase in Loans (7,553) (41,747) (417,461)
Proceeds from Sales and Other Payments of Other Real Estate Owned 15,782 29,869 31,930
Net (Increase) Decrease in Premises and Equipment (14,900) (2,988) 127
Other, Net (69) 731 (520)
=====================================================================================================
Net Cash Provided by (Used in) Investing Activities 95,922 256,152 (323,380)
=====================================================================================================
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand, Savings,
NOW and Money Market Deposit Accounts 16,666 (208,728) (195,694)
Net Increase (Decrease) in Time Deposits 265,719 37,698 (468,080)
Net (Decrease) Increase in Federal Funds Purchased
and Repurchase Agreements (78,869) (37,452) 249,909
Net (Decrease) Increase in U.S. Treasury Demand Notes
and Other Short-Term Borrowings (13,093) (123,138) 63,618
Repurchase of Preferred Stock - Series A -- (19,113) --
Proceeds from the Issuance of Common Stock 272 201 132,260
Net Proceeds from the Issuance of Long-Term Debt -- 121,250 --
Repayments of Long-Term Debt -- (120,700) --
Dividend Payments - Preferred (10,750) (12,124) (1,434)
Other, Net -- 10 --
=====================================================================================================
Net Cash Provided by (Used in) Financing Activities 179,945 (362,096) (219,421)
=====================================================================================================
Effect of Exchange Rate Changes (239) 893 9,886
=====================================================================================================
Net Increase (Decrease) in Cash and Cash Equivalents 309,461 (48,686) (514,865)
Cash and Cash Equivalents at Beginning of Year 366,953 415,639 930,504
- -----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 676,414 $ 366,953 $ 415,639
Supplemental Schedule of Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned $ 741 $ 27,934 $ 34,248
Loans to Finance the Sale of Other Real Estate Owned 685 4,950 30,276
Securities Transferred to Available for Sale 446,132 -- --
Supplemental Disclosures:
Interest Paid (net of amount capitalized) $ 145,807 $ 107,534 $ 125,540
Income Tax Payments (Refund) 6,802 (7,235) (4,269)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-31-
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 summary of significant accounting policies of Riggs National
Corporation ("the Corporation"), including its principal subsidiaries, The Riggs
National Bank of Washington, D.C. ("Riggs-Washington") and Riggs AP Bank Limited
("Riggs AP") and also including The Riggs National Bank of Virginia
("Riggs-Virginia") and The Riggs National Bank of Maryland ("Riggs-Maryland") is
presented to assist the reader in understanding the financial, statistical and
other data presented in this report.
The Corporation provides a wide range of financial services to a broad
customer base. These include traditional retail banking, corporate and
commercial banking, and trust and investment advisory services. The
Corporation's trust group provides fiduciary and administrative services,
including financial management and tax planning for individuals, investment and
accounting services for corporate and nonprofit organizations, estate planning
and trust administration, as well as bond trusteeship for state and local
governments and public companies.
GENERAL ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation are in accordance with
generally accepted accounting principles and conform to general practice within
the banking industry. The financial statements include certain amounts that are
based on management's best estimates and judgment, as detailed in these "Notes
to Consolidated Financial Statements."
For purposes of reporting cash flows, cash equivalents include cash on hand,
amounts due from banks and federal funds sold and reverse repurchase agreements.
Generally, federal funds are purchased and sold for one-day periods.
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries, after elimination of all intercompany
transactions.
SECURITIES
Securities are accounted for under Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires, among other items, the determination at the
acquisition date of a security, whether such security is purchased with the
intent and ability to hold to maturity, whether it is purchased with the intent
to trade, or whether the security is available for sale. Securities available
for sale are carried at fair value, with unrealized gains and losses, net of
tax, included as a separate component of stockholders' equity. Management has
established policies that require the periodic review of the securities
portfolio for proper classification of securities under SFAS No. 115 (see Note
2, "Securities").
In late 1995, the Financial Accounting Standards Board ("FASB") published a
Special Report for implementation of SFAS No. 115. The report was designed to
provide additional guidance and clarification on the implementation of SFAS No.
115. Since the issuance of SFAS No. 115, many issues have arisen, particularly
issues on the initial classification of securities. This report also includes a
special transition provision, allowing a one-time reassessment of the initial
classifications of all securities and the ability to reclassify, after review of
the guidance in the Special Report, securities between the classifications of
held-to-maturity and available for sale. This transfer between portfolios can
occur without the prescribed accounting for transfers between portfolios under
SFAS No. 115, for transfers made before December 31, 1995 (see Note 2,
"Securities" for further details on the Corporation's actions under this Special
Report).
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. Loan origination fees and certain direct loan origination
costs are deferred, and the net amount is amortized as an adjustment of the
related loan's yield. The Corporation generally amortizes these amounts in a
manner that approximates a level yield over the estimated lives of the loans.
The Corporation discontinues the accrual of interest on loans based on
delinquency status, an evaluation of the related collateral and the financial
strength of the borrower. Generally, loans are placed on nonaccrual status when
the loans are contractually in default in either principal or interest for 90
days or more and the loans are 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 actually been collected is reversed.
The Corporation adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" on January 1, 1995, which defines impaired loans as
specifically reviewed loans for which it is probable that the Corporation will
be unable to collect all amounts due according to the terms of the loan
agreement. The Corporation's impaired loans are generally defined as nonaccrual
loans as detailed above. Impaired loans do not include large groups of
smaller-balance loans with similar collateral characteristics such as
residential mortgage and consumer installment loans, which are collectively
evaluated
-32-
for impairment. Impaired loans are therefore 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 the opinion of
management, is adequate to absorb potential losses in the loan portfolio. The
adequacy of the reserve is based on management's 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. Thus, 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 earnings in amounts
necessary to maintain an adequate reserve for loan losses. A loan is charged off
when, in the opinion of management, the loan cannot be fully collected.
Recoveries of loans previously charged off are added to the reserve.
The specific reserves for impaired loans, under SFAS No. 114 at December 31,
1995, is included in the reserves for loan losses discussed above. Impaired
loans are valued based on the fair value of the related collateral if the loans
are collateral dependent, and for all other impaired loans, the specific reserve
is based on the present value of expected future cash flows discounted at the
loan's initial effective interest rate. If the loan valuation is less than the
recorded value of the loan, a specific impairment reserve must be established
for the difference. The specific impairment reserve is established by either an
allocation of the reserve for loan losses or by a provision for loan losses,
depending on the adequacy of the reserve for loan losses.
OTHER REAL ESTATE OWNED
Other real estate owned is property acquired or deemed to have been acquired
through foreclosure. Other real estate owned is recorded at the lower of fair
value less estimated costs to sell, or cost. Initial writedowns 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, net, in other real
estate owned expense.
PREMISES AND EQUIPMENT
Premises, leasehold improvements and furniture and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization of
premises, leasehold improvements, and furniture and equipment are computed using
the straight-line method. Ranges of useful lives for computing depreciation and
amortization are as follows:
YEARS
==================================================
Premises 25 to 35
Leasehold Improvements 5 to 20
Furniture and Equipment 5 to 15
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 an operations center located in
Riverdale, Maryland are capitalized at the Corporation's weighted-average cost
of funds.
OTHER ASSETS
Included in other assets are intangible assets, such as goodwill, which is the
excess of cost over net assets of acquired entities, and core-deposit
intangibles. Goodwill is amortized on the straight-line method over 25 years.
The Corporation had unamortized goodwill of $4.7 million at December 31, 1995,
and amortization expense of $294 thousand, $397 thousand, and $565 thousand for
1995, 1994, and 1993, respectively. Core-deposit intangibles represent the net
present value of the future income streams related to deposits acquired through
mergers or acquisitions, and are amortized on an accelerated basis over 10
years. The unamortized core-deposit intangibles totaled $14.7 million at
December 31, 1995, with amortization expense of $3.3 million, $3.4 million, and
$3.5 million for 1995, 1994, and 1993, respectively.
INCOME TAXES
The Corporation provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes," which mandates the asset and liability method of accounting for
income taxes. The Corporation had previously accounted for taxes under the
deferral method required by Accounting Principles Board ("APB") Opinion No. 11.
Under SFAS No. 109, deferred tax assets and liabilities are recognized for
future tax consequences of events that have been recognized in the Corporation's
financial statements in relationship to their respective tax basis. Deferred tax
assets are reduced by a valuation allowance, using management's judgment and
estimates to determine a net deferred tax asset amount that is likely to be
realized in future periods.
-33-
BENEFIT PLANS
Riggs-Washington maintains a noncontributory defined benefit pension plan for
substantially all employees of the Corporation and its 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.
The Corporation also provides health care and life insurance benefits
for retired employees. The estimated cost of retiree benefits are accrued for
active employees. The Corporation recognized a transition asset, which is
amortized over a period of 20 years, when it adopted the current accounting
treatment for postretirement benefits. The accrual of postretirement benefit
costs is based on management's judgment and estimates through actuarial
assumptions and computations.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are calculated by dividing net earnings after
deduction of preferred stock dividends by the weighted-average number of shares
of common stock and common stock equivalents outstanding during each period.
Stock options are considered common stock equivalents, unless determined to be
anti-dilutive. The weighted-average shares outstanding were 30,257,585 for 1995,
30,230,213 for 1994 and 26,208,315 for 1993.
Fully diluted earnings per common share were not presented because
outstanding preferred shares, when converted to common stock, as well as the
assumed exercise of outstanding stock options, were not dilutive.
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 appropriately weighted-average exchange rates for the
period. Functional currency to U.S. dollars translation gains and losses, net of
related hedge transactions, are credited or charged directly to the
stockholders' equity account, "Foreign Exchange Translation Adjustments."
FOREIGN EXCHANGE INCOME
Foreign currency trading and exchange positions, including spot and forward
exchange contracts, are valued monthly, and the resulting profits and losses are
recorded in foreign exchange trading income. The amount of net foreign exchange
trading gains included in the accompanying consolidated statements of income
under other noninterest income was $2.2 million for 1995, $2.3 million for 1994
and $2.8 million for 1993.
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. There is
no effect on total assets or liabilities of the Corporation. 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 hedged assets or
liabilities.
NEW FINANCIAL ACCOUNTING STANDARDS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" was issued, requiring that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such recoverability is
measured based on the estimated future cash flows expected to result from the
use of the asset as well as its eventual disposition. SFAS No. 121 excludes
financial instruments, long-term customer relationships of financial
institutions, mortgage and other servicing rights and deferred tax assets. SFAS
No. 121 is effective for fiscal years beginning after December 15, 1995. The
Corporation does not anticipate any material effect on the Corporation's
financial position from the implementation of SFAS No. 121.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. SFAS No. 123 defines a fair-value-based method of accounting for
employee stock options or similar equity transactions. SFAS No. 123 allows the
recording of such fair-value-based accounting in the financial statements or the
disclosure of the fair value impact to net income and earnings per share on a
proforma basis in the notes to the consolidated financial statements. If the
Corporation decides to disclose the impact of SFAS No. 123 as opposed to
actually recording the fair value impact of such employee stock option plans,
then the Corporation would continue to account for these plans under Accounting
Principles Board Opinion No. 25. SFAS No. 123 is effective for fiscal years
beginning after December 15, 1995. The Corporation does not anticipate any
material effect on the Corporation's financial position from the implementation
of SFAS No. 123.
-34-
NOTE 2. SECURITIES
1995 1994
========================================= ========================================
GROSS GROSS BOOK/ GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE FOR SALE COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
======================================================================================================================
U.S. Treasury Securities $291,514 $2,375 $111 $293,778 $138,462 $-- $ 2,275 $136,187
Government Agencies Securities 252,687 2,143 -- 254,830 26,557 -- 1,919 24,638
Obligations of States & Political
Subdivisions 3,800 900 -- 4,700 8,800 -- 800 8,000
Mortgage-Backed Securities 387,901 654 238 388,317 438,139 -- 23,150 414,989
Other Securities 28,381 -- -- 28,381 14,463 -- -- 14,463
------------------------------------------------------------------------------------
Total Securities Available for Sale $964,283 $6,072 $349 $970,006 $626,421 $-- $ 28,144 $598,277
1995 1994
========================================= ========================================
GROSS GROSS GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET BOOK UNREALIZED UNREALIZED MARKET
HELD-TO-MATURITY VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
======================================================================================================================
U.S. Treasury Securities $ -- $ -- $ -- $ -- $318,163 $-- $ 3,041 $315,122
Government Agencies Securities -- -- -- -- 125,000 -- 5,129 119,871
- ---------------------------------------------------------------------------------------------------------------------
Total Securities Held-to-Maturity $ -- $ -- $ -- $ -- $443,163 $-- $ 8,170 $434,993
SECURITIES AVAILABLE FOR SALE
As of December 31, 1995 securities available for sale increased $371.7 million
to $970.0 million. This increase was mainly attributable to purchases in 1995 of
$89.2 million and the transfer of the held-to-maturity portfolio to the
available for sale portfolio in December 1995, with a book value of $446.1
million at the date of transfer. This transfer was made in accordance with the
latest accounting guidance, allowing a one-time reassessment of securities
classifications and transfers between portfolios without the prescribed
accounting for transfers under SFAS No. 115 (see Note 1, "Summary of Significant
Accounting Policies").
Proceeds from the sale of securities available for sale totaled $100 million
during 1995, as compared with $193 million during 1994. Gross gains from the
sale of these securities totaled $511 thousand during the year and no losses,
compared with gross gains of $1.7 million and gross losses of $376 thousand for
1994. At December 31, 1995 a $3.8 million unrealized gain, net of tax, was
recorded in stockholders' equity compared to a $28.1 million unrealized loss
recorded in 1994. Securities available for sale pledged to secure deposits and
other borrowings amounted to $723.6 million at December 31, 1995, and $367.5
million at December 31, 1994.
The "Other Securities" category consists of $10.7 million of Federal Home
Loan Bank of Atlanta ("FHLB-Atlanta") Stock, $9.0 million of Federal Reserve
Stock and $8.7 million of U.S. Treasury money market mutual funds at year end.
The FHLB-Atlanta and Federal Reserve Stock have no readily available market
value quotation and therefore their year-end book values are an approximation of
their market values. In December 1994, the Corporation purchased $10.0 million,
par value, of Orange County, California, variable-rate, one-year Notes that were
due July and August 1995. On December 6, 1994, Orange County declared
bankruptcy. In August 1995, $5 million of the Notes, which were not part of the
bankruptcy proceedings, matured and were paid off. On July 7, 1995 the
Corporation accepted Orange County's offer to extend the maturity date of the
remaining $5 million par value of the Notes, under similar terms and conditions,
to June 30, 1996. The remaining $5 million (par value) of the Notes are included
in the "Obligations of States and Political Subdivisions" category with an
amortized cost balance of $3.8 million at December 31, 1995. Interest on the
Notes is current; however, due to the uncertainty of the outcome of the
bankruptcy proceedings, there is no assurance that future payments will be
received.
SECURITIES HELD-TO-MATURITY
At December 31, 1995 there were no securities held-to-maturity. The decrease
from $443.2 million at December 31, 1994 was mainly due to the transfer of
$446.1 million in held-to-maturity securities to the available for sale
portfolio in December 1995. This transfer was made in accordance with the latest
accounting guidance which allows a one-time reassessment of the held-to-maturity
portfolio. Securities held-to-maturity pledged to secure deposits and other
borrowings amounted to $370.1 million at December 31, 1994.
During 1994, there were $4.8 million of sales from the held-to-maturity
portfolio, the result of increased credit risk experienced with these
securities. Gross gains on the sale of these securities totaled $7 thousand and
there were no gross losses in 1994. There were no sales in 1995 for the
held-to-maturity portfolio prior to the transfer of the portfolio to the
available for sale portfolio in December 1995.
-35-
The maturity distribution of securities at December 31, 1995 follows:
OBLIGATIONS
GOVERNMENT OF STATES MORTGAGE-
U.S.TREASURY AGENCIES & POLITICAL BACKED OTHER
SECURITIES SECURITIES SUBDIVISIONS SECURITIES SECURITIES TOTAL
===========================================================================================================
SECURITIES AVAILABLE FOR SALE
Within 1 year
Amortized Cost $ 90,470 $ -- $ 3,800 $ -- $ 8,707 $102,977
Book/Market 90,527 -- 4,700 -- 8,707 103,934
Yield/1/ 5.59% -- 6.06% -- 5.49% 5.60%
After 1 but within 5 years
Amortized Cost 201,044 252,687 -- 303,076 19,674 776,481
Book/Market 203,251 254,830 -- 303,683 19,674 781,438
Yield/1/ 5.69% 6.41% -- 5.23% 6.10% 5.76%
After 5 but within 10 years
Amortized Cost -- -- -- 59,133 -- 59,133
Book/Market -- -- -- 58,917 -- 58,917
Yield/1/ -- -- -- 5.87% -- 5.87%
After 10 years
Amortized Cost -- -- -- 25,692 -- 25,692
Book/Market -- -- -- 25,717 -- 25,717
Yield/1/ -- -- -- 3.70% -- 3.70%
- ---------------------------------------------------------------------------------------------------------
Total Securities Available for Sale
Amortized Cost $291,514 $252,687 $ 3,800 $387,901 $ 28,381 $964,283
Book/Market 293,778 254,830 4,700 388,317 28,381 970,006
Yield/1/ 5.66% 6.41% 6.06% 5.23% 5.91% 5.69%
[FN]
/1/ Weighted-average yield to maturity at December 31, 1995. The securities
within the category of "Obligations of States & Political Subdivisions"
are taxable securities and are on a nonaccrual basis as of December 31,
1995. All contractual payments to date have been received.
-36-
NOTE 3. LOANS AND RESERVE FOR LOAN LOSSES
The following schedule reflects loans by type at year-end:
LOAN TYPE 1995 1994
========================================================================
Commercial and Financial $ 400,379 $ 400,660
Real Estate-Commercial/Construction 326,965 323,835
Residential Mortgage 1,286,256 1,317,169
Home Equity 251,798 220,910
Consumer 77,804 75,887
Foreign 224,151 204,558
========================================================================
Loans 2,567,353 2,543,019
Less: Unamortized Premiums,
Discounts and Deferred Fees (4,606) (6,905)
- ------------------------------------------------------------------------
Total Loans, Net $2,571,959 $2,549,924
A summary of nonperforming and renegotiated loans, loans contractually past
due 90 days or more and potential problem loans at year-end follows:
LOAN TYPE 1995 1994
=======================================================================
Nonaccrual Loans $9,326 $27,383
Renegotiated Loans 3,410 555
Past Due Loans 5,459 6,121
Potential Problem Loans 8,106 26,038
The level of the reserve for loan losses is based on management's estimates
of the amount required to reflect the collection risks in the loan portfolio
based on circumstances and conditions known at the time. The adequacy of the
reserve for loan losses is based on management's 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.
An analysis of the changes in the reserve for loan losses follows:
1995 1994 1993
============================================================================
Balance, January 1 $ 97,039 $86,513 $84,155
Provision for Loan Losses (55,000) 6,300 69,290
Loans Charged-Off 8,390 12,630 79,434
Less: Recoveries on
Charged-Off Loans 22,928 15,658 13,021
- ----------------------------------------------------------------------------
Net Charge-Offs (Recoveries) (14,538) (3,028) 66,413
Foreign Exchange
Translation Adjustments (31) 1,198 (519)
- ----------------------------------------------------------------------------
Balance, December 31 $ 56,546 $97,039 $86,513
In the third quarter of 1995, the Corporation recorded a $55.0 million
reduction in the reserve for loan losses. The reserve for loan losses reduction
was based on management's review of the adequacy of the reserve, risk
characteristics within the loan portfolio, current asset quality, lending
levels, economic development and other factors. As a result, the provision for
loan losses amounted to a negative $55.0 million for 1995, compared with a
positive provision of $6.3 million for 1994.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS No. 114) and No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures" (SFAS No. 118). SFAS No. 114 requires that
impaired loans be measured and reported based on the present value of expected
cash flows discounted at the loan's effective interest rate, or at the fair
value of the loan's collateral if the loan is deemed "collateral dependent."
Specific reserves are required to the extent that the fair value of the impaired
loans is less than the recorded investment.
Impaired loans are specifically reviewed loans for which it is probable that
the Corporation will be unable to collect all amounts due according to the terms
of the loan agreement. Factors that influence management's judgment in
determining when a loan is impaired include evaluation of the financial strength
of the borrower and the net realizable value of the collateral. According to
SFAS No. 114, insignificant delays or insignificant shortfalls in payments do
not constitute impairment. The Corporation defines "insignificant delays" as
payments that are past due less than 90 days.
SFAS No. 114 does not apply to large groups of smaller-balance homogeneous
loans, such as residential mortgage, consumer installment and credit card loans,
which are collectively evaluated for impairment. Impaired loans are therefore
primarily large balance--commercial and financial loans and real
estate-commercial/construction loans. The Corporation applies the measurement
methods described above to these loans on a loan-by-loan basis. The Corporation
defines impaired loans generally as loans that are placed on nonaccrual status
when a default in either principal or interest for 90 days or more has occurred
and the loans are not well-secured and in the process of collection or are
otherwise determined to be impaired.
Collateral dependent loans, which are measured at the fair value of the
collateral, constitute $4.1 million, or 76.9% of impaired loans at December 31,
1995. The remaining impaired loans of $1.3 million are measured based on the
present value of expected cash flows.
-37-
Specific reserves for impaired loans are included in the reserves for loan
losses, as discussed in Note 1, "Summary of Significant Accounting Policies."
The Corporation's charge-off policy for impaired loans is consistent with its
policy for loan charge-offs to the reserve: impaired loans are charged-off when,
in the opinion of management, the impaired loan cannot be fully collected.
SFAS No. 118 allows a creditor to use existing methods for recognizing
interest income on an impaired loan. Consistent with the Corporation's method
for nonaccrual loans, interest received on impaired loans is recognized as
interest income or, when there is doubt as to the ability to collect either
interest or principal, interest received is applied to principal.
The balance of impaired loans at January 1, 1995 totaled approximately $17
million. The initial adoption of SFAS No. 114 and SFAS No. 118 did not require
an increase to the reserves for loan losses and was not material to the
Corporation's consolidated financial statements or results from operations.
The table below presents impaired loans as of December 31, 1995. In
accordance with SFAS No. 114, the statement was adopted prospectively on January
1, 1995 and, therefore, prior periods are not presented.
IMPAIRED LOANS
DECEMBER 31, 1995
1995
TOTAL AVERAGE
TOTAL SPECIFIC INVESTMENT
IMPAIRED RESERVES FOR IN IMPAIRED INTEREST
LOANS IMPAIRED LOANS LOANS RECOGNIZED
========================================================================================================
Domestic:
Commercial and Financial $ -- $ -- $ 191 $ --
Real Estate - Commercial/Construction 4,696 -- 3,004 --
Foreign 674 -- 6,543 157
- -------------------------------------------------------------------------------------------------------
Total $5,370 $ -- $9,738 $ 157
-38-
NOTE 4. TRANSACTIONS WITH RELATED PARTIES
The Corporation and its banking subsidiaries have had and expect to have
transactions in the ordinary course of business with many of the Corporation's
directors, executive officers, their associates and family members.
During 1995, Allbritton Communications Company ("ACC"), a company indirectly
wholly owned by Mr. Allbritton (chairman of the board and chief executive
officer of the Corporation), paid Riggs-Washington $212 thousand to lease space
in two office buildings owned by Riggs-Washington, under leases that have been
extended through 1996. ACC also reimbursed Riggs-Washington $1 thousand for use
of its dining room during 1995. During 1995, Riggs-Washington purchased, through
advertising agencies, $297 thousand in advertising time from WJLA-TV (a major
network affiliate) and $21 thousand in advertising time from NewsChannel 8 (a
cable television program service), both of which are indirectly owned by Mr.
Allbritton. In addition, during 1995, $79 thousand in meals and entertainment
expense was paid to Design Cuisine, of which William A. Homan (Riggs-Virginia
Board of Consultants) is president.
Riggs-Washington has in the past sold participations in commercial real
estate loans to University State Bank ("University"), a Texas bank that is
indirectly wholly owned by Mr. Allbritton, that had total assets of $217.6
million and total loans of $91.8 million as of December 31, 1995.
Riggs-Washington receives a servicing fee of 0.25% on each of the loans in which
participations were sold to University. No loan participations were sold to
University during 1995. On December 31, 1995, there were $8.3 million in loan
participations outstanding to University.
In December 1994, the Corporation purchased $10.0 million, par value, of
Orange County, California, variable-rate one-year notes due in July and August
1995, with $5.0 million (par value) outstanding at December 31, 1995. The notes
were purchased from the Corporation's proprietary RIMCO Monument Money Market
Fund, which is an indirect subsidiary of the Corporation and is affiliated with
the Riggs Investment Management Corporation, a subsidiary of Riggs-Washington
(see Note 2, "Securities").
The table below reflects information concerning loans by banking
subsidiaries of the Corporation to directors and executive officers of the
Corporation, their associates and family members, and directors of
Riggs-Washington and Riggs AP, their associates and family members. In addition
to the amounts set forth in the table, the Corporation's banking subsidiaries
had $7.2 million of letters of credit outstanding at December 31, 1995 to
related parties. There were no loans included in the table below that were
impaired, nonaccrual, past due, restructured or potential problems at December
31, 1995.
In the opinion of management, these credit transactions did not, at the time
they were entered into, involve more than the normal risk of collectibility or
present other unfavorable features.
DECEMBER 31, AMOUNTS DECEMBER 31,
1994 ADDITIONS COLLECTED 1995
====================================================================================================
Loans to Directors, Executive Officers
and Family Members $16,121 $ 738 $ 429 $ 16,430
Loans to Companies of which Directors
were Principal Stockholders or Directors 14,508 122,049 109,479 27,078
- -----------------------------------------------------------------------------------------------
Total Loans $ 30,629 $122,787 $109,908 $ 43,508
Percent of Total Net Loans 1.25% 1.73%
-39-
NOTE 5. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, 1995, and 1994 is summarized as follows:
DECEMBER 31,
==============================
1995 1994
==============================================================================
Foreclosed Property - Domestic $34,937 $45,934
Foreclosed Property - Foreign 609 4,099
==============================================================================
35,546 50,033
Less: Reserve for Other Real Estate Owned 2,349 2,270
- ------------------------------------------------------------------------------
Total Other Real Estate Owned, Net $33,197 $47,763
An analysis of the changes in the reserves for other real estate owned
follows:
1995 1994 1993
=======================================================================
Balance, January 1 $2,270 $3,716 $6,637
Additions:
Provision for Other Real
Estate Owned Losses 2,868 3,333 11,330
Other 237 763 2,330
===================================================================
Total Additions 3,105 4,096 13,660
Deductions:
Loss on Sales and Selling Expenses 1,017 763 735
Charge-Offs 2,012 4,877 14,516
Other -- -- 1,221
===================================================================
Total Deductions 3,029 5,640 16,472
Foreign Exchange Translation
Adjustments 3 98 (109)
- --------------------------------------------------------------------
Balance, December 31 $2,349 $2,270 $ 3,716
Net operating expense from other real estate owned totaled $178 thousand for
the year ended December 31, 1995, compared with net operating income of $1.4
million for 1994 and net expenses of $13.5 million for 1993.
Other real estate owned income and expense consisted of the following:
1995 1994 1993
==============================================================
Other Real Estate Owned
Operating Revenues $ 626 $ 2,581 $ 439
Net Gain on Sale of Properties 3,990 4,711 2,702
==========================================================
Net Revenues 4,616 7,292 3,141
Provision for Other Real Estate
Owned Losses 2,868 3,333 11,330
Selling and Other Real Estate
Owned Operating Expenses 1,926 2,556 5,324
==========================================================
Net Expenses 4,794 5,889 16,654
- ----------------------------------------------------------
Total Other Real Estate Owned
Expense (Income), Net $ 178 $(1,403) $13,513
-40-
NOTE 6. PREMISES AND EQUIPMENT
Investments in premises and equipment at year-end were as follows:
1995 1994
=========================================================
Premises and Land $153,458 $ 140,224
Furniture and Equipment 67,478 67,146
Leasehold Improvements 56,625 59,287
Accumulated Depreciation
and Amortization (122,829) (115,201)
=====================================================
Subtotal 154,732 151,456
Capital Leases 51 80
Accumulated Amortization (13) (4)
- -----------------------------------------------------
Total Premises and Equipment $154,770 $ 151,532
Depreciation and amortization expense amounted to $11.7 million in 1995,
$12.6 million in 1994 and $13.2 million in 1993.
The Corporation is committed to the following future minimum lease payments
under non-cancelable operating lease agreements covering equipment and premises.
These commitments expire intermittently through 2009 in varying amounts.
The total minimum lease payments under these commitments at December 31,
1995, are as follows:
OPERATING
LEASES
====================================================
1996 $ 9,178
1997 6,209
1998 5,095
1999 3,524
2000 2,421
2001 and after 8,241
- -----------------------------------------------
Total Minimum Lease Payments $34,668
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 1997. Minimum sublease rental income for 1996
totals approximately $99 thousand. Rental expense for all operating leases
(cancelable and non-cancelable), less rental income for leased properties,
consisted of the following:
1995 1994 1993
==========================================================
Rental Expense $16,365 $15,273 $15,961
Rental Income (715) (1,856) (517)
- ------------------------------------------------------
Net Rental Expense $15,650 $13,417 $15,444
In the normal course of business, the Corporation also leases space in
buildings it owns. This rental income amounted to $3.0 million in 1995, $3.1
million in 1994 and $2.3 million in 1993. Minimum lease commitments from
buildings owned for 1996 totals approximately $1.0 million.
In July 1995 construction commenced on a new operations center located in
Riverdale, Maryland, which is expected to be completed in May 1996. This
facility will be located on approximately 7 acres and includes a 156 thousand
square foot office complex, which will consolidate several technology-related
functions that are presently located in leased facilities. The relocation of
personnel from leased locations to this new facility will begin in May 1996 and
the facility will be fully occupied in the fourth quarter of 1996. Anticipated
construction and capitalized costs are estimated to be approximately $17
million, of which $9.2 million was incurred in 1995. Capitalized interest
related to the construction of this facility totaled $57 thousand in 1995.
NOTE 7. TIME DEPOSITS, $100 THOUSAND OR MORE
The following table reflects the year-end balances and maturities for the
Corporation's time deposits in domestic offices of $100 thousand or more:
1995 1994
============================================================
Certificates of Deposit Due Within:
Three Months $ 197,170 $ 72,074
Three to Six Months 37,266 26,138
Six to Twelve Months 38,356 25,776
Over Twelve Months 15,228 21,072
- -------------------------------------------------------
Total $288,020 $145,060
Average time deposits of $100 thousand or more in domestic offices were $283
million in 1995, level with the average of $284 million for 1994.
Interest expense related to time deposits of $100 thousand or more in
domestic offices amounted to $7.6 million in 1995, $4.7 million in 1994 and $5.5
million in 1993.
The average rate paid on time deposits of $100 thousand or more for 1995 was
2.70%, 105 basis points higher than the average rate paid during 1994.
A majority of time deposits in foreign offices were in denominations of
$100 thousand or more.
-41-
NOTE 8. BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings outstanding at year-end and other related information
follow:
FEDERAL FUNDS PURCHASED U.S. TREASURY DEMAND NOTES
AND REPURCHASE AGREEMENTS AND OTHER SHORT-TERM BORROWINGS
=========================== ===============================
1995 1994 1993 1995 1994 1993
========================================================================================================
Balance, December 31 $186,009 $264,878 $302,330 $15,466 $ 28,559 $151,697
Average Amount Outstanding/1/ 174,923 150,678 164,899 73,694 61,058 67,731
Average Rate Paid/1/ 5.98% 4.56% 2.77% 5.70% 3.71% 2.79%
Maximum Amount Outstanding at any
Month-End 311,086 308,850 302,330 335,750 235,517 151,697
[FN]
/1/ Average amounts are based on daily balances. average rates are computed on
actual interest expense divided by average amounts outstanding.
Federal funds purchased consisted of borrowings from other financial
institutions that have maturities ranging from one to 180 days. Repurchase
agreements are transactions with customers and brokers secured by either
securities or resale agreements, which mature generally within 30 days. U.S.
Treasury demand notes consisted of treasury tax and loan account funds
transferred to interest-bearing demand notes with no fixed maturity, subject to
call by the Federal Reserve. Other short-term borrowings were primarily
borrowings from other financial institutions.
LONG-TERM DEBT
Long-term debt outstanding at year-end and other related information follow:
BALANCE OUTSTANDING
INTEREST RATE DECEMBER 31,
DECEMBER 31, 1995 1995 1994
=========================================================================================================
Parent Corporation:
Floating-Rate Subordinated Capital Notes due 1996 5.88% $ 26,100 $ 26,100
Fixed-Rate Subordinated Debentures due 2009 9.65 66,525 66,525
Fixed-Rate Subordinated Notes due 2006 8.50 125,000 125,000
- -----------------------------------------------------------------------------------------------------
Total Long-Term Debt $217,625 $217,625
FLOATING-RATE SUBORDINATED CAPITAL NOTES DUE 1996
The Floating-Rate Subordinated Capital Notes due 1996 (the "Subordinated Capital
Notes") were originally issued in the Euromarket on December 18, 1985, carry
interest at rates determined quarterly by a formula based upon the London
Interbank Offered Rate ("LIBOR") and are subject to a minimum rate of 5.25%.
Under the indenture related to the Subordinated Capital Notes, the Corporation
was required to issue common stock or perpetual preferred stock totaling $95.3
million before the maturity date of the notes. This requirement was fulfilled
during 1993. In March 1994, the Corporation redeemed, at par, $69.2 million of
the Subordinated Capital Notes. The net financial statement loss from the 1994
redemption was not material.
FIXED-RATE SUBORDINATED DEBENTURES DUE 2009
On June 6, 1989, the Corporation issued $100 million of 9.65% Subordinated
Debentures due June 15, 2009. These unsecured subordinated obligations may not
be redeemed prior to maturity. In April 1990, the Corporation purchased, on the
open market and at a discount, $33.5 million of the Subordinated Debentures,
resulting in pretax gains of $7.7 million.
FIXED-RATE SUBORDINATED NOTES DUE 2006
On February 1, 1994, the Corporation sold $125 million of 8.5% Subordinated
Notes, due 2006. The notes were priced at par and are not callable for five
years. In March 1994, the Corporation used the net proceeds from the offering,
$120.7 million, to redeem $69.2 million of the Subordinated Capital Notes due
in 1996, as described above, as well as $51.5 million to redeem the remaining
balance outstanding (at that time) of floating-rate Subordinated Notes Due in
1996.
-42-
NOTE 9. COMMITMENTS AND CONTINGENCIES
OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation enters into various
transactions that, in accordance with generally accepted accounting principles,
are not included on the consolidated statements of condition. These transactions
are referred to as "off-balance-sheet" commitments and differ from the
Corporation's balance sheet activities in that they do not give rise to funded
assets or liabilities. The Corporation enters into derivative transactions to
manage its own risks arising from movements in interest and currency rates. The
Corporation also offers such derivative products to its customers to meet their
financing objectives, as well as to manage their interest and currency rate
risk. Offering these products provides the Corporation with fee income.
Off-balance-sheet activities, for customers and as hedging transactions,
involve varying degrees of credit, interest-rate or liquidity risk in excess of
amounts recognized on the consolidated statements of condition. The Corporation
seeks to minimize its exposure to loss under these commitments by subjecting
them to credit approval and monitoring procedures, as well as by entering into
offsetting or matching positions to hedge interest-rate and currency-rate risk.
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at December 31, 1995 and 1994, are as follows:
1995 1994
=========================================================
Commitments to Extend Credit:
Commercial $360,800 $273,665
Real Estate:
Commercial/Construction 25,612 28,956
Mortgage 6,314 16,565
Home Equity 184,402 181,393
====================================================
Total Real Estate 216,328 226,914
Consumer 83,813 62,763
- ----------------------------------------------------
Total Commitments to Extend Credit $660,941 $563,342
Letters of Credit:
Commercial $ 92,052 $ 47,976
Standby -Financial 52,772 24,344
Standby -Performance 13,501 21,533
- ----------------------------------------------------
Total Letters of Credit $158,325 $ 93,853
Derivative Instruments:
Foreign Currency Contracts-
Commitments to Purchase $ 87,587 $ 41,377
Commitments to Sell 180,417 144,279
Interest-Rate Agreements-
Notional Principal Amount:
Interest-Rate Swaps 313,609 251,536
Interest-Rate Option
Contracts (Corridors) 300,000 400,000
COMMITMENTS TO EXTEND CREDIT
The Corporation enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially all of the
Corporation's commitments to extend credit are contingent upon customers meeting
and satisfying other conditions at the time of loan funding. The contractual
amount of commitments to extend credit for which the Corporation has received a
commitment fee, or which were otherwise legally binding, was $660.9 million at
December 31, 1995; approximately 62% of these commitments were scheduled to
expire within one year. Since many of the commitments are expected to expire
without being drawn upon, the total contractual amounts do not necessarily
represent future funding requirements.
CONCENTRATION OF CREDIT RISK
The Corporation regularly assesses the quality of its commercial credit
exposures and assigns risk ratings to substantially all extensions of credit in
its commercial, real estate and international portfolios. The Corporation seeks
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 for
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 the Corporation's exposure to
future credit losses. The Loan Review Department provides an independent
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, the Corporation's loans are concentrated in the
Baltimore-Washington, D.C.-Richmond corridor and the United Kingdom. Loans in
the domestic portfolio are predominantly to borrowers located in the Washington,
D.C., Metropolitan area. Loans originated by the Corporation's United Kingdom
subsidiary represent 56% of foreign loans and are predominantly to borrowers
located in the United Kingdom.
At December 31, 1995, approximately $429 million, or 17%, of the
Corporation's loan portfolio consisted of loans
-43-
secured by real estate (excluding single-family residential loans), of which
approximately 76% and 24% were secured by properties located in the Washington,
D.C., area and in the United Kingdom, respectively. In addition, the Corporation
had $33.2 million in other real estate owned at December 31, 1995.
Approximately 50% of the Corporation's loan portfolio is secured by the
primary residence of the borrower. At December 31, 1995, residential mortgage
loans were $1.29 billion and home equity loans were $251.8 million.
LETTERS OF CREDIT
There are two major types of letters of credit: commercial and standby letters
of credit. 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. Commercial letters of credit issued by
the Corporation totaled $92.1 million at December 31, 1995.
Standby letters of credit can be either financial or performance-based.
Financial standby letters of credit obligate the Corporation to disburse funds
to a third party if the Corporation's customer fails to repay an outstanding
loan or debt instrument. Performance standby letters of credit obligate the
Corporation to disburse funds if the customer fails to perform some contractual
or nonfinancial obligation. The Corporation's policies generally require that
all standby letter of credit arrangements contain security and debt covenants
similar to those contained in loan agreements. At December 31, 1995, financial
standby letters of credit and performance standby letters of credit totaled
$52.8 million and $13.5 million, respectively.
FOREIGN CURRENCY CONTRACTS
Capital markets products include commitments to purchase and sell foreign
exchange, forward and spot contracts. The Corporation utilizes these products to
manage its exposure to movements in interest and currency rates, and to generate
revenue by assisting customers in managing their own exposure to such rate
movements. These products normally include the exchange of foreign currency
receivables and payables based on an agreed upon rate of exchange. The types of
risk associated with these products are as follows: credit or performance risk,
currency-rate risk, and interest-rate risk. Performance risk relates to the
ability of a counterparty to meet its obligations under the contract.
Performance risk is limited to the cost of replacing the contract at current
rates, and does not include the notional principal balance or other
index/instrument used to determine payment streams.
Currency-rate risk and interest-rate risk arise from changes in the market
value of positions stemming from movements in currency and interest rates. The
Corporation limits its exposure to market value changes by entering into
offsetting or matching positions. The Corporation establishes and monitors
limits of exposure on unmatched positions.
Commitments to purchase and sell foreign currency contracts facilitate the
management of currency-rate risk by ensuring that at some future date a customer
will have a specific currency at a specified rate. The Corporation enters into
these contracts to serve its customers and to hedge its own risk positions
associated with its asset and liability management. In addition to entering into
offsetting or matching positions to offset foreign currency-rate risk, the
Corporation has established limits on the aggregate amount of open positions,
forward trading gaps and total volume of contracts outstanding, as well as
counterparty and country limits. At December 31, 1995, commitments to purchase
and sell foreign exchange were $87.6 million and $180.4 million, respectively.
The difference between these positions is effectively hedged through the
Corporation's sterling equity investment in Riggs AP.
INTEREST-RATE AGREEMENTS AND CONTRACTS
The Corporation's management believes that financial derivatives, such as
interest-rate agreements, can be an important element of prudent balance sheet
and interest-rate risk management. Interest-rate agreements, such as
interest-rate swap agreements, involve two parties that have agreed to exchange
periodic payments calculated with reference to fixed or variable interest rates
applied to an agreed upon notional principal amount. Notional amounts are used
to determine the amount of payments exchanged and do not represent an obligation
to exchange principal balances. Interest-rate swaps are entered into as hedges
against fluctuations in the interest rate of specifically identified assets or
liabilities, and reduce the Corporation's interest-rate risk. The Corporation is
exposed to certain levels of credit and market risk when entering interest-rate
agreements. Credit risk is measured as the cost of replacing, at market rates,
the defaulted agreement.
The Corporation minimizes credit risk by adhering to similar underwriting
standards as those used in other credit transactions, as well as by obtaining
collateral, if deemed appropriate under the specific circumstances. In addition,
all the Corporation's interest-rate swap agreements have been transacted with
either major investment or commercial banks. Market risk arises from changes in
the market values (replacement cost of agreements at current prices) of
agreements outstanding, the result of changes in interest rates or security
values underlying the interest-rate agreements.
-44-
Market risk is minimized primarily since the Corporation uses interest-rate
swaps to hedge certain assets and liabilities, and thus termination of an
agreement would be an infrequent event.
Interest-rate option contracts obligate a contract "seller" to make payments
to a contract "purchaser" in the event that a designated interest-rate index
exceeds a contractual "ceiling" level or falls below a contractual "floor"
level, or both, as in a "corridor" transaction. The Corporation has entered into
such contracts to obtain a specific hedge of certain assets, liabilities or to
offset previously entered derivative positions. The credit and market risk for
interest-rate option contracts is similar to that for interest-rate swap
agreements as described above.
Other than swaps entered into for customers, the Corporation's involvement
with off-balance-sheet financial derivative instruments has been for hedging
purposes. Such transactions have no effect on the level of total assets or
liabilities of the Corporation. Net receivables or payables under agreements
designated as hedges are recorded when realized or accrued as adjustments to
interest income or interest expense related to the hedged asset or liability.
Related fees are deferred and amortized over the lives of the agreements as an
adjustment to interest income or interest expense related to the hedged assets
or liabilities. Unrealized gains and losses will not be reflected in the
accompanying financial statements unless the hedges are terminated.
At December 31, 1995, the Corporation's financial derivative instruments
included a $200 million (notional principal balance) interest-rate swap
agreement, entered into in July 1993, to hedge money market assets against the
possibility of declining interest rates. The swap agreement entails the receipt
of a fixed-rate of 5.38% while paying a floating rate equal to three-month
Libor, reset quarterly. The rate earned on the actual money market assets is
intended to offset the floating-rate payment and the Corporation is left with
the fixed-rate of 5.38%. All payments are netted on a quarterly basis. The total
aggregate net interest expense from this swap transaction is included in
interest income relating to the money market assets.
In March 1995, the Corporation entered into two $25 million (notional
principal balance) interest-rate swap agreements to alter the interest
sensitivity of a portion of the Corporation's real estate mortgage loan
portfolio. Both swap agreements entail the receipt of a floating rate equal to
three-month Libor, reset quarterly, and payments of fixed rates of 6.73% and
6.97%, maturing in March of 1996 and 1997. Also, in April 1995, the Corporation
entered into two additional $25 million (notional principal balance)
interest-rate swap agreements to alter the interest sensitivity of a portion of
the Corporation's real estate mortgage loan portfolio. The April 1995 swap
agreements entail the receipt of a floating rate equal to three-month Libor,
reset quarterly, and payments of fixed rates of 6.55% and 6.70%, maturing in
April 1996 and 1997. Payments for the March and April 1995 swap agreements are
netted on a quarterly basis. The total net interest income/expense from these
swap agreements are included in interest income relating to the real estate
mortgage loan portfolio.
INTEREST RATE SWAP AGREEMENTS
DECEMBER 31, 1995
1995
WEIGHTED ACCRUED ACCRUED UNAMORTIZED NET
NOTIONAL UNREALIZED AVERAGE RATE INTEREST INTEREST FEES & INTEREST
AMOUNT GAIN(LOSS) RECEIVE PAY RECEIVABLE PAYABLE PREMIUMS INC./(EXP.)
================================================================================================================
Receive fixed/pay variable,
Maturing July 1998 $200,000 $ 306 5.38% 5.94% $ 1,913 $ 2,177 $ -- $ (1,587)
Receive variable/pay fixed,
Maturing March 1996 25,000 (40) 5.81% 6.73% 65 70 -- (106)
Receive variable/pay fixed,
Maturing March 1997 25,000 (462) 5.81% 6.97% 65 73 -- (153)
Receive variable/pay fixed,
Maturing April 1996 25,000 (426) 5.94% 6.55% 285 309 -- (73)
Receive variable/pay fixed,
Maturing April 1997 25,000 (62) 5.94% 6.70% 285 316 -- (100)
For Customers 13,609 (483) -- -- 272 310 -- (320)
- -----------------------------------------------------------------------------------------------------------
Total Interest Rate Swap
Agreements $313,609 $ (1,167) $ 2,885 $ 3,255 $ -- $ (2,339)
-45-
INTEREST RATE OPTION CONTRACTS (CORRIDORS)
DECEMBER 31, 1995
1995
ACCRUED UNAMORTIZED NET
NOTIONAL UNREALIZED INTEREST FEES & INTEREST
AMOUNT GAIN(LOSS) RECEIVABLE PREMIUMS INC./(EXP.)
===============================================================================================================
Corridor Maturing April 1997 $100,000 $ (461) $ 47 $ 646 $ (100)
Corridor Maturing August 1996 200,000 (379) -- 400 (434)
- ----------------------------------------------------------------------------------------------------------
Total Interest Rate Option Contracts $300,000 $ (840) $ 47 $ 1,046 $ (534)
In April 1994, the Corporation purchased two $100 million (notional
principal balance) corridors, maturing in April 1996 and 1997, to reduce its
interest-rate risk exposure relating to the $200 million swap agreement to hedge
money market assets. A premium was paid for these agreements, with the cost
amortized over the respective lives.
Under the original terms, the corridor limits for three-month Libor were set
from 5.00% to 6.00%. However, in early November 1994, the rates were adjusted
based upon market conditions. Under the terms of their adjustments, the
Corporation would receive payments from the counterparty if three-month Libor
exceeded a level of approximately 5.60%; however, if Libor rose above 7.00%,
then the Corporation would begin paying to the counterparty the amount by which
Libor exceeds 7.00%. The net result was that the floating-rate paid on the swap
would be capped at 5.60% unless Libor rose above 7.00%. If rates exceeded 7.00%,
the Corporation would effectively reduce the actual floating-rate to be paid by
1.40% as a result of the corridor (7.00%-5.60% = 1.40%). All rates are reset
quarterly to coincide with the interest-rate swap reset dates. The total
aggregate net interest income/expense for these corridor agreements are included
in interest income relating to money market assets.
In December 1995, the Corporation terminated one of the $100 million
corridor agreements, which matured in April 1996. The termination resulted in an
immaterial loss, which was recognized at termination. Prior to termination, $72
thousand of net interest income was recognized from this corridor.
In August 1994, the Corporation entered into another corridor transaction in
the amount of $200 million (notional principal balance). This corridor, executed
to hedge the costs of certain short-term borrowings against rising interest
rates, included a termination agreement. A premium was also paid for this
corridor, with the cost amortized over the two-year life. Under the agreement,
the Corporation receives payments, calculated quarterly on the notional
principal amount, by the amount that three-month Libor exceeds 6.00%. Such
payments will cease, if three-month Libor equals or exceeds 8.00% on a reset
date. Currently, there are no payments being paid or received as the rate is
below the 6.00% floor. The total aggregate net interest income/expense for this
corridor agreement is included in interest expense relating to short-term
borrowings. This agreement matures in August 1996.
OTHER COMMITMENTS
During the first quarter of 1991, the Corporation entered into a ten-year
outsourcing agreement with Integrated Systems Solutions Corp. ("ISSC"), a
subsidiary of IBM, pursuant to which ISSC is managing the operations directly
associated with computer and telecommunications functions of the Corporation.
Payments for the remaining five years of the contract are approximately $83.9
million. Total expense under this contract for 1995 was $14.4 million, compared
with total expenses of $14.4 million and $13.9 million for 1994 and 1993,
respectively.
LITIGATION
In the normal course of business, the Corporation is involved in various types
of litigation. In the opinion of management, based on its assessment and
consultation with outside counsel, litigation that is currently pending against
the Corporation will not have a material impact on the financial condition or
future operations of the Corporation, as a whole.
-46-
NOTE 10. RESERVE BALANCES, FUNDS RESTRICTIONS, REGULATORY MATTERS AND
CAPITAL REQUIREMENTS
RESERVE BALANCES
Riggs-Washington, Riggs-Virginia and Riggs-Maryland must maintain reserves
against deposits and Eurocurrency liabilities in accordance with Regulation D of
the Federal Reserve Act. The total average reserve balances amounted to $64.6
million in 1995 and $64.8 million in 1994.
FUNDS RESTRICTIONS
The Federal Reserve Act ("The Act") imposes restrictions upon the amount of
loans or advances that banks, such as Riggs-Washington, Riggs-Virginia and
Riggs-Maryland, may extend to the Corporation and its 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 Comptroller of the Currency to net profits (as defined) retained
in the current and preceding two calendar years. The payment of dividends by the
Corporation's national bank subsidiaries may also be affected by other factors,
such as requirements for the maintenance of adequate capital. In addition, the
Comptroller of the Currency is authorized to determine, under certain
circumstances relating to the financial condition of a national bank, whether
the payment of dividends would be an unsafe or unsound banking practice and to
prohibit payment thereof.
Riggs-Washington had combined net income of $109.9 million for 1995 and
1994. Thus, 1996 will be the first year since 1990 that Riggs-Washington expects
to have a net earnings position for possible consideration of dividend payments
to the Corporation. Riggs-Virginia had combined net income of approximately $8.9
million for 1995 and 1994, while Riggs-Maryland had combined net income of $2.8
million for the same period.
During 1993, 1994 and 1995, Riggs-Virginia made dividend payments to the
Corporation totaling $1.2 million, $1.8 million and $1.7 million, respectively.
Riggs-Washington and Riggs-Maryland made no dividend payments to the Corporation
in 1993, 1994 or 1995.
REGULATORY MATTERS
On September 28, 1995, the Corporation was notified by the Federal Reserve Bank
of Richmond that the Memorandum of Understanding dated May 14, 1993 was
terminated effective immediately. The terminated Memorandum of Understanding was
the result of regulatory concern over the financial and operational weaknesses
and continued losses related primarily to the Corporation's domestic and United
Kingdom commercial real estate exposure. This brought to an end all operating
agreements between the Corporation and its banking regulators.
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines, bank holding
companies are required to meet a minimum ratio of qualifying total (combined
Tier I and Tier II) capital to risk-weighted assets of 8.00%, at least half of
which must be composed of core (Tier I) capital elements. The Corporation's
total and core capital ratios were 21.62% and 13.57%, respectively, at December
31, 1995, as compared with 18.50% and 11.48% at December 31, 1994.
The Federal Reserve Board has established an additional capital adequacy
guideline referred to as the leverage ratio, as amended by the Prompt Corrective
Action regulations promulgated by the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), which measures Tier I capital to quarterly
average assets. The most highly rated bank holding companies are required to
maintain minimum leverage ratios of 3.00%. Those that are not in the most highly
rated category, including the Corporation, are expected to maintain minimum
ratios of at least 4.00%, or higher, if determined appropriate by the Federal
Reserve Board through its assessment of the Corporation's asset quality,
earnings performance, interest-rate risk and liquidity. The Federal Reserve
Board has not advised the Corporation of a specific leverage ratio requirement
above the 4.00% minimum. The Corporation's leverage ratio was 8.03% at December
31, 1995.
As a result of enactment of FDICIA, the Federal Reserve Board and the other
federal bank regulatory agencies have placed a greater emphasis on capital
ratios of banking organizations. FDICIA expressly conditions the ability of a
banking organization to engage in certain activities on the maintenance of
capital levels equal to or in excess of minimum guidelines and imposes
restrictions on banking organizations that fail to meet minimum guidelines. In
addition, the Federal Reserve Board has placed an increased emphasis on the
leverage ratio as a regulatory tool.
The three national bank subsidiaries of the Corporation are subject to
minimum capital ratios prescribed by the OCC, which are the same as those of the
Federal Reserve Board.
Each of the bank subsidiaries of the Corporation exceeds current minimum
regulatory capital requirements and qualifies, at a minimum, as "well
capitalized" under the FDICIA regulations. In addition, under Federal Reserve
Board policy, bank holding companies are expected to act as a
-47-
source of financial strength to their subsidiary banks and to commit resources
to support such banks. The Corporation's ability to provide financial strength
to its subsidiaries will depend on, among other things, its liquidity position
and Federal Reserve approval.
The following table reflects the actual and required minimum ratios for the
Corporation and its national banking subsidiaries:
CAPITAL RATIOS
December 31, Required
1995 1994 Minimums
=======================================================================================================
Riggs National Corporation
Tier I/1/ 13.57% 11.48% 4.00%
Combined Tier I and Tier II/1/ 21.62 18.50 8.00
Leverage/2/ 8.03 6.42 4.00
The Riggs National Bank of Washington, D.C.
Tier I/1/ 16.34 13.35 4.00
Combined Tier I and Tier II/1/ 17.61 14.64 8.00
Leverage/2/ 9.71 7.39 4.00
The Riggs National Bank of Virginia
Tier I/1/ 18.72 18.18 4.00
Combined Tier I and Tier II/1/ 19.75 19.43 8.00
Leverage/2/ 9.66 9.74 4.00
The Riggs National Bank of Maryland
Tier I/1/ 12.55 13.21 4.00
Combined Tier I and Tier II/1/ 13.79 14.46 8.00
Leverage/2/ 7.30 7.33 4.00
[FN]
/1/ Per regulatory guidelines, unrealized gains and losses for securities
available for sale recorded in equity are excluded from the computation of
these ratios. At December 31, 1995 and 1994, the Corporation had net
unrealized gains of $3.8 million and net unrealized losses of $28.1 million,
respectively.
/2/ Most bank holding companies and national banks, including the Corporation
and the Corporation's national bank subsidiaries, are expected to maintain
at least a 4.00% minimum leverage ratio, or higher if determined
appropriate by the Corporation's primary regulators. The Corporation's
regulators have not indicated a requirement higher than 4.00% at
December 31, 1995.
NOTE 11. COMMON AND PREFERRED STOCK
The Corporation is authorized to issue 50 million shares of Common Stock, par
value $2.50 (the "Common Stock"). At December 31, 1995, the Corporation had
30,274,464 shares issued and outstanding.
On October 21, 1993, the Corporation issued 5,000,000 shares of Common
Stock, at a price of $7.75 per share, in transactions exempt from the
registration requirements of the Securities Act of 1933. The net proceeds from
the sale of the Common Stock totaled approximately $37.0 million.
Pursuant to a rights offering that commenced on December 12, 1991, and
expired on January 23, 1992, the Corporation sold 11,445,000 shares of Common
Stock, representing all of the shares offered, at a subscription price of
$4.375 per share. Net proceeds from the offering were $49.1 million.
The Corporation is authorized to issue 25 million shares of Preferred Stock,
the conditions of which will be set at the time of issuance. As of December 31,
1995, 4,000,000 shares of Preferred Stock were issued and outstanding.
On October 21, 1993, the Corporation issued 4,000,000 shares of 10.75%
Noncumulative 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 have a liquidation preference of $25 per
share, no preemptive rights, limited public market and are non-voting (subject
to certain limited exceptions). The Series B Preferred shares are not redeemable
prior to October 1, 1998, at which time, at the Corporation's option, the
Corporation may redeem in whole or in part the Series B Preferred at prices
ranging from $27.25 in October 1998 to $25.00 in October 2008 and thereafter,
plus accrued but unpaid dividends.
There is no mandatory redemption or sinking fund obligation associated with
the Series B Preferred. Dividends are payable on February 1, May 1, August 1 and
November 1 of each year and are noncumulative. The proceeds from the Series B
Preferred issuance, net of expenses, were $95.3 million.
On September 27, 1994, the Corporation repurchased all 764,537 shares of
its 7.5% Cumulative Convertible Preferred Stock, Series A. The purchase price
was $19.1 million, which is equal to the original issue price in June 1992.
-48-
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 amount is a reasonable estimate of fair value.
SECURITIES
Fair values are based on quoted market prices or dealer quotes. Quoted market
prices were not available for $19.6 million of securities at year-end 1995 and
$8.9 million at year-end 1994; however, management believes that these assets'
carrying values approximate their fair value.
LOANS
The fair value of loans is 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,
management believes the carrying amount is a reasonable estimate of fair value.
Criticized loans are predominantly collateral-dependent; therefore, their
carrying value, net of related reserves is a reasonable estimate of fair value.
DEPOSIT LIABILITIES
The fair value of demand deposit, savings and NOW accounts, and money market
deposit accounts is the amount payable on demand at the reporting date. The fair
value of investment and negotiable certificates of deposit, and foreign time
deposits with a repricing or maturity date extending beyond 90 days, is
estimated using a discounted cash flow 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 amount is a reasonable estimate of fair value.
LONG-TERM DEBT
For the Corporation's long-term debt, fair values are based on dealer quotes.
COMMITMENTS TO EXTEND CREDIT AND OTHER
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The fair value of loan commitments and letters of credit, both standby and
commercial, is assumed to equal their carrying value, which is immaterial.
Extensions of credit under these commitments, if exercised, would result in
loans priced at market terms.
The fair value of financial derivatives is equal to the replacement value of
the derivative. The replacement value is defined as the amount the Corporation
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 value of foreign exchange contracts represents the net asset or
liability already recorded by the Corporation, since these contracts are
revalued on a daily basis.
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments are as
follows:
December 31, 1995 December 31, 1994
-------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
===========================================================================
FINANCIAL ASSETS:
Cash and Due
from Banks $ 253,414 $ 253,414 $ 206,953 $ 206,953
Money Market Assets 654,374 654,374 388,224 388,224
Securities Available
for Sale 970,006 970,006 598,277 598,277
Securities Held-to-
Maturity -- -- 443,163 434,993
Loans 2,571,959 2,590,935 2,549,924 2,422,212
Reserve for
Loan Losses 56,546 -- 97,039 --
- -----------------------------------------------------------------------
Total Net Loans 2,515,413 2,590,935 2,452,885 2,422,212
FINANCIAL LIABILITIES:
Deposits 3,885,179 3,886,891 3,602,794 3,600,549
Short-Term Borrowings 201,475 201,475 293,437 293,437
Long-Term Debt 217,625 236,254 217,625 203,780
OFF-BALANCE-SHEET
COMMITMENTS-
ASSET(LIABILITY):
Foreign Exchange Contracts 348 348 (112) (112)
Interest-Rate Agreements:
Interest-Rate Swaps (370) (1,537) (563) (17,285)
Interest-Rate
Option Contracts 1,093 253 2,918 5,968
Changes in interest rates, assumptions or estimation methodologies may have
a material effect on these estimated fair values. As a result, the Corporation's
ability to actually realize these derived values cannot be assured. Management
is concerned that 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. This lack of uniform valuation
methodologies introduces a greater degree of subjectivity to these estimated
fair values. In addition, the estimated fair values exclude nonfinancial assets,
such as premises and equipment, and certain intangibles, such as core deposit
premiums and customer relationships. Thus, the aggregate fair values presented
do not represent the underlying market value or entity value of the Corporation.
-49-
NOTE 13. INCOME TAXES
The Corporation accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires an asset and liability approach in
accounting for income taxes versus the deferred method previously used under
Accounting Principles Board No. 11 ("APB No. 11").
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 based on tax loss and tax credit carryforwards, to the extent
that realization of such assets is more likely than not. Previously, under APB
No. 11, deferred tax assets were generally recognized only to the extent
realization of such assets was assured beyond a reasonable doubt, which was
generally demonstrated by the Corporation's ability to carry back tax losses or
tax credits to recover taxes previously paid.
Income (loss) before income taxes relating to the operations of domestic
offices and foreign offices was as follows:
1995 1994 1993
=========================================================
Domestic Offices $ 75,551 $ 13,716 $(28,980)
Foreign Offices 12,597 19,770 (59,591)
======================================================
Total $ 88,148 $ 33,486 $(88,571)
The current and deferred portions of the income tax provision (benefit) were
as follows:
1995 1994 1993
=========================================================
Current Provision (Benefit):
Federal $ 8,749 $ 643 $ (24)
State 276 364 254
Foreign (132) (898) (188)
======================================================
Total Current
Provision (Benefit) 8,893 109 42
Deferred Provision (Benefit):
Federal (8,547) (642) 5,309
State -- -- --
Foreign -- -- 289
======================================================
Total Deferred
Provision (Benefit) (8,547) (642) 5,598
======================================================
Provision for Income
Tax Expense (Benefit) $ 346 $ (533) $ 5,640
RECONCILIATION OF STATUTORY TAX RATES TO EFFECTIVE TAX RATES:
1995 1994 1993
======================================================================================================
Income Tax Computed at Federal Statutory Rate of 35%
for 1995 and 34% for 1994 and 1993 $ 30,852 $ 11,386 $(30,114)
Add (Deduct):
State Tax, Net of Federal Tax Benefit 179 241 168
Tax-Exempt Security Interest -- (11) (44)
Tax-Exempt Loan Interest (1,488) (1,427) (1,688)
Tax-Exempt Interest Disallowance 52 27 45
Amortization of Fair Value Adjustments 65 100 100
Stock Dividend Deduction (31) (31) (33)
Alternative Minimum Tax -- 642 --
Tax (Benefit) Expense on Transfer of Foreign
Assets not Recognized -- (1,928) 3,119
Tax (Benefit) Expense on Foreign Exchange Translation
Adjustment not Recognized (141) (1,108) 5,591
Tax Benefit of Net Operating Loss not Recognized -- -- 27,504
Tax Benefit of Foreign Operations (911) (7,068) --
Reversal of Valuation Allowance (31,134) -- --
Other, Net 2,903 (1,356) 992
- -------------------------------------------------------------------------------------------------
Provision for Income Tax Expense (Benefit) $ 346 $ (533) $ 5,640
- -------------------------------------------------------------------------------------------------
Effective Tax Rate 0.4 % (1.6)% (6.4)%
At December 31, 1995, and 1994, the Corporation maintained a valuation allowance
of approximately $33.7 million and $64.8 million, respectively, to reduce the
net deferred tax asset to $12.1 million and $5.5 million, respectively.
The net change in the valuation allowance for deferred tax assets during
1995 was a decrease of $31.1 million. The change related to a reduction in
regular domestic deferred assets of $30.3 million and a reduction of $.8 million
in state and foreign deferred assets, based on management's analysis of the
ability to realize the deferred tax assets.
The deferred tax assets include, among other items, investment tax credit
carryforwards for federal income tax purposes of $.8 million that are available
to reduce future federal income tax through 2004, $.1 million in foreign tax
credit carryforwards that are available to reduce future income tax through
1997, and alternative minimum tax credit
-50-
carryforwards of $3.5 million that are available to reduce future
federal regular income taxes over an indefinite period. In
addition, the deferred tax assets include the benefit of foreign tax loss
carryforwards with no expiration date of $9.0 million. The capital loss
carryforward of $1.2 million is available to reduce future capital gains through
2000.
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, 1995 and 1994 are detailed in
the table below:
SOURCES OF TEMPORARY DIFFERENCES RESULTING IN DEFERRED TAX LIABILITIES (ASSETS):
1995 1994
=========================================================================================================
Excess Tax Over Book Depreciation $ 542 $ 597
Pension Plan and Post-Retirement 2,243 137
Unrealized Gain on Securities Available for Sale 1,946 --
Other, Net -- 1,182
=====================================================================================================
Total Deferred Tax Liabilities 4,731 1,916
=====================================================================================================
Accrual to Cash Basis Conversion (1,004) (812)
Provision for Loan Losses (24,760) (34,645)
Other Real Estate Owned (5,061) (11,415)
Deferred Loan Fees (308) (362)
Alternative Minimum Tax Carryforward (3,455) (5,461)
Other Tax Credit Carryforward (886) (886)
Net Operating Loss Carryforward (9,040) (13,937)
Capital Loss Carryforward (1,236) (1,145)
Amortization of Derivative Contract Payment (762) (504)
Other, Net (3,981) (3,044)
=====================================================================================================
Total Deferred Tax Assets (50,493) (72,211)
Valuation Allowance 33,700 64,834
- -----------------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ (12,062) $ (5,461)
NOTE 14. BENEFIT PLANS
PENSION PLANS
RIGGS NATIONAL CORPORATION
Under the Corporation's noncontributory 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.
The Corporation's 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 the Corporation's pension plan consist of an Immediate
Participation Guarantee contract with a life insurance company and funds held in
trust by the Corporation. The monies held in trust are invested primarily in
fixed-income and equity pooled funds.
Effective December 31, 1995, the Corporation changed the percentage of the
average annual compensation used in the retirement benefit payment formula. This
change resulted in a decrease in the accumulated benefit obligation for year-end
1995 with no material impact to the 1995 net periodic cost.
RIGGS AP BANK
The Riggs AP pension plan provides monthly pension payments upon normal
retirement at age 60 or upon later retirement to substantially all employees.
The plan has a final-pay benefit formula that takes into account years of
service.
Riggs AP's annual pension costs are determined based on the Projected Unit
Credit Cost Method, with specific amortization schedules for the various
categories of plan liabilities. Actuarial assumptions are selected based on
guidelines established by the Financial Accounting Standards Board.
-51-
RECONCILIATION OF FUNDED STATUS AND PREPAID PENSION COST
Riggs National Corporation Riggs AP Bank
============================ ==========================
1995 1994 1993 1995 1994 1993
==========================================================================================================
Plan assets at fair value --
primarily unit funds $75,165 $62,831 $ 66,780 $13,976 $11,693 $14,876
Actuarial present value of
accumulated benefit obligation:
Vested benefits 73,420 60,167 61,010 10,075 8,608 10,767
Nonvested benefits 1,506 1,195 3,415 -- -- --
=====================================================================================================
Total accumulated benefit obligation 74,926 61,362 64,425 10,075 8,608 10,767
Actuarial present value of future benefits 1,047 6,006 12,818 445 416 1,338
=====================================================================================================
Actuarial present value of
projected benefit obligation 75,973 67,368 77,243 10,520 9,024 12,105
Plan assets in excess (deficit) of
projected benefit obligation $ (808) $(4,537) $(10,463) $ 3,456 $ 2,669 $ 2,771
=====================================================================================================
Unrecognized net loss (gain) 13,481 12,463 19,757 (3,966) (3,009) (2,638)
Unrecognized balance of initial net asset (1,458) (2,189) (2,920) (1,142) (1,367) (1,499)
Unrecognized prior service cost (1,054) (1,166) (1,278) -- -- --
- -----------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $10,161 $ 4,571 $ 5,096 $(1,652) $(1,707) $(1,366)
NET PERIODIC PENSION COST
Riggs National Corporation Riggs AP Bank
=============================== =========================
1995 1994 1993 1995 1994 1993
==========================================================================================================
Service cost - benefits earned
during the period $ 1,299 $1,357 $ 1,773 $ 517 $ 489 $ 489
Interest cost on projected
benefit obligation 5,727 5,329 5,427 778 733 917
Actual return on plan assets (10,551) (788) (7,840) (2,413) 521 (1,021)
Net amortization and deferral 4,435 (5,373) 1,285 1,156 (1,571) (208)
- ------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 910 $ 525 $ 645 $ 38 $ 172 $ 177
ASSUMPTIONS USED IN ACCOUNTING
FOR THE PLANS
Weighted-average discount rate 7.25 % 8.50 % 7.50 % 8.50 % 8.50 % 8.00 %
Rates of increase in compensation levels 4.00 4.00 5.00 6.50 6.50 7.00
Expected long-term rate of
return on plan assets 9.00 10.00 10.00 8.50 8.50 9.00
POSTRETIREMENT BENEFITS
The Corporation and its 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.
Substantially all active employees may become eligible for benefits if they
reach normal retirement age or if they retire earlier with at least ten years'
service. Similar benefits for active employees are provided through an insurance
company and several health maintenance organizations. The Corporation recognizes
the cost of providing those benefits by expensing the annual insurance premiums,
which were $5.3 million in 1995, $6.1 million in 1994 and $6.6 million in 1993.
The Corporation accounts for post retirement benefits under SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 106 required a significant change in the Corporation's historical practice
of accounting for postretirement benefits on a pay-as-you-go (cash) basis by
requiring 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 the
Corporation elected to recognize over a 20-year period. The Corporation incurred
approximately $2.2 million in 1995 for postretirement health and life insurance
expenses which included $651 thousand relating to the amortization of the
transition obligation. This compares to $2.4 million in health and life
insurance expenses for 1994 and $2.4 million for 1993, with transition
obligation amortization of $651 thousand and $652 thousand, respectively.
-52-
The net periodic costs for postretirement health and life insurance benefits
are as follows:
1995 1994
=====================================================
Service Cost $ 293 $ 283
Interest Cost 1,317 1,264
Other 635 893
- -------------------------------------------------
Total $2,245 $2,440
The funding status of the postretirement plans and the amounts recognized in
the Corporation's Consolidated Statements of Financial Condition at December 31,
1995, and 1994, follow:
1995 1994
=====================================================
Accumulated postretirement
benefit obligation:
Retiree $ 11,714 $ 11,143
Fully eligible active
plan participants 2,337 1,416
Other active
plan participants 5,004 3,425
=================================================
Total 19,055 15,984
Unrecognized transition
obligation (11,074) (11,725)
Unrecognized net loss (6,449) (4,045)
Unrecognized prior
service cost 2,087 2,434
- --------------------------------------------------
Accrued postretirement
benefit cost $ 3,619 $ 2,648
The assumed health care cost trend rate ranged from 6% to 9% for 1995,
gradually decreasing to 6% by the year 2002 and remaining constant thereafter. A
range of 6% to 11% was used in 1994. A discount rate of 7.25% was used at
December 31, 1995 and a rate of 7.5% was used at December 31, 1994 to determine
the accumulated postretirement benefit obligation. Increasing the assumed health
care cost trend rate by one percentage point would increase the accumulated
postretirement benefit obligation at December 31, 1995 by $1.6 million and
increase the net periodic postretirement benefit cost for 1995 by $213 thousand.
STOCK OPTION PLANS
On March 10, 1993, the Board of Directors of the Corporation adopted the 1993
Stock Option Plan (the "1993 Plan"), which was approved at the May 14, 1993,
Annual Meeting of Shareholders. The 1993 Plan provides for the issuance of
options to purchase shares of common stock of the Corporation. Key employees of
the Corporation and certain subsidiaries may be granted either incentive or
nonqualified stock options. Generally, the exercise price cannot be less than
the fair market value of the common stock at the date of grant. The aggregate
number of shares of common stock reserved for issuance upon exercise of options
granted under the 1993 Plan is 1,250,000. Unless previously terminated by the
Board of Directors, the Plan will terminate on March 10, 2003.
A summary of the stock option activity under the 1993 Plan follows:
Stock Average Price
Options Per Share
=====================================================================
Outstanding at December 31, 1992 -- $ --
Granted 742,000 8.53
Exercised -- --
Terminated 1,800 9.00
================================================================
Outstanding at December 31, 1993 740,200 $ 8.53
Granted 596,000 9.77
Exercised 22,400 9.00
Terminated 465,400 8.25
================================================================
Outstanding at December 31, 1994 848,400 $ 9.54
Granted 300,000 10.63
Exercised 30,050 9.07
Terminated 41,850 9.21
- ----------------------------------------------------------------
Outstanding at December 31, 1995 1,076,500 $ 9.87
On May 11, 1994, the shareholders approved the Corporation's 1994 Stock
Option Plan (the "1994 Plan"), which was adopted by the Corporation's Board of
Directors in February 1994. Under the 1994 Plan, options to purchase up to
1,250,000 shares of common stock may be granted to key employees. Unless
previously terminated by the Board of Directors, the 1994 Plan will terminate on
February 9, 2004.
A summary of the stock option activity under the 1994 Plan follows:
Stock Average Price
Options Per Share
=====================================================================
Outstanding at December 31, 1994 -- $ --
Granted 220,000 10.05
Exercised -- --
Terminated -- --
- ----------------------------------------------------------------
Outstanding at December 31, 1995 220,000 $10.05
OTHER BENEFIT PLANS
Effective January 1, 1993, the Corporation adopted 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.
In October 1993, the Corporation began sponsorship of a defined contribution
plan, under Section 401(k) of the Internal Revenue Code, which is available to
substantially all employees. Employees' annual contributions may be partially
matched, as determined by the Board of Directors. The Corporation did not
provide a matching contribution to the Plan in 1995, 1994 or 1993.
-53-
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 the Corporation. 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 the Corporation's consolidated statements of
condition derived from transactions with customers that are domiciled outside
the United States.
FOREIGN CONSOLIDATED STATEMENTS OF CONDITION
December 31,
===============================
1995 1994 1993
=======================================================================================================
ASSETS
Deposits with Banks in Foreign Countries:
Interest-Bearing $118,982 $176,384 $144,446
Other 3,430 2,299 6,775
=================================================================================================
Total Deposits with Banks in Foreign Countries 122,412 178,683 151,221
Securities Available for Sale -- -- 1,915
Securities Held-to-Maturity -- -- 13,659
Loans to Foreign Customers:
Governments and Official Institutions 30,849 26,013 28,113
Banks and Financial Institutions 6,570 11,517 14,999
Commercial and Industrial and Commercial Property 170,831 146,104 192,576
Other 15,760 20,886 19,530
=================================================================================================
Total Loans, Net of Unearned Discount 224,010 204,520 255,218
Less: Reserve for Loan Losses 11,968 22,899 27,785
=================================================================================================
Total Net Loans 212,042 181,621 227,433
Pool Funds Provided, Net/1/ 582,793 351,157 202,960
Other Assets 44,560 47,161 65,467
- -------------------------------------------------------------------------------------------------
Total Assets $961,807 $758,622 $662,655
LIABILITIES
Foreign Deposits:
Banks in Foreign Countries $ 35,130 $ 53,575 $ 50,507
Governments and Official Institutions 341,677 201,905 142,769
Other 425,514 390,262 410,900
=================================================================================================
Total Deposits/2/ 802,321 645,742 604,176
Short-Term Borrowings 45,034 228 373
Other Liabilities 114,452 112,652 58,106
- -------------------------------------------------------------------------------------------------
Total Liabilities $961,807 $758,622 $662,655
SUPPLEMENTAL DATA ON FOREIGN DEPOSITS
Demand $150,284 $135,746 $138,241
Savings, NOW and Money Market 278,563 236,241 252,785
Time/3/ 373,474 273,755 213,150
- -------------------------------------------------------------------------------------------------
Total Foreign Deposits $802,321 $645,742 $604,176
[FN]
/1/ Pool Funds Provided, Net are amounts contributed by foreign activities to
fund domestic activities.
/2/ Foreign deposits in domestic offices totaled $510.6 million, $370.5 million
and $395.4 million at December 31, 1995, 1994 and 1993, respectively.
/3/ A majority of time deposits are in amounts of $100 thousand or more.
-54-
The table to the right 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,
the Corporation has 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
1995 1994 1993
===============================================================
Balance, January 1 $ 22,899 $ 27,785 $ 25,481
Provisions for Loan Losses (13,192) (7,899) 29,511
Loans Charged-Off 6,107 3,219 31,400
Less: Recoveries on
Charged-Off Loans 8,399 5,034 4,712
==========================================================
Net (Recoveries) Charge-Offs (2,292) (1,815) 26,688
Foreign Exchange
Translation Adjustments (31) 1,198 (519)
- -----------------------------------------------------------
Balance, December 31 $ 11,968 $ 22,899 $ 27,785
GEOGRAPHICAL PERFORMANCE
Income (Loss) Net
Total Assets Total Total before Income
December 31, Revenue Expenses Income Taxes (Loss)
===========================================================================================================
Middle East and Africa 1995 $ 52,980 $ 7,925 $ 4,706 $ 3,219 $ 3,206
1994 53,890 10,581 11,704 (1,123) (1,105)
1993 51,703 10,575 11,536 (961) (1,023)
=======================================================================================================
Europe 1995 266,821 37,451 22,242 15,209 15,150
1994 291,837 22,825 11,592 11,233 11,054
1993 296,693 33,538 92,604 (59,066) (62,829)
=======================================================================================================
Asia/Pacific 1995 11,425 1,557 925 632 630
1994 12,122 3,184 1,765 1,419 1,396
1993 11,755 4,681 2,823 1,858 1,976
=======================================================================================================
South and Central America 1995 3,911 467 277 190 189
1994 9,869 7,940 3,192 4,748 4,673
1993 22,200 10,278 6,028 4,250 4,521
=======================================================================================================
Caribbean 1995 28,819 11,078 6,579 4,499 4,482
1994 26,093 1,209 1,780 (571) (562)
1993 73,456 1,774 1,745 29 31
=======================================================================================================
Other 1995 15,058 1,374 815 559 557
1994 13,654 1,353 690 663 653
1993 3,888 2,065 1,520 545 579
- -------------------------------------------------------------------------------------------------------
Total Foreign/1/ 1995 $379,014 $ 59,852 $ 35,544 $ 24,308 $ 24,214
1994 407,465 47,092 30,723 16,369 16,109
1993 459,695 62,911 116,256 (53,345) (56,745)
- -------------------------------------------------------------------------------------------------------
Percentage of Foreign 1995 8 % 16 % 12 % 28 % 28 %
To Consolidated 1994 9 13 10 49 47
1993 10 17 25 n/a n/a
[FN]
/1/ Foreign assets at December 31, 1995, 1994 and 1993, exclude net pool
funds contributed by foreign activities to fund domestic activities.
-55-
NOTE 16. PARENT CORPORATION FINANCIAL STATEMENTS
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------
1995 1994 1993
=====================================================================================================
REVENUES
Dividends from Subsidiaries $ 1,674 $ 1,850 $ 1,594
Interest on Time Deposit Placements -- 43 173
Interest on Reverse Repurchase Agreements 6,153 6,287 1,755
Interest and Dividends on Securities Held-to-Maturity -- 217 809
Interest and Dividends on Securities Available for Sale 471 -- --
Other Operating Income 2,329 1,484 2,502
=================================================================================================
Total Revenues 10,627 9,881 6,833
OPERATING EXPENSES
Interest Expense 19,176 20,229 15,009
Other Operating Expenses 3,082 4,710 3,995
=================================================================================================
Total Operating Expenses 22,258 24,939 19,004
Income (Loss) before Taxes (11,631) (15,058) (12,171)
Applicable Income Tax (Benefit) Expense/1/ (4,886) (10,478) (1,780)
=================================================================================================
Income (Loss) before Undistributed Earnings (Losses) of Subsidiaries (6,745) (4,580) (10,391)
Undistributed Earnings (Losses) of Subsidiaries 94,547 38,599 (83,820)
- -------------------------------------------------------------------------------------------------
Net Income (Loss) $ 87,802 $ 34,019 $(94,211)
[FN]
/1/ 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,
-------------------
1995 1994
=====================================================================================================
ASSETS
Cash and Due from Banks $ 1,015 $ 1,099
Intercompany Reverse Repurchase Agreements 109,700 114,400
Securities Available for Sale (at Market Value) 4,700 8,000
Premises and Equipment, Net 9,346 9,921
Investment in Subsidiaries 458,221 333,430
Other Assets 16,632 24,476
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $599,614 $491,326
LIABILITIES
Other Liabilities $ 5,320 $ 6,038
Long-Term Debt 217,625 217,625
=================================================================================================
TOTAL LIABILITIES 222,945 223,663
STOCKHOLDERS' EQUITY
Preferred Stock - $1.00 Par Value
Shares Authorized - 25,000,000 at December 31, 1995, and 1994;
Liquidation Preference - $25 per share
Noncumulative Perpetual Series B - 4,000,000 shares at
December 31, 1995, and 1994 4,000 4,000
Common Stock - $2.50 Par Value
Shares Authorized - 50,000,000 at December 31, 1995, and 1994
Shares Issued-31,175,262 at December 31, 1995,
and 31,145,212 at December 31, 1994 77,938 77,863
Surplus - Preferred Stock 91,192 91,192
Surplus - Common Stock 156,320 156,123
Foreign Exchange Translation Adjustments (873) (634)
Undivided Profits (Accumulated Deficit) 68,038 (9,014)
Unrealized Gain (Loss) on Securities Available for Sale, Net 3,777 (28,144)
Treasury Stock - 900,798 shares at December 31, 1995, and 1994 (23,723) (23,723)
=================================================================================================
TOTAL STOCKHOLDERS' EQUITY 376,669 267,663
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $599,614 $491,326
-56-
STATEMENTS OF CASH FLOWS
December 31,
--------------------------
1995 1994 1993
=====================================================================================================
Cash Flows from Operating Activities:
Net Income (Loss) $ 87,802 $ 34,019 $ (94,211)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used In) Operating Activities:
Depreciation and Purchase Accounting Adjustments 1,349 1,431 1,537
Losses on Securities Available for Sale -- 1,198 --
Decrease (Increase) in Other Assets 6,785 (10,326) (2,407)
(Decrease) Increase in Other Liabilities (718) 8,163 163
Undistributed (Earnings) Losses of Subsidiaries (94,547) (38,599) 83,820
=================================================================================================
Total Adjustments (87,131) (38,133) 83,113
=================================================================================================
Net Cash Provided by (Used in) Operating Activities 671 (4,114) (11,098)
=================================================================================================
Cash Flows from Investing Activities:
Proceeds from Maturities of Securities Held-to-Maturity -- 134,783 --
Purchase of Securities Held-to-Maturity -- -- (134,783)
Purchase of Securities Available for Sale -- (10,000) --
Proceeds from Maturities of Securities Available for Sale 5,000 -- --
Net Increase in Premises, Net (21) (252) (1)
Net Increase in Investment in Subsidiaries -- (11) (50,040)
Other, Net -- -- 1,679
=================================================================================================
Net Cash Provided by (Used in) Investing Activities 4,979 124,520 (183,145)
=================================================================================================
Cash Flows from Financing Activities:
Net (Decrease) Increase in Short-Term Borrowings -- (134,660) 134,660
Net Proceeds from the Issuance of Long-Term Debt -- 121,250 --
Repayments of Long-Term Debt -- (120,700) --
Net Proceeds from the (Repurchase) Issuance
of Preferred Stock -- (19,113) 95,309
Net Proceeds from Issuance of Common Stock 272 201 36,951
Dividend Payments - Preferred (10,750) (12,124) (1,434)
Other, Net -- (162) --
=================================================================================================
Net Cash (Used in) Provided by Financing Activities (10,478) (165,308) 265,486
=================================================================================================
Effect of Exchange Rate Changes 44 893 9,886
=================================================================================================
Net (Decrease) Increase in Cash and Cash Equivalents (4,784) (44,009) 81,129
Cash and Cash Equivalents at Beginning of Year 115,499 159,508 78,379
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 110,715 $ 115,499 $ 159,508
Supplemental Disclosures:
Interest Paid $ 19,181 $ 19,145 $ 14,469
Income Tax Refunds (7,870) (7,409) --
-57-
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
TO OUR STOCKHOLDERS:
Management is responsible for the integrity of all financial data included
in this Annual Report. The 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 financial statements is presented in a manner consistent with the
Corporation's financial statements.
Management maintains a system of accounting internal control 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 the Corporation's 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 management's
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 five outside and
independent directors. The Committee meets periodically with 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.
Management recognizes that there are inherent limitations within any system of
internal controls, including the Corporation's, which relate to the overall cost
of the internal control system and the resulting effectiveness thereof.
Management believes that the Corporation's 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 President Chief Financial Officer
and Chief Executive
Officer
-58-
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, 1995, and 1994, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. 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, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.,
January 17, 1996
-59-
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION
1995
---------------------------------------
Unaudited for the Years Ended December 31, 1995, 1994 and 1993 First Second Third Fourth
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter
===========================================================================================================
Interest Income $ 72,225 $ 76,475 $ 75,863 $ 74,236
Interest Expense 34,173 38,488 38,508 36,652
=======================================================================================================
Net Interest Income 38,052 37,987 37,355 37,584
Less: Provision for Loan Losses -- -- (55,000) --
=======================================================================================================
Net Interest Income (Loss) after Provision for Loan Losses 38,052 37,987 92,355 37,584
Noninterest Income 17,998 18,338 18,345 19,323
Noninterest Expense 47,151 46,870 53,994 43,819
=======================================================================================================
Income (Loss) before Taxes 8,899 9,455 56,706 13,088
Applicable Income Tax (Benefit) Expense 104 87 64 91
=======================================================================================================
Net Income (Loss) 8,795 9,368 56,642 12,997
Less: Dividends on Preferred Stock 2,688 2,687 2,688 2,687
=======================================================================================================
Net Income (Loss) Available for Common Stock $ 6,107 $ 6,681 $ 53,954 $ 10,310
=======================================================================================================
Earnings (Loss) Per Common Share $ .20 $ .22 $ 1.78 $ .34
CONSOLIDATED FINANCIAL RATIOS AND OTHER INFORMATION
1995 1994 1993 1992 1991
============================================================================================================
NET INCOME TO AVERAGE:
Earning Assets 2.13% .84% (2.18)% (.46)% (1.18)%
Total Assets 1.92 .76 (1.91) (.40) (1.04)
Stockholders' Equity 28.25 12.01 (42.84) (7.99) (25.19)
========================================================================================================
AVERAGE:
Loans to Deposits 67.91% 69.80% 51.65% 55.33% 64.64%
Stockholders' Equity to Loans 12.22 10.89 10.08 10.26 7.36
Stockholders' Equity to Deposits 8.30 7.60 5.21 5.68 4.76
Stockholders' Equity to Assets 6.80 6.29 4.46 5.00 4.15
========================================================================================================
AT DECEMBER 31:
Reserve for Loan Losses to Net Loans 2.20% 3.81% 3.42% 3.86% 3.45%
Common Stockholders 3,236 3,712 4,488 4,481 4,389
Employees 1,576 1,624 1,667 2,147 2,187
Banking Offices 65 68 75 76 75
========================================================================================================
PER SHARE DATA:
Dividend Payout Ratio n/a n/a n/a n/a n/a
Average Common Shares Outstanding 30,257,585 30,230,213 26,208,315 24,534,063 13,777,014
Book Value per Common Share $9.30 $5.70 $5.92 $8.98 $14.88
========================================================================================================
-60-
1994 1993
========================================= ==========================================
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
=============================================================================================================
$ 63,898 $ 64,423 $ 67,419 $ 70,265 $ 67,784 $ 65,290 $ 61,961 $ 61,916
26,939 26,189 27,936 31,659 33,829 32,044 29,511 26,746
=======================================================================================================
36,959 38,234 39,483 38,606 33,955 33,246 32,450 35,170
2,100 2,100 2,100 -- 14,200 49,193 3,772 2,125
=======================================================================================================
34,859 36,134 37,383 38,606 19,755 (15,947) 28,678 33,045
26,771 22,562 18,793 17,398 22,250 47,274 21,887 21,239
53,587 49,556 47,775 48,102 69,461 98,660 47,510 51,121
=======================================================================================================
8,043 9,140 8,401 7,902 (27,456) (67,333) 3,055 3,163
130 (693) 171 (141) 165 5,300 93 82
=======================================================================================================
7,913 9,833 8,230 8,043 (27,621) (72,633) 2,962 3,081
3,345 3,046 3,045 2,688 358 358 359 359
=======================================================================================================
$ 4,568 $ 6,787 $ 5,185 $ 5,355 $(27,979) $(72,991) $ 2,603 $ 2,722
=======================================================================================================
$ .15 $ .23 $ .17 $ .17 $ (1.11) $ (2.89) $ .10 $ .09
QUARTERLY STOCK INFORMATION/1/
Price Range Dividends
High Low Declared
=============================================================================================================
1995 Fourth Quarter $14.625 $12.25 $ --
Third Quarter 13.625 9.75 --
Second Quarter 10.50 9.125 --
First Quarter 9.50 7.875 --
=====================================================================================================
1994 Fourth Quarter $10.50 $ 7.50 $ --
Third Quarter 11.25 8.75 --
Second Quarter 10.25 7.75 --
First Quarter 10.75 8.375 --
=====================================================================================================
1993 Fourth Quarter $ 9.375 $ 7.875 $ --
Third Quarter 9.50 6.25 --
Second Quarter 10.625 7.125 --
First Quarter 11.625 7.75 --
=====================================================================================================
[FN]
/1/ The high and low information listed above represents high and low sales
prices as reported on the NASDAQ National Market System.
-61-
THREE-YEAR FOREIGN AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
1995 1994 1993
------------------------- -------------------------- -------------------------
Average Average Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
(In thousands) Balances Expense Rates Balances Expense Rates Balances Expense Rates
========================================================================================================================
ASSETS
Loans, Net of Unearned Discounts $195,058 $16,229 8.32% $ 237,617 $ 18,397 7.74% $ 319,070 $23,316 7.31%
Securities -- -- -- 5,967 909 15.23 22,600 2,942 13.02
Time Deposits with Other Banks 158,063 10,200 6.45 132,753 6,286 4.74 315,490 14,035 4.45
Pool Funds Provided, Net/1/ 462,003 27,905 6.04 285,210 13,547 4.75 190,348 6,281 3.30
===================================================================================================================
TOTAL EARNING ASSETS AND
AVERAGE RATE EARNED 815,124 54,334 6.67 661,547 39,139 5.92 847,508 46,574 5.50
Less: Reserve for Loan Losses 18,436 24,589 28,834
Cash and Due from Banks 24,501 25,571 26,714
Premises and Equipment, Net 15,607 16,482 19,038
Other Assets 9,380 17,710 44,309
===================================================================================================================
TOTAL ASSETS $846,176 $696,721 $908,735
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings, NOW and
Money Market $247,755 $ 7,750 3.13% $252,225 $ 6,047 2.40% $315,119 $ 7,268 2.31%
Other Time 311,832 18,975 6.09 207,427 11,341 5.47 376,399 22,929 6.09
===================================================================================================================
Total Interest-Bearing Deposits 559,587 26,725 4.78 459,652 17,388 3.78 691,518 30,197 4.37
Short-Term Borrowings 36,062 1,883 5.22 4,093 135 3.29 389 19 4.84
===================================================================================================================
TOTAL INTEREST-BEARING FUNDS
AND AVERAGE RATE INCURRED 595,649 28,608 4.80 463,745 17,523 3.78 691,907 30,216 4.37
Demand Deposits 144,322 143,470 143,521
Other Liabilities and
Stockholders' Equity 106,205 89,506 73,307
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $846,176 $696,721 $908,735
NET INTEREST INCOME AND SPREAD $25,726 1.86% $21,616 2.14% $16,358 1.13%
NET INTEREST MARGIN ON EARNING ASSETS 3.16% 3.27% 1.93%
FOREIGN NET INTEREST INCOME CHANGES/2/
1995 Versus 1994 1994 Versus 1993
----------------------------- ---------------------------
Due to Due to Total Due to Due to Total
(In thousands) Rate Volume Change Rate Volume Change
=============================================================================================================
Interest Income:
Loans (Including Fees) $1,304 $(3,472) $(2,168) $ 1,309 $ (6,228)$ (4,919)
Securities (455) (454) (909) 430 (2,463) (2,033)
Time Deposits with Other Banks 2,560 1,354 3,914 861 (8,610) (7,749)
Pool Funds Supplied, Net 4,374 9,984 14,358 3,405 3,861 7,266
====================================================================================================
Total Interest Income 7,783 7,412 15,195 6,005 (13,440) (7,435)
Interest Expense:
Savings, NOW and
Money Market Accounts 1,812 (109) 1,703 275 (1,496) (1,221)
Other Time Deposits 1,403 6,231 7,634 (2,142) (9,446) (11,588)
Short-Term Borrowings 121 1,627 1,748 (8) 124 116
====================================================================================================
Total Interest Expense 3,336 7,749 11,085 (1,875) (10,818) (12,693)
====================================================================================================
Net Interest Income $4,447 $ (337) $ 4,110 $ 7,880 $ (2,622)$ 5,258
[FN]
/1/ Pool Funds Provided, Net, are amounts contributed by foreign activities to
fund domestic activities.
/2/ 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.
-62-
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item pertaining to directors of the Corporation
is included in the Corporation's proxy statement for its 1996 Annual Meeting of
Stockholders. The information required by this Item pertaining to executive
officers of the Corporation is as follows:
EXECUTIVE OFFICER* POSITION AGE
Joe L. Allbritton Chairman of the Board and Chief Executive
Officer of the Corporation and Chairman
of the Board Riggs-Washington 71
Robert L. Sloan Vice Chairman of the Board 49
Timothy C. Coughlin President of the Corporation 53
Fred L. Bollerer Director of the Corporation and President
and Chief Executive Officer of
Riggs-Washington 53
John L. Davis Chief Financial Officer of the Corporation
and Executive Vice President and Chief
Financial Officer of Riggs-Washington 54
Joseph W. Barr Executive Vice President of Riggs-Washington--
Community Banking 46
Paul Cushman, III Executive Vice President of Riggs-Washington--
International Banking 35
Henry A. Dudley, Jr. Executive Vice President of Riggs-Washington--
Chief Trust Officer 49
S. Dean Lesiak Executive Vice President of Riggs-Washington--
Risk Management 43
Timothy A. Lex Executive Vice President of Riggs-Washington--
Chief Operating Officer 38
James R. Mayo Executive Vice President of Riggs-Washington--
Chief Technology Officer 56
David W. Scott Senior Vice President of Riggs-Washington--
Chief Credit Officer 34
Alfred J. Serafino Executive Vice President of Riggs-Washington--
Relationship Banking 47
* Executive officers of Riggs National Corporation, including certain
executive officers of Riggs-Washington, as of January 24, 1996.
-63-
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-Washington since 1983 and was the Chief Executive Officer of
Riggs-Washington from 1982 to June 1993. Mr. Allbritton was the beneficial owner
of approximately 33% of the Common Stock of the Corporation as of March 27,
1996. He also serves as Chairman of the Board of, and is the owner of, Perpetual
Corporation, Allbritton Communications Company, Westfield News Advertiser, Inc.
and University Bancshares, Inc.
Robert L. Sloan was appointed Vice Chairman of the Board in July, 1994.
Mr. Sloan has served as a Director of the Corporation since May 1993. Mr. Sloan
also is Chief Executive Officer of Sibley Memorial Hospital.
Timothy C. Coughlin has served as President of the Corporation since 1992. He
served as President and Chief Operating Officer of Riggs-Washington from 1983 to
1992. He has been a Director of the Corporation since 1988 and a Director of
Riggs-Washington since 1983.
Fred L. Bollerer was appointed President and Chief Executive Officer of
Riggs-Washington in July 1994 after serving as Executive Vice President in
charge of the General Banking Group since October 1993. During 1988 and 1989,
Mr. Bollerer was the President and Chief Operating Officer of First American,
N.A. of Washington, D.C. From 1989 to 1993, Mr. Bollerer was the Chairman and
Chief Executive Officer of First American Metro Corporation.
John L. Davis has served as Chief Financial Officer of the Corporation and
Executive Vice President and Chief Financial Officer of Riggs-Washington since
June 1993. Mr. Davis served as Senior Vice President and Controller of First
Florida Bank, N.A. from 1990 to 1992 and as Senior Vice President and Chief
Financial Officer of First Union National Bank of Georgia from 1987 to 1990.
Joseph W. Barr has served as Executive Vice President in charge of Community
Banking since July 1993. He served as Executive Vice President in charge of
Retail Banking at First American Metro Corp. from 1992 to June 1993 and as
Executive Vice President in charge of Community Banking at Perpetual Savings
Bank, F.S.B. from 1989 to 1992.
Paul Cushman, III has served as Executive Vice President of Riggs-Washington in
charge of the International Banking since 1992. He was Senior Vice President of
Riggs-Washington from 1989 to 1992 and Vice President of Riggs-Washington from
1987 to 1989.
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. He previously served as Executive Vice President
of the Domestic Private Banking Division, Senior Vice President of Corporate
Banking and Vice President of the International Division.
S. Dean Lesiak has served as Executive Vice President of Riggs-Washington
in charge of Risk Management since July 1993. He served as Chief Compliance
Officer of First Florida Banks, Inc. from 1992 to 1993, as Senior Vice
President--Senior Credit Policy Officer of First Florida Banks, Inc. from 1988
to 1991, and as a Senior Loan Review Officer, Society Corporation, Cleveland,
Ohio from 1984 to 1989. Mr. Lesiak also served as a National Bank Examiner at
the OCC for over ten years.
Timothy A. Lex, Executive Vice President, was recently appointed Chief
Operating Officer of Riggs-Washington, in charge of Relationship, International
and Embassy Banking. Mr. Lex has served in various management positions during
the past 12 years, including such positions as Managing Director of Riggs AP
Bank and President and Chief Executive Officer of Riggs-Virginia.
James R. Mayo has served as Executive Vice President and Chief Technology
Officer since October 1994. He was Service Center Manager of First Union/South
Florida Operations, Pompano Beach.
David W. Scott, Senior Vice President, was recently appointed Chief Credit
Officer of Riggs-Washington. Mr. Scott has served in various management
positions during the past 10 years, including such positions as Head
of Loan Review and Chief Credit Officer of Riggs AP Bank.
Alfred J. Serafino serves as Executive Vice President-Relationship Banking.
He has also served as Executive Vice President in Commercial Banking and
President and Chief Executive Officer of Riggs-Maryland. Mr. Serafino served as
Regional Executive Officer in charge of the Maryland West Commercial Division at
Sovran Bank for 12 years.
-64-
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is included in Riggs National
Corporation's definitive Proxy Statement to Stockholders, which is incorporated
by reference, except for Items 402 (k) and (l) of Regulation S-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in Riggs National
Corporation's definitive Proxy Statement to Stockholders, which is incorporated
by reference, except for Items 402 (k) and (l) of Regulation S-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the "Notes to Consolidated
Financial Statements-Note 4" of this Form 10-K and in Riggs National
Corporation's definitive Proxy Statement to Stockholders, which is incorporated
by reference, except for Items 402 (k) and (l) of Regulation S-K.
-65-
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
14(a) Financial Statements Page(s)
The following are submitted under Item 8:
Consolidated Statements of Income--Years Ended
December 31, 1995, 1994 and 1993. 28
Consolidated Statements of Condition--
At December 31, 1995 and 1994. 29
Consolidated Statements of Changes in Stockholders'
Equity--Years Ended December 31, 1995, 1994
and 1993. 30
Consolidated Statements of Cash Flows--Years Ended
December 31, 1995, 1994 and 1993. 31
Notes to Consolidated Financial Statements as of
December 31, 1995, 1994, and 1993. 32-57
Management's Report on Financial Statements 58
Report of Independent Public Accountants 59
14(B) REPORTS ON FORM 8-K
None.
14(C) EXHIBITS
The exhibits listed on the Index to Exhibits on Pages 68 through 69 hereof are
incorporated by reference or filed herewith in response to this item.
-66-
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 /s/ JOE L. ALLBRITTON
___________________________
Joe L. Allbritton,
Chairman of the Board
and Chief Executive Officer
March 28, 1996
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.
/s/ TIMOTHY C. COUGHLIN
________________________ President
Timothy C. Coughlin
/s/ JOHN L. DAVIS
________________________ Chief Financial Officer
John L. Davis (Principal Financial
and Accounting Officer)
BARBARA B. ALLBRITTON* Director
- ------------------------
(Barbara B. Allbritton)
ROBERT L. ALLBRITTON* Director
- ------------------------
(Robert L. Allbritton)
FRED L. BOLLERER* Director
- ------------------------
(Fred L. Bollerer)
CALVIN CAFRITZ* Director
- ------------------------
(Calvin Cafritz)
CHARLES A. CAMALIER, III* Director
- ------------------------
(Charles A. Camalier, III)
RONALD E. CUNEO* Director
- ------------------------
(Ronald E. Cuneo)
FLOYD E. DAVIS, III* Director
- ------------------------
(Floyd E. Davis, III)
JACQUELINE C. DUCHANGE* Director
- ------------------------
(Jacqueline C. Duchange)
MICHELA A. ENGLISH* Director
- ------------------------
(Michela A. English)
JAMES E. FITZGERALD, M.D.* Director
- ------------------------
(James E. Fitzgerald, M.D.)
DAVID J. GLADSTONE* Director
- ------------------------
(David J. Gladstone)
LAWRENCE I. HEBERT* Director
- ------------------------
(Lawrence I. Hebert)
MICHAEL J. JACKSON* Director
- ------------------------
(Michael J. Jackson)
LEO J. O'DONOVAN, S.J.* Director
- ------------------------
(Leo J. O'Donovan, S.J.)
STEVEN B. PFEIFFER* Director
- ------------------------
(Steven B. Pfeiffer)
JOHN A. SARGENT* Director
- ------------------------
(John A. Sargent)
ROBERT L. SLOAN* Vice Chairman
- ------------------------ of the Board
(Robert L. Sloan)
JAMES W. SYMINGTON* Director
- ------------------------
(James W. Symington)
JACK VALENTI* Director
- ------------------------
(Jack Valenti)
EDDIE N. WILLIAMS* Director
- ------------------------
(Eddie N. Williams)
*By:
/s/ MARY B. LEMONT
----------------------
Mary B. LeMont, Attorney-in-fact
March 28, 1996
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INDEX TO EXHIBITS
Exhibit
No. Description Pages
- -----------------------------------------------------------------------------
(2.1) Agreement and Plan of Reorganization by and between Riggs
National Corporation and Guaranty Bank and Trust Company
dated June 11, 1986 and related Stock Purchase Agreement
(Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended June 30, 1986, SEC File No. 0-9756.)
(2.2) Agreement and Plan of Reorganization by and between Riggs
National Corporation and First Fidelity Bank, dated
June 17, 1987 and related Stock Purchase Agreement
(Incorporated by reference to Exhibit 2.1 and Appendix B
of Registration Statement on Form S-4, Registration
No. 33-16473, filed September 4, 1987, SEC File No. 0-9756.)
(2.3) Purchase and Assumption Agreement among Federal Deposit
Insurance Corporation, Receiver of the National Bank of
Washington, Federal Deposit Insurance Corporation and The
Riggs National Bank of Washington, D.C. dated as of August
10, 1990. Indemnity Agreement between Federal Deposit
Insurance Corporation and The Riggs National Bank of
Washington, D. C. dated as of August 10, 1990. (Incorporated
by reference to the Registrant's Form 10-Q for the quarter
ended June 30, 1990, SEC File No. 0-9756.)
(3.1) Certificate of Incorporation as Amended (Incorporated by
reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1989, SEC File No. 0-9756.)
(3.2) By-laws of the Registrant with amendments through February
12, 1992. (Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year 1993, SEC File
No. 0-9756.)
(4.1) Indenture dated September 15, 1984 with respect to $60
million Floating Rate Subordinated Notes due 1996
(Incorporated by reference to the Registrant's Form 10-Q
for the quarter ended September 30, 1984, SEC File
No. 0-9756.)
(4.2) Indenture dated December 18, 1985 with respect to $100 million
Floating Rate Subordinated Capital Notes due 1996
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year 1985, SEC File No. 0-9756.)
(4.3) 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.)
(4.4) 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.)
(10.1) Agreement dated April 22, 1981 between 1120 Vermont Avenue
Associates and The Riggs National Bank of Washington, D.C.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year 1981, SEC File No. 0-9756.)
(10.2) Corrected Version of Riggs National Corporation 1984 Stock
Appreciation Rights Plan as Amended February 15, 1989 and
previously filed with the Registrant's Annual Report on
Form 10-K for the year 1988, SEC File No. 0-9756.
(Incorporated by reference to the Registrant's Annual report
on Form 10-K for the year 1989, SEC File No. 0-9756.)
(10.3) Split Dollar Life Insurance Plan Agreements. (Incorporated
by reference to the Registrant's Annual Report on Form 10-K
for the year 1989, SEC File No. 0-9756.)
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Exhibit
No. Description Pages
- -----------------------------------------------------------------------------
(10.5) Supplemental Executive Retirement Plan as amended
September 15, 1993. (Incorporated by reference to the
Registrant's Form 10-Q for the quarter ended September
30, 1993, SEC File No. 0-9756.)
(10.6) Management Employment Arrangement dated June 9, 1993.
(Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended June 30, 1993, SEC File No. 0-9756.)
(10.7) 1993 Stock Option Plan as amended May 11, 1994, and the 1994
Stock Option Plan (Incorporated by reference to the
Registrant's Form 10-Q for the quarter ended June 30, 1994,
SEC File No. 0-9756.)
(10.8) Letter Confirming Compensation of the President of The Riggs
National Bank of Washington, D.C., dated October 5, 1994.
(Incorporated by reference to the Registrant's Form 10-Q for
the quarter ended September 30, 1994, SEC File No. 0-9756.)
(10.9) Deferred Compensation Plan for Directors. (Incorporated by
reference to the Registrant's Form 10-Q for the quarter
ended September 30, 1994, SEC File No. 0-9756.)
(10.10) Description of 1994 Bonus Plan. (Incorporated by reference
to the Registrant's Form 10-Q for the quarter ended
September 30, 1994, SEC File No. 0-9756.)
(10.11) Supplemental Executive Retirement Plan, as amended
December 14, 1994. (Incorporated by reference to the
Registrant's Form 10-K for the year ended 1994, SEC
File No. 0-9756.)
(10.12) Trust Agreement, dated December 14, 1994, 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 1994, SEC File No. 0-9756.)
(10.13) Description of 1995 Incentive Plan. (Incorporated by
reference to the Registrant's Form 10-Q for the quarter ended
March 31, 1995, SEC File No. 0-9756.)
(18) Letter from Arthur Andersen & Co. regarding change in
accounting principle (Incorporated by reference to the
Registrant's Form 10-Q for the quarter ended March 31, 1990,
SEC File No. 0-9756.)
(21) Subsidiaries of the Registrant: The Corporation's only
significant subsidiaries, as defined in Regulation S-X, are
The Riggs National Bank of Washington, D.C., organized under
the national banking laws of the United States and Riggs AP
Bank Limited, organized under the laws of the United Kingdom.
(22) Proxy Statement dated October 6, 1989 and incorporated by
reference (Commission File No. 0-9756.)
(24) Power of Attorney Exhibit 24
1-20
Exhibits omitted are not required or not applicable.
Portions of Riggs National Corporation's definitive Proxy Statement to
Stockholders, except for Items 402 (k) and (l) of Regulation S-K are
incorporated by reference in Parts I and III of this Annual Report.
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