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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, 1996
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
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. 20005
_______________________________________________ ___________________
(Address of principal executive offices) (Zip Code)
(301) 887-6000
___________________________________________________
(Registrant's telephone number, including area code)
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 28, 1997, was $382,339,264.
The number of shares outstanding of the registrant's common stock, as
of March 26, 1997, was 30,374,496.
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 6
Item 4--Submission of Matters to a Vote of Security Holders 6
PART II
Item 5--Market for Registrant's Common Equity
and Related Stockholder Matters 7
Item 6--Selected Financial Data 7
Item 7--Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 8--Financial Statements and Supplementary Data 29
Item 9--Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 67
PART III
Item 10--Directors and Executive Officers of the Registrant (A),67
Item 11--Executive Compensation 69
Item 12--Security Ownership of Certain
Beneficial Owners and Management 69
Item 13--Certain Relationships and Related Transactions 69
PART IV
Item 14--Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 69
(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 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 through its bank and non-bank subsidiaries. The
Corporation currently has banking operations or separate subsidiaries in the
Washington, D.C. metropolitan area; 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 located in the Bahamas and France
provide trust and corporate services, as well as traditional banking services.
Key elements of the Corporation's business strategy for its subsidiaries are
to continue to focus on: growth opportunities through the additional
accumulation of assets under management in its Financial Services Group, the
orientation of its retail banking branches toward money management
relationships, the development and specialization of products and services in
specific growth industries in its markets and the continued preeminence in the
embassy banking operations coupled with growth in selected international
business lines. Such growth will entail internally developed programs as well as
possible alliances or acquisitions in these areas. The Corporation will continue
to serve the varied financial needs of the Washington, D.C. metropolitan area
and to meet its commitments under the Community Reinvestment Act.
Riggs Bank National Association
The Corporation's principal subsidiary is Riggs Bank National Association (the
"Riggs Bank N.A.", formerly The Riggs National Bank of Washington, D.C., and
successor to The Riggs National Bank of Virginia and The Riggs National Bank of
Maryland, which entities merged on March 28, 1996), a national banking
association founded in 1836 and incorporated under the national banking laws of
the United States in 1896. Riggs Bank N.A. had assets of $5.1 billion, deposits
of $4.1 billion, and stockholder's equity of $533.9 million at December 31,
1996.
Riggs Bank N.A. operates 32 branches and an investment advisory subsidiary in
Washington, D.C., 16 branches in Virginia, 9 branches in Maryland, 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, 1996, Riggs Bank N.A. and its subsidiaries had 1,517
full-time equivalent employees.
As a commercial bank, Riggs Bank N.A. provides a wide array of financial
services to customers in the Washington, D.C., metropolitan area, throughout the
United States and internationally.
Riggs Bank N.A.'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 Bank N.A.'s Financial Services Group provides fiduciary and
administrative services, including financial management and tax planning for
individuals, investment and accounting services for governmental, corporate and
non-profit organizations, estate planning and trust administration.
Riggs Bank N.A. 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 Bank N.A.'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 Bank N.A.'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 Bank N.A.
operates a branch in the U.S. Embassy in London which serves the Embassy, its
employees and official visitors. In 1991, Riggs Bank N.A. 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.
3
Riggs AP Bank Limited
Riggs AP Bank Limited ("Riggs AP"), a merchant bank located in London, England
is a wholly-owned subsidiary of Riggs Bank N.A. Riggs AP provides traditional
corporate banking services, commercial property financing, investment banking
services and trade finance. At December 31, 1996, Riggs AP had total assets of
$348.2 million, representing 6.8% of the Corporation's total assets, and had
loans of $213.8 million, or 84.9% of the Corporation's total foreign loans and
8.1% of total loans. Riggs AP was renamed Riggs Bank Europe Limited, effective
March 1, 1997.
Supervision And Regulation
The Corporation and Riggs Bank N.A. are subject to the supervision of and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). 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.
Riggs Bank N.A. 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 Bank N.A., on a historical basis, is 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 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
4
and operate a de novo branch in a state in which the bank does not maintain a
branch if that state expressly permits de novo branching. Once a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger transaction could have
established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through de novo branching may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or de novo.
Effective June 1995, coinciding with the mandatory 1.25% funding of the Bank
Insurance Fund ("BIF") reserve, insurance rates reduced from a range of $.23 to
$.26 per $100 in deposits insured to a range of $.04 to $.07 per $100 in
deposits insured. Further, in November 1995, based on the continuing increase in
reserves with BIF, the FDIC announced an additional reduction of insurance rates
to zero percent, however, banks must pay a mandatory minimum of $2 thousand per
year.
On September 30, 1996, Congress passed and the President signed an omnibus
funding bill which included legislation for the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC. This
legislation includes a provision requiring the merger of the BIF, which is also
administered by the FDIC, and SAIF in 1999, assuming that bank charters and
thrift charters are combined by that time. The legislation included several
other bank-related components, the most important of which is the one-time
assessment on institutions with deposits insured by SAIF equaling approximately
66 cents per one-hundred dollars of deposits insured, to be applied retroactive
to an institution's deposits as of March 31, 1995. This provision is effective
immediately. In addition, the legislation provides for a new Financing
Corporation ("FICO") sharing formula between BIF and SAIF insured institutions,
which will impose a surcharge of 1.3 cents per one-hundred dollars of
BIF-insured deposits.
The Corporation does not have any SAIF insured deposit balances as of December
31, 1996. The Corporation's deposits are insured through BIF. Therefore, the
Corporation is not subject to the one-time SAIF surcharge. However, the
Corporation is subject to the FICO surcharge and will be required to pay
one-fifth of the rate that SAIF institutions pay for a three year period
beginning in 1997. The FICO surcharge is expected to cost the Corporation
approximately $400 thousand annually.
There are legal restrictions on the extent to which the Corporation and its
non-bank subsidiaries may borrow or otherwise obtain credit from Riggs Bank N.A.
Subject to certain limited exceptions, a bank subsidiary may not extend credit
to 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
Bank N.A. 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.
5
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.
During 1996, the Corporation contested in Tax court the disallowance of
Brazilian Foreign Tax Credits by the Internal Revenue Service, which resulted in
a ruling in favor of the Internal Revenue Service. The net tax benefit of these
tax credits were not recognized for financial reporting purposes, therefore,
there was no adverse impact on earnings from this ruling.
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 1996.
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.
6
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 65 of this Form 10-K.
As of December 31, 1996, there were 3,058 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 48 and 50,
respectively, of this Form 10-K.
ITEM 6.
FINANCIAL REVIEW
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Interest Income $293,198 $298,799 $266,005 $256,951 $327,540
Interest Expense 139,891 147,821 112,723 122,130 189,604
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 153,307 150,978 153,282 134,821 137,936
Less: Provision for Loan Losses -- (55,000) 6,300 69,290 52,067
- ------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 153,307 205,978 146,982 65,531 85,869
Noninterest Income Excluding
Securities Gains, Net 89,007 73,493 85,298 88,509 96,200
Securities Gains, Net 7,170 511 226 24,141 34,213
Noninterest Expense 176,947 191,834 199,020 266,752 238,403
- ------------------------------------------------------------------------------------------------------------
Income (Loss) before Taxes
and Minority Interest 72,537 88,148 33,486 (88,571) (22,121)
Applicable Income Tax Expense (Benefit) 6,174 346 (533) 5,640 (1,069)
Minority Interest in Dividends
of Subsidiary, Net of Taxes 420 -- -- -- --
============================================================================================================
NET INCOME (LOSS) $ 65,943 $ 87,802 $ 34,019 $ (94,211) $ (21,052)
Less: Dividends on Preferred Stock 10,750 10,750 12,124 1,434 358
============================================================================================================
Net Income (Loss) Available for Common Stock $ 55,193 $ 77,052 $ 21,895 $ (95,645) $ (21,410)
EARNINGS (LOSS) PER COMMON SHARE $ 1.79 $ 2.54 $ .72 $ (3.65) $ (.87)
Dividends Declared and Paid Per Common Share $ .15 $ -- $ -- $ -- $ --
7
ITEM 7.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In 1996, Riggs National Corporation (the "Corporation") achieved consolidated
net earnings of $65.9 million. By comparison, the Corporation had net earnings
of $87.8 million in 1995 and $34.0 million in 1994. Earnings per common share
for 1996, 1995 and 1994, were $1.79, $2.54 and $0.72, respectively. Net income
for 1995 benefited from a $55.0 million reduction in the reserve for loan losses
in the third quarter, as continued improvement in credit quality resulted in the
recording of this reserve adjustment. Key measurements of profitability include
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 1.40% for 1996, compared with ratios of 1.92% and 0.76% for 1995 and
1994, respectively. Net income to average stockholders' equity was 16.48% in
1996, compared with 28.25% for 1995 and 12.01% for 1994. The net interest margin
for 1996, 1995 and 1994 was 3.72%, 3.74% and 3.89%, respectively.
Net interest income (before the provision for loan losses) was a significant
component of earnings in 1996, totaling $153.3 million, a slight increase of
$2.3 million from 1995's total. Though the net interest margin decreased two
basis points between the years, the impact of this decrease was more than offset
by a $100.2 million increase in average earning assets between periods, while
average interest-bearing liabilities increased $50.3 million. This improvement
in net earning assets is the result of continued reductions in nonperforming
assets and increases in stockholders' equity during the year.
Noninterest income, excluding securities gains, for 1996 totaled $89.0
million, compared with 1995's total of $73.5 million. The increase from 1995,
totaling $15.5 million (21.1%), was partially due to $5.1 million of interest
from tax settlements recorded in the second quarter of 1996, a $3.4 million
increase in trust income, and $3.2 million from the sale of a portion of the
Corporation's corporate trust business in the fourth quarter of 1996.
Noninterest expense for 1996 declined to $176.9 million, a 7.8% decrease,
totaling $14.9 million from 1995's total of $191.8 million. The decrease in
expenses during 1996 was primarily the result of a $5.5 million reduction in net
occupancy expense, $5.6 million reduction in salaries and benefits and $4.3
million reduction in FDIC premiums.
Nonperforming assets, including other real estate owned, decreased $7.8
million, or 17.0%, during the year to $38.1 million at December 31, 1996. At
year-end 1996, the Corporation's reserve for loan losses totaled $64.5 million,
an increase of $7.9 million from year-end 1995's balance. The reserve to total
loans ratio stood at 2.4% at December 31, 1996. Nonperforming loans totaled
$10.0 million at year-end 1996, with a reserve to nonperforming loans (coverage)
ratio of 644.8%.
On December 13, 1996, Riggs Capital, a newly formed, wholly-owned subsidiary
of the Corporation, sold preferred equity capital through the private placement
of redeemable trust preferred securities. Riggs Capital sold, at par, 150,000
shares of redeemable trust preferred securities, liquidation preference of
$1,000, for a total of $150.0 million. These securities have an annual dividend
rate of 8.625%, payable semi-annually, beginning in June 1997. The net proceeds
from the sale enhanced certain capital ratios of the Corporation and will be
available for its general corporate purposes (see Note 11, "Common and Preferred
Stock").
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, 1996, total
money market assets increased by $166.8 million (25.5%) when compared with
year-end 1995. This increase was the result of fund inflows from the deposit and
borrowing portfolios, combined with inflows from the minority interest-trust
preferred securities. The total average of time deposits with other banks and
federal funds sold and resale agreements increased from $462.5 million in 1995
to $549.4 million in 1996.
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 securities portfolio
increased $192.5 million (19.8%) from a balance of $970.0 million at year-end
1995 to a balance of $1.16 billion. The increase in securities from 1995 was
mainly due to funds from increases in the deposit and borrowing portfolios, as
well as inflows from the minority interest-trust preferred securities. Proceeds
received from the sale of securities totaled $745.2 million in 1996. These sales
were the result of a repositioning of the securities portfolio which resulted in
securities gains of $6.0 million, as the Corporation replaced securities from
its government agencies and mortgage-backed
8
securities portfolios with U.S. Treasury securities in the first quarter of
1996. Also included in securities gains for 1996 was a recovery of a prior
year's loss recognized in December 1994 from the Orange County, California
bankruptcy. Final maturities of the remaining Orange County securities, which
were part of the available for sale portfolio, were received at par value in the
second quarter of 1996, resulting in a $1.2 million recovery (see "Asset
Quality--Past-Due And Potential Problem Loans/Assets"). The weighted-average
maturity and yield for securities available for sale adjusted for anticipated
prepayments were approximately 3 years and 6.10%, respectively, at December 31,
1996. 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, 1996, the aggregate securities portfolio was comprised
entirely of securities available for sale, which totaled $1.16 billion (see
Table A). In December 1995, the Corporation transferred $446.1 million (book
value) in securities held-to-maturity to the available for sale portfolio. 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 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").
Loans
Loans, net of premiums, discounts and deferred fees totaled $2.64 billion at
December 31, 1996, an increase of $65.9 million, or 2.6%, from the prior year
(see Tables B through D). 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, real
estate-commercial/construction 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.
The commercial loan portfolio totaled $443.6 million at year-end 1996, a net
increase of $43.3 million, or 10.8%, over the $400.3 million at year-end 1995.
There were no individual borrowers or industries representing more than a 10%
share of the total loan portfolio.
New residential mortgage loans in 1996 totaled $70.3 million, which was offset
by paydowns and payoffs during the year that resulted in a decrease of less than
5% in the portfolio. Of the $70.3 million residential loans originated in 1996,
$54.3 million (77.2%) 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. Although this is similar to 1995, it
contrasts to the loans added in 1994 and 1993, 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 in the Washington, D.C., metropolitan area, with no
other region having larger than a 5% concentration of the total loan portfolio.
The home equity portfolio increased $30.1 million, or 12.0% in 1996, to a
total of $281.9 million, the result of several new products introduced in 1994
and 1995. Originations in 1996 totaled $97.2 million. This growth was partially
offset by payoffs and paydowns during the year.
Activity within the foreign and real estate-commercial/construction portfolios
has had a movement upward in 1996, while the consumer portfolio remained flat.
Over the past two years, the Corporation has experienced selective new lending
in these portfolios, and thus, the Corporation anticipates limited investment
opportunities within these markets in the quarters ahead.
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, 1996, the Corporation had no cross-border outstandings
exceeding 1% of total assets to countries experiencing difficulties in repaying
their external debt.
At December 31, 1996, 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
9
nonperforming, past-due or problem loan status. Total loans outstanding to the
United Kingdom totaled $196.3 million, compared with $180.9 million at year-end
1995 (see Tables E and F). Nonaccrual loans in the United Kingdom totaled $287
thousand at December 31, 1996, compared with $1.7 million at December 31, 1995.
There were no past-due loans in the United Kingdom at December 31, 1996, and no
potential problem loans outstanding. In 1995, past-due loans totaled $36
thousand and there were no potential problem loans outstanding.
At December 31, 1996, 1995, and 1994, the Corporation did not have any
cross-border outstandings between 0.75% and 1% of its total assets.
ASSET QUALITY
Nonperforming Asset Summary
Nonperforming assets, which include nonaccrual loans, renegotiated loans, and
other real estate owned (net of reserves), totaled $38.1 million at year-end
1996, a $7.8 million (17.0%) decrease from the year-end 1995 total of $45.9
million (see Tables G and H). This decrease in nonperforming assets during 1996
was attributable to sales and paydowns of $15.3 million, nonaccrual loans
returning to accrual status of $0.5 million, and net charge-offs/writedowns of
$2.9 million, which were partially offset by exchange rate fluctuations of $0.2
million, combined with net additions in 1996 of $10.5 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. Impaired loans are further discussed in Note 3, "Loans and Reserve
for Loan Losses."
Nonaccrual And Renegotiated Loans
At December 31, 1996, nonaccrual loans were $9.9 million, or 0.4% of total
loans, compared with $9.3 million, or 0.4% of total loans, at December 31, 1995.
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. Nonaccrual
loan activity during 1996 included sales and repayments of $6.0 million,
nonaccrual loans returning to accrual status of $0.5 million, charge-offs of
$1.5 million and transfers of nonaccrual loans to other real estate owned of
$1.3 million. These decreases were more than offset by net additions to
nonaccrual loans and an increase in foreign exchange translation adjustments,
totaling $9.7 million and $0.2 million, respectively.
Renegotiated loans totaled $125 thousand at December 31, 1996, compared with
$3.4 million at year-end 1995. Renegotiated loans generally consist of real
estate-commercial/construction loans that are 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 decreased $3.3
million in 1996, the result of sales and repayments totaling $2.8 million and
charge-offs totaling $0.5 million during the year.
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 $1.6 million in 1996
to $3.8 million.
At December 31, 1996, the Corporation had identified approximately $1.6
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 residential mortgage loans totaling $1.2 million at year-end 1996.
The Corporation had no other potential problem assets at December 31, 1996.
The $4.7 million of Orange County, California variable-rate one-year notes (the
"Notes") that had been identified as potential problem assets at December 31,
1995, matured with proceeds received from Orange County in June 1996. The
recovery of $1.2 million was recognized when these notes matured at par, which
was recorded as a securities gain, because the Notes were written down to their
estimated fair value in December 1994, when Orange County declared bankruptcy.
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
10
based on management's assessment of existing conditions and reflects potential
losses determined to be probable and subject to reasonable estimation.
The Corporation did not make a provision for loan losses in 1996. In the third
quarter of 1995, 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.
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 $64.5 million, or 2.44% of total loans, at
December 31, 1996, compared with $56.5 million, or 2.20% of total loans, at
December 31, 1995 (see Table I). Net recoveries for 1996 totaled $6.6 million
compared with $14.5 million for 1995. Total net recoveries for 1996 were mostly
attributed to $2.7 million in net recoveries from domestic real
estate-commercial/construction and $5.3 million from foreign loans, compared
with $10.7 million and $2.3 million, respectively, for 1995. The Corporation's
coverage ratio (reserve for loan losses divided by the sum of nonaccrual and
renegotiated loans) was 644.8% at year-end 1996, compared with 444.0% at
year-end 1995. The increase in the coverage ratio was impacted by the aggregate
21.5% decrease in nonaccrual and renegotiated loans and the net recoveries
recorded in 1996.
The estimated allocation of the reserve for loan losses is shown on Table J.
Reserve for loan loss allocations represent management's assessment of existing
conditions and risk factors within these categories.
Other Real Estate Owned, Net
Other real estate owned decreased 15.3% to $28.1 million at December 31, 1996,
from $33.2 million at December 31, 1995. The decrease resulted from sales and
repayments of $6.4 million and $0.9 million in writedowns, partially offset by
net additions of $2.2 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, 1996, residential and commercial land composed 86.7% of other
real estate owned, with the remainder of the portfolio consisting of office,
industrial, retail and other types of properties. Except for $0.4 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
1996 (see Table K).
DEPOSITS
Total deposits at December 31, 1996, were $4.05 billion, compared with $3.89
billion at year-end 1995, an increase of $165.5 million, or 4.3%. In addition to
this growth, the composition of the portfolio significantly changed. The large
variances in the money market accounts, which increased $537.6 million, was
partially offset by the $375.6 million decrease in savings and NOW balances,
primarily attributed to a new program started during the third quarter of 1996.
Deposit balances in certain NOW and noninterest checking accounts are
transferred to the money market classification, thereby reducing the level of
deposit reserves required by the Federal Reserve. Based on certain limitations,
funds are periodically transferred back to the checking accounts to cover checks
presented for payment or other forms of withdrawal. As a result of the program,
the Corporation is expecting to increase net average interest-earning assets by
approximately $50 million, resulting in a benefit of approximately $2 million
pretax to net interest income annually under this program. Since this program
began in the third quarter of this year, the impact to net interest income was
not material for 1996. Total accounts transferred equaled $380.7 million at
December 31, 1996.
Average domestic deposits were $3.43 billion for 1996, up $29.3 million, or
0.9%, from an average of $3.41 billion for 1995. Average core deposits (total
deposits in domestic offices, excluding negotiable certificates of deposit) were
$3.42 billion, an increase of $26.9 million, or 0.8% from 1995's average balance
of $3.40 billion. Average foreign deposits increased $31.5 million, to $371.2
million, primarily the result of increased deposits in the United Kingdom
subsidiary (see Table L).
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 has been established on a
local, on-line service and completion of the Internet Home Page is expected in
1997. This development group is also analyzing opportunities for home banking
within the Corporation's market and the numerous delivery configurations
available. Management expects to complete this project and to formalize
delivery methodologies for home banking within the next 3 to 6 months.
11
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 increased $53.8 million (26.7%) to $255.2
million at December 31, 1996, compared with $201.5 million at year-end 1995.
Average short-term borrowings for 1996 totaled $241.0 million, down from 1995's
average of $248.6 million (see Table L). The decrease in the average balances
during 1996 was primarily due to decreases in treasury, tax and loan balances in
1996, which were a temporary source of funds for the Corporation (see Note 8,
"Borrowings").
LONG-TERM DEBT
Long-term debt totaled $191.5 million and $217.6 million at December 31, 1996
and 1995, respectively. The decrease between years was the result of $26.1
million of floating rate subordinated notes, which matured in September 1996.
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."
MINORITY INTEREST IN PREFERRED STOCK OF SUBSIDIARY
On December 13, 1996, Riggs Capital issued 150,000 shares of 8.625% Trust
Preferred Securities, Series A, with a liquidation preference of $1,000 per
share. Riggs Capital, a new trust entity formed in order to issue the preferred
securities, is a wholly-owned subsidiary of the Corporation. Dividends are paid
semi-annually, beginning in June 1997. The Trust Preferred Securities, Series A,
cannot be redeemed until December 31, 2006, and have a maturity of December 31,
2026. Riggs Capital invested all of the proceeds from its common and preferred
stock sales in Junior Subordinated Deferrable Interest Debentures, Series A,
issued by the Corporation on December 13, 1996, at a rate of 8.625%, with
comparable dividend payment dates and maturity as the Trust Preferred
Securities. Interest is cumulative and deferrable on the Junior Subordinated
Deferrable Interest Debentures for a period not to exceed five years and is also
cumulative and deferrable for the same period for the Trust Preferred
Securities. The Trust Preferred Securities are considered Tier I Capital for
regulatory purposes (see Note 1, "Summary of Significant Accounting Policies"
and Note 11, "Common and Preferred Stock").
LIQUIDITY
Interest-rate Risk Management
The Corporation's asset/liability management function is controlled by the
Asset/Liability Committee ("ALCO"), which is comprised of representatives of 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 the ensuing 12-month period
under the "most likely" scenario described above. The Corporation maintained a
liability sensitive interest-rate risk position as of December 31, 1996 and
1995. The Corporation was well-insulated against interest rates moving
significantly in either direction. At December 31, 1996, 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 3% over an initial 12-month period, and less than 2% 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
materially 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
12
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.
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, and
is one of the highest capitalized banks in the country.
Total stockholders' equity at December 31, 1996 was $425.8 million, or 8.29%
of total assets, up $49.1 million from year-end 1995. The increase from year-end
1995 was mostly the result of earnings totaling $65.9 million, partially offset
by dividends on preferred stock of $10.8 million and common stock of $4.5
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 weightings is
applied to the different on-balance sheet assets. Off-balance-sheet items such
as loan commitments and derivatives, are also applied a risk weighting 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 28.47% and 20.04%, respectively, at December 31, 1996,
compared with 21.62% and 13.57%, respectively, at December 31, 1995.
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 11.84% at December 31, 1996, compared with a leverage ratio
of 8.03% at the prior year-end.
The Corporation's policy is to ensure that its bank subsidiary is capitalized
in accordance with regulatory guidelines. The Corporation's national bank
subsidiary is subject to minimum capital ratios as prescribed by the Office of
the Comptroller of the Currency ("OCC"), which are the same as those for the
Federal Reserve Board. Table M details the actual and required minimum ratios
for the Corporation and its insured bank subsidiary.
RESULTS OF OPERATIONS
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 $157.0 million for 1996, an
increase of $2.7 million, or 1.8% from $154.3 million in 1995. The Corporation
experienced a sizable increase during 1996 in average interest-earning assets,
totaling $100.2 million, while the average rate earned decreased 30 basis points
between the years. Average loans remained level during the period as the
majority of the increase in average balances occurred in the money market assets
portfolio, which increased over $86.9 million in 1996. The Corporation also had
a $50.3 million increase in average interest-bearing liabilities that was mostly
due to the increase in average interest-bearing deposits, while the average rate
paid decreased 30 basis points between the years. Thus, the Corporation had a
favorable net increase in average interest-earning assets over interest-bearing
liabilities of $49.9 million (see Tables N and O).
The net interest margin (net interest income on a tax-equivalent basis divided
by average earning assets) was 3.72% for 1996, a decrease of 2 basis points from
the 3.74% net interest margin for 1995 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 1996 was 2.97%, unchanged from
1995's spread. Interest lost on nonaccrual and renegotiated loans totaled $977
thousand for 1996, which had the effect of reducing the net interest margin by
approximately 2 basis points for the year. In 1995, interest lost totaled $2.0
million and had the effect of reducing the net interest margin in that year by
approximately 5 basis points(see Table H).
13
Noninterest Income
Noninterest income for 1996 was $96.2 million, up $22.2 million, or 30.0% from
1995's total of $74.0 million. Excluding securities gains of $7.2 million and
$0.5 million for 1996 and 1995, respectively, noninterest income increased $15.5
million, or 21.1%. Trust income of $33.3 million increased $3.4 million, or
11.3% in 1996 due to the increase in market value of trust and custodial assets
from $8.99 billion at year-end 1995 to $9.73 billion at year-end 1996. Service
charges for 1996 increased $1.2 million (3.5%) to $34.9 million and
international fee income increased $0.3 million (44.3%) to $1.1 million. The
increase in service charges for 1996 was primarily due to increases in ATM and
debit card fee income totaling $1.5 million in 1996. In the second quarter of
1996, the Corporation recorded $5.1 million in interest from tax receivables
relating to tax returns from the 1970's and 1980's. Also, in the fourth quarter
of 1996, the Corporation recorded a $3.2 million pre-tax gain from the sale of a
portion of its corporate trust business (see Table P).
Noninterest Expense
Noninterest expense for the year ended December 31, 1996 was $176.9 million, a
decrease of $14.9 million (7.8%) from $191.8 million for 1995. Noninterest
expense for 1995 was impacted by $5.6 million of nonrecurring accruals recorded
in the third quarter of 1995. Excluding these nonrecurring items, noninterest
expense decreased $9.3 million, or 5.0%.
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. The occupancy expenses were the
result of initiatives undertaken, including the new technology center completed
in August 1996, as well as the marketing of office space that is currently
vacant to third parties.
Excluding these nonrecurring items, the decrease in noninterest expense of
$9.3 million was primarily due to decreases in personnel-related expenses of
$4.4 million, occupancy expenses of $1.1 million, and reductions in Federal
Deposit Insurance Corporation ("FDIC") insurance, which decreased $4.3 million
during 1996. Effective June 1995, coinciding with the mandatory 1.25% funding of
the Bank Insurance Fund ("BIF") reserve, insurance rates reduced from a range of
$0.23 to $0.26 per $100 in deposits insured to a range of $0.04 to $0.07 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 (see Table Q).
Income Taxes
The Corporation's provision for income taxes includes both federal and state
income taxes. The Corporation's 1996 provision for income tax expense of $6.2
million increased from a provision of $0.3 million in 1995. This represents an
effective tax rate of 8.5% for 1996, compared with an effective tax rate of 0.4%
for 1995. The provision for income taxes in 1996 was less than the amount
determined by application of the federal statutory income tax rate, principally
because of the Corporation's reversal of the previously established valuation
allowance. Additionally, in the second quarter of 1996, the Corporation received
a $2.4 million tax refund, the result of amended local tax returns from the
1980s, which reduced 1996's provision for income tax expense.
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 computing 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,
1996, the Corporation had net deferred tax assets totaling $26.5 million, which
included a valuation allowance of $16.2 million. Further tax discussion and a
reconciliation of the effective tax rate to the 1996 federal statutory rate of
35% can be found in Note 13, "Income Taxes."
FOURTH QUARTER 1996 VS. FOURTH QUARTER 1995
For the fourth quarter of 1996, the Corporation reported net income of $11.2
million, or $0.27 per common share, compared with $13.0 million, or $0.34 per
common share, for the fourth quarter of 1995 (see Table R). Results for the
fourth quarters of 1996 and 1995 reflected no provisions for loan losses.
Nonperforming assets totaled $38.1 million at December 31, 1996, a decrease of
$8.2 million from the third quarter of 1996, and a decrease of $7.8 million from
$45.9 million at December 31, 1995.
Net interest income on a tax-equivalent basis for the fourth quarter of 1996
was $40.3 million, an increase of $2.0 million, or 5.2%, year-to-year,
reflecting the same impact of net increases in average earning assets in 1996.
The net interest margin was 3.74% during the fourth quarter of 1996, up 4 basis
points from the fourth quarter of 1995. The net interest spread was 2.93% for
the quarter ended December 31, 1996, up 3 basis points from that for the same
period in the prior year (see Table S).
14
The reserve for loan losses totaled $64.5 million, an increase of $3.8 million
during the fourth quarter of 1996. This increase was the result of net
recoveries recorded of $2.5 million, compared with net recoveries recorded of
$1.4 million for the fourth quarter of 1995.
Noninterest income for the fourth quarter of 1996 was $23.7 million, an
increase of $4.4 million, or 22.6%, when compared with the like period in 1995.
Trust income of $9.0 million increased $0.6 million between the quarters,
stemming primarily from increased revenue from the Corporation's personal trust
operations. Service charges of $8.9 million for 1996's fourth quarter were up
$0.9 million, primarily due to increases in ATM and debit card fee income. Other
noninterest income increased $3.2 million, the result of the Corporation's sale
of a portion of its corporate trust business in the fourth quarter of 1996.
Noninterest expense for the fourth quarter of 1996 totaled $46.0 million,
compared with $43.8 million a year earlier, an increase of $2.1 million, or
4.9%. Salaries and related benefits of $19.4 million were up $1.1 million, as
benefit-related expenses increased between the periods. Net occupancy expense
was down $1.1 million, to $4.0 million in the fourth quarter of 1996, because of
the previously mentioned occupancy efficiency programs. Other real estate owned
expense was $266 thousand, an increase of $618 thousand when compared with
1995's fourth-quarter net other real estate owned income, the result of fewer
gains from the sale of other real estate owned properties in 1996. Other
noninterest expense totaled $13.5 million for the fourth quarter of 1996, an
increase of $1.8 million related to miscellaneous consulting and office supply
expenditures.
1995 VS. 1994
In 1995, 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. Earnings per common share for 1995 and 1994 were $2.54 and $.72,
respectively. Earnings for 1995 reflected 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 income
to average total assets was 1.92% for 1995 and 0.76% for 1994. Net income to
average stockholders' equity was 28.25% for 1995 and 12.01% for 1994. The net
interest margin for 1995 was 3.74%, down from a high of 3.89% in 1994.
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.
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 3 years and 6.10%, respectively, at December 31, 1995. 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.
Securities available for sale were primarily mortgage-backed, U.S. Treasury and
government agencies securities.
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.
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. The
commercial loan portfolio totaled $400.3 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. 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 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.
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. At December 31, 1995, nonaccrual loans were $9.3 million, or 0.4% of
total loans, compared with
15
$27.4 million, or 1.1% of total loans, at December 31, 1994. 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 $0.7 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 $0.1 million, respectively.
Renegotiated loans totaled $3.4 million at December 31, 1995, compared with
$555 thousand at year-end 1994. 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. 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 $0.7 million during the period.
Past-due loans consisted predominately of residential real estate and consumer
loans that were well-secured and in the process of collection and on which the
Corporation was accruing interest. Past-due loans totaled $5.5 million at
year-end 1995, a decrease of $662 thousand when compared to year-end 1994. At
December 31, 1995, the Corporation had identified approximately $8.1 million in
potential problem loans. These loans primarily consisted 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 the third quarter of 1995, the reserve for loan losses was reduced by $55.0
million, 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 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. The Corporation's coverage ratio
(reserves for loan losses divided by the sum of nonaccrual and renegotiated
loans) was 444.0% at year-end 1995, compared with 347.3% at year-end 1994. The
increase in the coverage ratio was impacted by the 65.9% decrease in nonaccrual
loans, partially offset by the $55.0 million loan loss reserve reversal in 1995.
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%. 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.
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, which were a
temporary source of funds for the Corporation. Long-term debt totaled $217.6
million at December 31, 1995, unchanged from year-end 1994.
Total stockholders' equity at December 31, 1995 was $376.7 million, or 8.0% 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.
Net interest income on a tax-equivalent basis totaled $154.3 million for 1995,
a decrease of $2.4 million, or 1.5%, from $156.7 million in 1994. The
Corporation experienced a sizable increase during 1995 in average
interest-earning 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 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 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
16
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.
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.
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. Excluding these nonrecurring items, the decrease in noninterest
expense of $14.8 million was primarily due to decreases in FDIC insurance,
legal, furniture and equipment and other noninterest expenses. Deposit
insurance premiums decreased $5.3 million during 1995. 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.
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 $0.3 million increased from a benefit of $0.5 million in 1994. This
represents an effective tax rate of 0.4% for 1995, compared with a negative
effective tax rate of 1.6% for 1994. 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.
17
TABLE A: MATURITIES OF SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1996
GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities:
Due within 1 year $ 85,221 $ 67 $ 13 $ 85,275
Due after 1 year but within 5 years 479,518 1,194 2,475 478,237
Due after 5 years but within 10 years 169,980 213 33 170,160
Government Agencies Securities:
Due within 1 year 399,219 -- 58 399,161
Other Securities:
Due within 1 year 5,400 -- -- 5,400
Due after 10 years 24,270 -- -- 24,270
============================================================================================================
Total Securities Available for Sale $1,163,608 $1,474 $2,579 $1,162,503
TABLE B: YEAR-END LOANS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Domestic:
Commercial and Financial $ 443,557 $ 400,280 $ 400,660 $ 412,006 $ 369,885
Real Estate-Commercial/Construction 352,015 326,965 323,835 388,442 533,685
Residential Mortgage 1,226,110 1,284,193 1,317,169 1,149,363 529,382
Home Equity 281,867 251,798 220,910 234,049 273,586
Consumer 78,617 79,867 75,887 82,819 107,382
- ------------------------------------------------------------------------------------------------------------
Total Domestic 2,382,166 2,343,103 2,338,461 2,266,679 1,813,920
Foreign:
Governments and Official Institutions 17,131 30,849 26,013 28,113 29,319
Banks and Other Financial Institutions 5,457 6,570 11,517 14,999 24,734
Commercial and Industrial 213,236 171,070 146,153 192,770 291,496
Other 15,958 15,761 20,875 19,514 25,948
- ------------------------------------------------------------------------------------------------------------
Total Foreign 251,782 224,250 204,558 255,396 371,497
- ------------------------------------------------------------------------------------------------------------
Total Loans 2,633,948 2,567,353 2,543,019 2,522,075 2,185,417
Unamortized Premium (Unearned
Discount/Net Deferred Fees) 3,886 4,606 6,905 6,058 (4,360)
- ------------------------------------------------------------------------------------------------------------
Total Loans, Net of Unamortized
Premium (Unearned Discount/
Net Deferred Fees) 2,637,834 2,571,959 2,549,924 2,528,133 2,181,057
Reserve for Loan Losses (64,486) (56,546) (97,039) (86,513) (84,155)
============================================================================================================
Total Net Loans $2,573,348 $2,515,413 $2,452,885 $2,441,620 $2,096,902
18
TABLE C: REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1996
GEOGRAPHIC LOCATION
- ------------------------------------------------------------------------------------------------------------
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------
Land Acquisition and
Construction Development $ 25,889 $ 8,579 $ 5,609 $ -- $ -- $ 40,077
Multifamily Residential 19,788 16,393 3,923 -- 6,211 46,315
Commercial:
Office Buildings 58,201 43,124 26,450 -- -- 127,775
Shopping Centers 31,166 11,795 16,375 -- -- 59,336
Hotels 4,488 -- -- -- -- 4,488
Industrial/Warehouse 2,259 11,714 7,522 -- -- 21,495
Churches 21,780 4,479 9,329 -- -- 35,588
Other 4,163 6,063 6,648 -- 67 16,941
- ------------------------------------------------------------------------------------------------------------
Total Commercial 122,057 77,175 66,324 -- 67 265,623
- ------------------------------------------------------------------------------------------------------------
Total Domestic Real Estate-
Commercial/Construction Loans 167,734 102,147 75,856 -- 6,278 352,015
Foreign -- -- -- 122,655 -- 122,655
============================================================================================================
Total Real Estate-
Commercial/Construction Loans $167,734 $102,147 $75,856 $122,655 $6,278 $474,670
TABLE D: YEAR-END MATURITIES AND RATE SENSITIVITY
DECEMBER 31, 1996
LESS THAN OVER
(IN THOUSANDS) 1 YEAR (1) 1-5 YEARS 5 YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------
Maturities:
Commercial and Financial $121,937 $200,306 $ 121,314 $ 443,557
Real Estate-Commercial/Construction 107,062 173,452 71,501 352,015
Residential Mortgage 19,508 86,571 1,120,031 1,226,110
Home Equity 140,392 -- 141,475 281,867
Consumer 45,624 29,856 3,137 78,617
Foreign 223,480 21,500 6,802 251,782
============================================================================================================
Total $658,003 $511,685 $1,464,260 $2,633,948
Rate Sensitivity:
With Fixed Interest Rates $103,341 $295,610 $1,006,313 $1,405,264
With Floating and Adjustable Interest Rates 554,662 216,075 457,947 1,228,684
============================================================================================================
Total $658,003 $511,685 $1,464,260 $2,633,948
[FN]
(1)--INCLUDES DEMAND LOANS, LOANS HAVING NO STATED SCHEDULE OF REPAYMENTS OR
MATURITY, AND OVERDRAFTS.
19
TABLE E: 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, 1996
UNITED KINGDOM $ 419 $ 727 $167,701 $27,480 $196,327
============================================================================================================
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
TABLE F: 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, 1996
UNITED KINGDOM $ 287 $-- $ 287 $--
============================================================================================================
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 -- -- -- --
20
TABLE G: NONPERFORMING ASSETS AND PAST-DUE LOANS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS:
Nonaccrual Loans:(1)
Domestic $ 9,133 $ 7,542 $ 11,518 $ 85,075 $ 152,812
Foreign 743 1,784 15,865 45,099 52,613
- ------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 9,876 9,326 27,383 130,174 205,425
Renegotiated Loans:(2)
Domestic 125 3,410 288 29,465 11,806
Foreign -- -- 267 834 --
- ------------------------------------------------------------------------------------------------------------
Total Renegotiated Loans 125 3,410 555 30,299 11,806
Other Real Estate Owned, Net:
Domestic 27,722 32,627 44,068 45,049 62,810
Foreign 399 570 3,695 7,754 26,579
- ------------------------------------------------------------------------------------------------------------
Total Other Real Estate Owned, Net 28,121 33,197 47,763 52,803 89,389
============================================================================================================
Total Nonperforming Assets, Net $ 38,122 $ 45,933 $ 75,701 $ 213,276 $ 306,620
PAST-DUE LOANS:(3)
Domestic $ 3,849 $ 5,423 $ 6,091 $ 3,315 $ 1,369
Foreign -- 36 30 4 55
============================================================================================================
Total Past-Due Loans $ 3,849 $ 5,459 $ 6,121 $ 3,319 $ 1,424
Total Loans, Net of Unamortized Premium
(Unearned Discount/Net Deferred Fees) $2,637,834 $2,571,959 $2,549,924 $2,528,133 $2,181,057
Ratio of Nonaccrual Loans to Total Loans .37% .36% 1.07% 5.15% 9.42%
Ratio of Nonperforming Assets to Total Loans
and Other Real Estate Owned, Net 1.43% 1.76% 2.91% 8.26% 13.50%
[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 $10.6 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.
21
TABLE H: INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Interest Income at Original Terms:
Nonaccrual Loans--
Domestic $ 972 $ 1,230 $ 3,571 $ 10,639 $ 15,155
Foreign 228 1,156 2,476 5,601 3,325
Renegotiated Loans 68 54 444 1,845 296
============================================================================================================
Total $ 1,268 $ 2,440 $ 6,491 $ 18,085 $ 18,776
Actual Interest Income Recognized:
Nonaccrual Loans--
Domestic $ 254 $ 214 $ 458 $ 1,506 $ 5,345
Foreign 37 186 1,075 2,128 116
Renegotiated Loans -- -- -- 346 94
============================================================================================================
Total $ 291 $ 400 $ 1,533 $ 3,980 $ 5,555
TABLE I: RESERVE FOR LOAN LOSSES AND SUMMARY OF CHARGE-OFFS (RECOVERIES)
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Balance, January 1 $ 56,546 $ 97,039 $ 86,513 $ 84,155 $103,674
Provision for Loan Losses -- (55,000) 6,300 69,290 52,067
Loans Charged Off:
Commercial and Financial 764 243 593 4,703 3,192
Real Estate-Commercial/Construction 1,061 697 6,800 41,170 31,528
Residential Mortgage 11 -- 409 96 215
Home Equity 67 438 98 201 453
Consumer 1,513 906 1,511 1,864 2,745
Foreign 260 6,106 3,219 31,400 35,575
- ------------------------------------------------------------------------------------------------------------
Total Loans Charged Off 3,676 8,390 12,630 79,434 73,708
- ------------------------------------------------------------------------------------------------------------
Recoveries on Charged-Off Loans:
Commercial and Financial 397 2,084 695 527 616
Real Estate-Commercial/Construction 3,802 11,408 8,847 6,699 3,172
Residential Mortgage -- 84 136 145 15
Home Equity 27 114 4 -- --
Consumer 512 838 942 938 1,231
Foreign 5,513 8,400 5,034 4,712 279
- ------------------------------------------------------------------------------------------------------------
Total Recoveries on Charged-Off Loans 10,251 22,928 15,658 13,021 5,313
- ------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) (6,575) (14,538) (3,028) 66,413 68,395
Foreign Exchange Translation Adjustments 1,365 (31) 1,198 (519) (3,191)
============================================================================================================
Balance, December 31 $ 64,486 $ 56,546 $ 97,039 $ 86,513 $ 84,155
Ratio of Net Charge-Offs (Recoveries) to
Average Loans (.26)% (.57)% (.12)% 3.04 % 2.66 %
Ratio of Reserve for Loan Losses to
Total Loans 2.44 % 2.20 % 3.81 % 3.42 % 3.86 %
22
TABLE J: RESERVE FOR LOAN LOSSES ALLOCATION AND LOAN DISTRIBUTION
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Commercial and Financial $ 6,838 $ 9,334 $11,658 $ 8,836 $ 7,775
Real Estate-Residential and
Commercial/Construction 8,191 9,543 11,988 29,544 41,699
Home Equity and Consumer 4,236 2,717 6,178 2,905 3,658
Foreign 4,752 5,030 11,981 19,651 25,266
Based on Qualitative Factors 40,469 29,922 55,234 25,577 5,757
============================================================================================================
Balance, December 31 $64,486 $56,546 $97,039 $86,513 $84,155
DISTRIBUTION OF YEAR-END LOANS
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Commercial and Financial 16.8% 15.6% 15.8% 16.3% 17.0%
Real Estate-Residential and
Commercial/Construction 59.9 62.9 64.5 61.0 48.6
Home Equity and Consumer 13.7 12.8 11.7 12.6 17.4
Foreign 9.6 8.7 8.0 10.1 17.0
============================================================================================================
Balance, December 31 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE K: OTHER REAL ESTATE OWNED, NET
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1996
GEOGRAPHIC LOCATION
- ------------------------------------------------------------------------------------------------------------
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM TOTAL
- ------------------------------------------------------------------------------------------------------------
Land $-- $18,129 $6,239 $-- $24,368
Single-Family Residential -- 619 829 -- 1,448
Office Buildings/Retail -- 18 1,673 399 2,090
Industrial/Warehouse 215 -- -- -- 215
============================================================================================================
Total Other Real Estate Owned, Net $215 $18,766 $8,741 $399 $28,121
23
TABLE L: AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) BALANCES RATES BALANCES RATES BALANCES RATES
- ------------------------------------------------------------------------------------------------------------
Deposits in Domestic Offices:
Noninterest-Bearing Demand Deposits $ 802,265 $ 807,295 $ 786,153
Savings and NOW Accounts 633,119 2.16% 811,344 2.34% 903,756 2.15%
Money Market Deposits 1,164,669 3.27 940,501 3.43 1,029,548 2.59
Other Core Deposits 822,541 4.63 836,530 5.11 734,592 3.35
- ------------------------------------------------------------------------------------------------------------
Total Average Core Deposits 3,422,594 3,395,670 3,454,049
Negotiable Certificates of Deposit 12,218 5.21 9,819 5.88 15,669 3.83
- ------------------------------------------------------------------------------------------------------------
Total Average Deposits in
Domestic Offices 3,434,812 3,405,489 3,469,718
Deposits in Foreign Offices:(1)
Noninterest-Bearing Demand Deposits 10,250 9,468 11,496
Interest-Bearing Bank Deposits 54,383 6.41 48,903 7.40 47,039 9.85
Interest-Bearing Non-Bank Deposits 306,528 5.21 281,253 5.62 198,844 3.83
- ------------------------------------------------------------------------------------------------------------
Total Average Deposits in
Foreign Offices 371,161 339,624 257,379
============================================================================================================
Total Average Deposits $3,805,973 $3,745,113 $3,727,097
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements $ 212,206 4.73% $ 174,923 5.98% $ 150,678 4.56%
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 28,747 4.41 73,694 5.70 61,058 3.71
============================================================================================================
Total Average Short-Term Borrowings $ 240,953 $ 248,617 $ 211,736
[FN]
(1)--THE MAJORITY OF INTEREST-BEARING DEPOSITS IN FOREIGN OFFICES ARE
DENOMINATED IN AMOUNTS OF $100 THOUSAND OR MORE.
TABLE M: CAPITAL RATIOS
DECEMBER 31,
-------------------- REQUIRED
1996 1995 MINIMUMS
- ------------------------------------------------------------------------------------------------------------
Riggs National Corporation
Tier I 20.04% 13.57% 4.00%
Combined Tier I and Tier II 28.47 21.62 8.00
Leverage(1) 11.84 8.03 4.00
Riggs Bank N.A.(2)
Tier I 18.66 n/a 4.00
Combined Tier I and Tier II 19.92 n/a 8.00
Leverage (1) 10.96 n/a 4.00
[FN]
(1)-- MOST BANK HOLDING COMPANIES AND NATIONAL BANKS, INCLUDING THE
CORPORATION AND THE CORPORATION'S NATIONAL BANK SUBSIDIARY, 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, 1996.
(2)-- ON MARCH 28, 1996, THE CORPORATION MERGED THE RIGGS NATIONAL BANK
OF VIRGINIA AND THE RIGGS NATIONAL BANK OF MARYLAND INTO THE RIGGS NATIONAL
BANK OF WASHINGTON, D.C., AND RENAMED THE COMBINED NATIONAL BANK RIGGS
BANK NATIONAL ASSOCIATION ("RIGGS BANK N.A."). RIGGS BANK N.A. IS A WHOLLY-
OWNED SUBSIDIARY OF RIGGS NATIONAL CORPORATION.
24
TABLE N: THREE-YEAR AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES (1)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(IN THOUSANDS) BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- ------------------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial-Taxable $ 359,303$ 30,483 8.48%$ 364,638$ 30,101 8.26%$ 381,721$ 24,734 6.48%
Commercial-Tax-Exempt 29,180 2,748 9.42 33,601 3,797 11.30 61,233 6,547 10.69
Real Estate-
Commercial/Construction 327,594 28,953 8.84 325,987 31,375 9.62 353,006 30,575 8.66
Residential Mortgage 1,258,669 89,674 7.12 1,310,249 93,179 7.11 1,303,327 92,164 7.07
Home Equity 273,860 22,555 8.24 237,438 21,457 9.04 225,117 17,037 7.57
Consumer 76,006 9,285 12.22 75,484 9,076 12.02 75,663 8,957 11.84
Foreign 232,800 18,689 8.03 195,757 16,694 8.53 201,457 16,884 8.38
- ------------------------------------------------------------------------------------------------------------
Total Loans, Including Fees 2,557,412 202,387 7.91 2,543,154 205,679 8.09 2,601,524 196,898 7.57
Securities Available
for Sale(2) 1,115,466 65,739 5.89 634,198 38,750 6.11 582,076 31,119 5.35
Securities Held-to-Maturity -- -- -- 482,164 29,461 6.10 470,690 23,437 4.98
Time Deposits with Other Banks 208,108 10,288 4.94 219,967 13,819 6.28 189,425 9,786 5.17
Federal Funds Sold and
Reverse Repurchase Agreements 341,279 18,487 5.42 242,534 14,389 5.93 187,955 8,139 4.33
- ------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS AND
AVERAGE RATE EARNED 4,222,265 296,901 7.03 4,122,017 302,098 7.33 4,031,670 269,379 6.68
Less: Reserve for Loan Losses 59,556 87,894 92,258
Cash and Due from Banks 192,024 203,327 219,609
Premises and Equipment, Net 160,354 151,372 156,525
Other Assets 201,282 184,329 185,031
============================================================================================================
TOTAL ASSETS $4,716,369 $4,573,151 $4,500,577
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 645,258$ 13,944 2.16% $ 822,666$ 19,293 2.35% $ 908,582$ 19,512 2.15%
Money Market
Deposit Accounts 1,173,179 38,363 3.27 949,501 32,518 3.42 1,042,664 26,947 2.58
Time Deposits in Domestic
Offices 834,759 38,738 4.64 846,356 43,353 5.12 750,258 25,816 3.44
Time Deposits
in Foreign Offices 340,262 18,931 5.56 309,832 18,822 6.07 227,943 11,282 4.95
- ------------------------------------------------------------------------------------------------------------
Total Interest-
Bearing Deposits 2,993,458 109,976 3.67 2,928,355 113,986 3.89 2,929,447 83,557 2.85
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements 212,206 10,036 4.73 174,923 10,456 5.98 150,678 6,871 4.56
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 28,747 1,267 4.41 73,694 4,203 5.70 61,058 2,268 3.71
Long-Term Debt 210,494 18,612 8.84 217,625 19,176 8.81 232,790 20,027 8.60
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING FUNDS
AND AVERAGE RATE INCURRED 3,444,905 139,891 4.06 3,394,597 147,821 4.36 3,373,973 112,723 3.34
Demand Deposits 812,515 816,758 797,650
Other Liabilities 51,095 50,952 45,699
Minority Interest in Preferred
Stock of Subsidiary 7,787 -- --
Stockholders' Equity 400,067 310,844 283,255
============================================================================================================
TOTAL LIABILITIES,
MINORITY INTEREST AND
STOCKHOLDERS' EQUITY $4,716,369 $4,573,151 $4,500,577
NET INTEREST INCOME AND SPREAD $157,010 2.97% $154,277 2.97% $156,656 3.34%
============================================================================================================
NET INTEREST MARGIN ON
EARNING ASSETS 3.72% 3.74% 3.89%
[FN]
(1)--INCOME AND RATES ARE COMPUTED ON A TAX-EQUIVALENT BASIS USING A
FEDERAL INCOME TAX RATE OF 35% FOR 1996 AND 1995, AND 34% FOR 1994, IN ADDITION
TO 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 66 OF THIS REPORT, WERE 9.0%, 8.4% AND
9.1% OF AVERAGE TOTAL ASSETS FOR THE PERIODS PRESENTED, RESPECTIVELY. AVERAGE
FOREIGN LIABILITIES WERE 20.0%, 17.6% AND 14.7% 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.
25
TABLE O: NET INTEREST INCOME CHANGES (1)
1996 VERSUS 1995 1995 VERSUS 1994
- ------------------------------------------------------------------------------------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- ------------------------------------------------------------------------------------------------------------
Interest Income:
Loans, Including Fees $ (5,029) $ 1,737 $ (3,292) $15,285 $(6,504) $ 8,781
Securities Available for Sale (1,421) 28,410 26,989 4,681 2,950 7,631
Securities Held-to-Maturity -- (29,461) (29,461) 5,435 589 6,024
Time Deposits with Other Banks (2,817) (714) (3,531) 2,305 1,728 4,033
Federal Funds Sold and Reverse
Repurchase Agreements (1,334) 5,432 4,098 3,502 2,748 6,250
- ------------------------------------------------------------------------------------------------------------
Total Interest Income (10,601) 5,404 (5,197) 31,208 1,511 32,719
Interest Expense:
Savings and NOW Accounts (1,453) (3,896) (5,349) 1,702 (1,921) (219)
Money Market Deposit Accounts (1,484) 7,329 5,845 8,154 (2,583) 5,571
Time Deposits in Domestic Offices (4,026) (589) (4,615) 13,897 3,640 17,537
Time Deposits in Foreign Offices (1,647) 1,756 109 2,921 4,619 7,540
Federal Funds Purchased and
Repurchase Agreements (2,417) 1,997 (420) 2,362 1,223 3,585
U.S. Treasury Demand Notes and
Other Borrowings (796) (2,140) (2,936) 1,397 538 1,935
Long-Term Debt 69 (633) (564) 481 (1,332) (851)
- ------------------------------------------------------------------------------------------------------------
Total Interest Expense (11,754) 3,824 (7,930) 30,914 4,184 35,098
============================================================================================================
Net Interest Income $ 1,153 $ 1,580 $ 2,733 $ 294 $(2,673) $(2,379)
[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
1996 AND 1995, AND 34% FOR 1994, IN ADDITION TO LOCAL TAX RATES AS APPLICABLE.
26
TABLE P: NONINTEREST INCOME
YEARS ENDED
DECEMBER 31, CHANGE
------------------------ -------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------
Service Charges $ 34,861 $ 33,678 $ 1,183 3.5 %
Trust Income 33,303 29,934 3,369 11.3
Interest on Tax Receivables 5,135 -- 5,135 n/a
Foreign Exchange Income 2,238 2,169 69 3.2
International Noncredit Commissions and Fees 1,134 786 348 44.3
Other Noninterest Income 12,336 6,926 5,410 78.1
- ------------------------------------------------------------------------------------------------------------
Noninterest Income Excluding Securities Gains, Net 89,007 73,493 15,514 21.1
Securities Gains, Net 7,170 511 6,659 n/a
============================================================================================================
Total Noninterest Income $ 96,177 $ 74,004 $ 22,173 30.0 %
TABLE Q: NONINTEREST EXPENSE
YEARS ENDED
DECEMBER 31, CHANGE
----------------------- -------------------------
(IN THOUSANDS) 1996 1995 AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------
Salaries and Wages $ 61,086 $ 66,184 $ (5,098) (7.7)%
Pensions and Other Employee Benefits 13,860 14,319 (459) (3.2)
- ------------------------------------------------------------------------------------------------------------
Total Staff Expense 74,946 80,503 (5,557) (6.9)
Occupancy, Net 20,917 26,415 (5,498) (20.8)
Data Processing Services 17,998 17,043 955 5.6
Furniture and Equipment 7,779 7,960 (181) (2.3)
Advertising and Public Relations 4,898 5,576 (678) (12.2)
Legal Fees 3,036 2,157 879 40.8
Other Real Estate Owned Expense, Net 431 178 253 n/a
FDIC Insurance 4 4,303 (4,299) (99.9)
Other Noninterest Expense 46,938 47,699 (761) (1.6)
============================================================================================================
Total Noninterest Expense $176,947 $191,834 $(14,887) (7.8)%
27
TABLE R: FOURTH QUARTER CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
DECEMBER 31,
--------------------- CHANGE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 AMOUNT
- ------------------------------------------------------------------------------------------------------------
Interest Income $74,077 $74,236 $ (159)
Interest Expense 34,727 36,652 (1,925)
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 39,350 37,584 1,766
Less: Provision for Loan Losses -- -- --
- ------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 39,350 37,584 1,766
Noninterest Income 23,686 19,323 4,363
Noninterest Expense 45,965 43,819 2,146
- ------------------------------------------------------------------------------------------------------------
Income before Taxes and Minority Interest 17,071 13,088 3,983
Applicable Income Tax Expense 5,430 91 5,339
Minority Interest in Dividends of Subsidiary, Net of Taxes 420 -- 420
============================================================================================================
NET INCOME $11,221 $12,997 $(1,776)
EARNINGS PER COMMON SHARE $ .27 $ .34 $ (.07)
TABLE S: FOURTH QUARTER NET INTEREST INCOME CHANGES(1)
THREE MONTHS ENDED
DECEMBER 31, DUE TO
------------------- --------------------
(IN THOUSANDS) 1996 1995 CHANGE RATE VOLUME
- ------------------------------------------------------------------------------------------------------------
Interest Income:
Loans, Including Fees $50,916 $51,729 $ (813) $(2,240) $ 1,427
Securities Available for Sale 14,805 10,463 4,342 240 4,102
Securities Held-to-Maturity -- 5,151 (5,151) -- (5,151)
Time Deposits with Other Banks 2,285 2,681 (396) (304) (92)
Federal Funds Sold and Reverse Repurchase Agreements 7,026 4,926 2,100 (390) 2,490
- ------------------------------------------------------------------------------------------------------------
Total Interest Income 75,032 74,950 82 (2,694) 2,776
Interest Expense:
Savings and NOW Accounts 1,962 4,820 (2,858) (238) (2,620)
Money Market Deposit Accounts 11,439 8,246 3,193 (1,096) 4,289
Time Deposits in Domestic Offices 9,380 11,337 (1,957) (1,658) (299)
Time Deposits in Foreign Offices 4,947 4,741 206 (286) 492
Federal Funds Purchased and Repurchase Agreements 2,437 2,171 266 (290) 556
U.S. Treasury Demand Notes and Other Short-Term
Borrowings 194 560 (366) (47) (319)
Long-Term Debt 4,368 4,777 (409) 189 (598)
- ------------------------------------------------------------------------------------------------------------
Total Interest Expense 34,727 36,652 (1,925) (3,426) 1,501
============================================================================================================
Net Interest Income $40,305 $38,298 $ 2,007 $ 732 $ 1,275
[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 1996 AND
1995, AND 34% FOR 1994, IN ADDITION TO LOCAL TAX RATES AS APPLICABLE.
28
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 30
Consolidated Statements of Condition 31
Consolidated Statements of Changes in Stockholders' Equity 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 34-61
Management's Report on Financial Statements 62
Report of Independent Public Accountants 63
(b) The following supplementary data is set forth in this Annual
Report on Form 10-K as follows:
Quarterly Financial Information 64-65
Consolidated Financial Ratios and Other Information 64
Quarterly Stock Information 65
29
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $201,414 $203,332 $194,525
Interest and Dividends on Securities Available for Sale 63,009 38,750 30,916
Interest and Dividends on Securities Held-to-Maturity -- 28,509 22,639
Interest on Money Market Assets:
Time Deposits with Other Banks 10,288 13,819 9,786
Federal Funds Sold and Reverse Repurchase Agreements 18,487 14,389 8,139
- ------------------------------------------------------------------------------------------------------------
Total Interest on Money Market Assets 28,775 28,208 17,925
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 293,198 298,799 266,005
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 13,944 19,293 19,512
Money Market Deposit Accounts 38,363 32,518 26,947
Time Deposits in Domestic Offices 38,738 43,353 25,241
Time Deposits in Foreign Offices 18,931 18,822 11,857
- ------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 109,976 113,986 83,557
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 10,036 10,456 6,871
U.S. Treasury Demand Notes and Other Short-Term Borrowings 1,267 4,203 2,268
Long-Term Debt 18,612 19,176 20,027
- ------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 29,915 33,835 29,166
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 139,891 147,821 112,723
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 153,307 150,978 153,282
Less: Provision for Loan Losses -- (55,000) 6,300
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 153,307 205,978 146,982
NONINTEREST INCOME
Service Charges 34,861 33,678 36,836
Trust Income 33,303 29,934 28,587
International Noncredit Commissions and Fees 1,134 786 5,391
Gain on Settlement of Mortgage Insurance Claims -- -- 4,739
Interest on Tax Receivables 5,135 -- --
Other Noninterest Income 14,574 9,095 9,745
Securities Gains, Net 7,170 511 226
- ------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 96,177 74,004 85,524
NONINTEREST EXPENSE
Salaries and Wages 61,086 66,184 64,892
Pensions and Other Employee Benefits 13,860 14,319 16,605
Occupancy, Net 20,917 26,415 23,637
Data Processing Services 17,998 17,043 16,935
Furniture and Equipment 7,779 7,960 9,224
Advertising and Public Relations 4,898 5,576 6,006
Legal Fees 3,036 2,157 3,581
Other Real Estate Owned Expense (Income), Net 431 178 (1,403)
FDIC Insurance 4 4,303 9,601
Other Noninterest Expense 46,938 47,699 49,942
- ------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 176,947 191,834 199,020
- ------------------------------------------------------------------------------------------------------------
Income before Taxes and Minority Interest 72,537 88,148 33,486
Applicable Income Tax Expense (Benefit) 6,174 346 (533)
Minority Interest in Dividends of Subsidiary, Net of Taxes 420 -- --
============================================================================================================
NET INCOME $ 65,943 $ 87,802 $ 34,019
Less: Dividends on Preferred Stock 10,750 10,750 12,124
- ------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON STOCK $ 55,193 $ 77,052 $ 21,895
- ------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 1.79 $ 2.54 $ .72
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
30
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
-----------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Due from Banks $ 211,144 $ 253,414
Money Market Assets:
Time Deposits with Other Banks 281,126 231,374
Federal Funds Sold and Reverse Repurchase Agreements 540,000 423,000
- ------------------------------------------------------------------------------------------------------------
Total Money Market Assets 821,126 654,374
Securities Available for Sale (at Market Value) 1,162,503 970,006
Loans 2,637,834 2,571,959
Reserve for Loan Losses 64,486 56,546
- ------------------------------------------------------------------------------------------------------------
Total Net Loans 2,573,348 2,515,413
Premises and Equipment, Net 166,074 154,770
Accrued Interest Receivable 30,042 29,578
Other Real Estate Owned, Net 28,121 33,197
Other Assets 142,742 121,781
- ------------------------------------------------------------------------------------------------------------
TOTAL $5,135,100 $4,732,533
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 892,594 $ 910,887
Interest-Bearing Deposits:
Savings and NOW Accounts 472,625 848,242
Money Market Deposit Accounts 1,488,730 951,117
Time Deposits in Domestic Offices 820,748 857,036
Time Deposits in Foreign Offices 375,986 317,897
- ------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,158,089 2,974,292
Total Deposits 4,050,683 3,885,179
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 237,166 186,009
U.S. Treasury Demand Notes and Other Short-Term Borrowings 18,068 15,466
- ------------------------------------------------------------------------------------------------------------
Total Short-Term Borrowings 255,234 201,475
Other Liabilities 61,882 51,585
Long-Term Debt 191,525 217,625
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,559,324 4,355,864
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES 150,000 --
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock - $1.00 Par Value
Shares Authorized - 25,000,000 at December 31, 1996, and 1995;
Liquidation Preference - $25 per share
Noncumulative Perpetual Series B - 4,000,000 shares issued at December 31,
1996, and 1995 4,000 4,000
Common Stock - $2.50 Par Value
Shares Authorized - 50,000,000 at December 31, 1996, and 1995
Shares Issued - 31,273,344 at December 31, 1996, and 31,175,262 at
December 31, 1995 78,183 77,938
Surplus - Preferred Stock 91,192 91,192
Surplus - Common Stock 157,060 156,320
Foreign Exchange Translation Adjustments 1,111 (873)
Undivided Profits 118,682 68,038
Unrealized (Loss) Gain on Securities Available for Sale, Net (729) 3,777
Treasury Stock - 900,798 shares at December 31, 1996, and 1995 (23,723) (23,723)
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 425,776 376,669
============================================================================================================
TOTAL $5,135,100 $4,732,533
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
31
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
UNREALIZED
FOREIGN UNDIVIDED (LOSS) GAIN
PREFERRED COMMON EXCHANGE PROFITS ON SECURITIES TOTAL
(IN THOUSANDS, EXCEPT STOCK STOCK TRANSLATION (ACCUMULATED AVAILABLE FOR TREASURY STOCKHOLDERS'
PER SHARE AMOUNTS) $1.00 PAR $2.50 PAR SURPLUS ADJUSTMENTS DEFICIT) SALE, NET STOCK EQUITY
- -----------------------------------------------------------------------------------------------------------------------
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
Issuance of Common Stock for
stock option plans
- 98,082 shares 245 740 985
Net Income 65,943 65,943
Unrealized Loss on Securities
Available for Sale, Net (4,506) (4,506)
Foreign Exchange Translation
Adjustments 1,984 1,984
Cash Dividends Declared:
Common Stock, $.15 Per Share (4,549) (4,549)
Series B Preferred Stock,
$2.6875 Per Share (10,750) (10,750)
=======================================================================================================================
BALANCE, DECEMBER 31, 1996 $4,000 $78,183 $248,252 $ 1,111 $118,682 $ (729) $(23,723) $425,776
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEARS ENDED DECEMBER 31,
---------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 65,943 $ 87,802 $ 34,019
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Provision for Loan Losses -- (55,000) 6,300
Provision for Other Real Estate Owned Writedowns 906 2,868 3,333
Depreciation Expense and Amortization of Leasehold
Improvements 11,165 11,662 12,554
Amortization of Purchase Accounting Adjustments 3,522 3,603 3,795
Benefit from Deferred Taxes (11,072) (8,547) (642)
Restructuring Charges -- -- (2,059)
Interest on Tax Receivables (5,135) -- --
Gains on Sale of Securities Available for Sale (7,170) (511) (226)
Gains on Sale of Other Real Estate Owned (920) (3,990) (4,711)
Increase in Accrued Interest Receivable (464) (1,674) (4,993)
(Increase) Decrease in Other Assets (5,954) (18,366) 8,593
Increase in Other Liabilities 10,297 15,986 402
- ------------------------------------------------------------------------------------------------------------
Total Adjustments (4,825) (53,969) 22,346
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 61,118 33,833 56,365
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Time Deposits with Other Banks (49,752) (3,150) (27,278)
Proceeds from Maturities of Securities Available for Sale 1,041,282 97,904 122,619
Proceeds from Sale of Securities Available for Sale 745,247 100,095 193,048
Purchase of Securities Available for Sale (1,978,684) (89,218) (233,885)
Proceeds from Maturities of Securities Held-to-Maturity -- 534,752 1,050,000
Proceeds from Sale of Securities Held-to-Maturity -- -- 4,825
Purchase of Securities Held-to-Maturity -- (537,721) (839,042)
Net Increase in Loans (61,178) (7,553) (41,747)
Proceeds from Sale and Other Payments of Other Real Estate
Owned 7,007 15,782 29,869
Net Increase in Premises and Equipment (22,469) (14,900) (2,988)
Other, Net 1,326 (69) 731
- ------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Investing Activities (317,221) 95,922 256,152
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand, Savings, NOW and Money
Market Deposit Accounts 143,703 16,666 (208,728)
Net Increase in Time Deposits 21,801 265,719 37,698
Net Increase (Decrease) in Federal Funds Purchased
and Repurchase Agreements 51,157 (78,869) (37,452)
Net Increase (Decrease) in U.S. Treasury Demand Notes
and Other Short-Term Borrowings 2,602 (13,093) (123,138)
Repurchase of Preferred Stock - Series A -- -- (19,113)
Proceeds from the Issuance of Common Stock 985 272 201
Net Proceeds from the Issuance of Long-Term Debt -- -- 121,250
Repayments of Long-Term Debt (26,100) -- (120,700)
Minority Interest in Preferred Stock of Subsidiary 150,000 -- --
Dividend Payments - Preferred (10,750) (10,750) (12,124)
- Common (4,549) -- --
Other, Net -- -- 10
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 328,849 179,945 (362,096)
- ------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes 1,984 (239) 893
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 74,730 309,461 (48,686)
Cash and Cash Equivalents at Beginning of Year 676,414 366,953 415,639
============================================================================================================
Cash and Cash Equivalents at End of Year $ 751,144 $ 676,414 $ 366,953
Supplemental Schedule of Noncash Investing and
Financing Activities:
Loans Transferred to Other Real Estate Owned $ 1,878 $ 741 $ 27,934
Loans to Finance the Sale of Other Real Estate Owned -- 685 4,950
Securities Transferred to Available for Sale -- 446,132 --
Supplemental Disclosures:
Interest Paid (Net of Amount Capitalized) $ 141,773 $ 145,807 $ 107,534
Income Tax Payments (Refund) 23,131 6,802 (7,235)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
33
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 Riggs Bank
National Association (the "Riggs Bank N.A.", formerly The Riggs National Bank of
Washington, D.C., and successor to The Riggs National Bank of Virginia and The
Riggs National Bank of Maryland, which entities merged on March 28, 1996) and
Riggs AP Bank Limited ("Riggs AP"), are 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 governmental, corporate and nonprofit organizations,
estate planning and trust administration.
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 preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities for the years presented. Actual
results could differ from those estimates.
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.
In November 1996, the Corporation formed a Delaware business trust with all of
the common stock outstanding owned by the Corporation. Also, in December 1996,
the trust sold preferred securities in which the Corporation does not own any of
the preferred securities outstanding. The preferred securities represent a
minority interest in the trust which is reflected separately in the Consolidated
Statements of Condition under the caption "Guaranteed Preferred Beneficial
Interests in Junior Subordinated Deferrable Interest Debentures." Dividends from
the trust preferred securities are reflected in the Consolidated Statements of
Income as a deduction from income before taxes and minority interest under the
caption of "Minority Interest in Dividends of Subsidiary, Net of Taxes" (See
Note 11, "Common and Preferred Stock-Minority Interest in Preferred Stock of
Subsidiary").
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. This report included a
special transition provision, which allowed 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.
LOANS
Loans are carried at the principal amount outstanding, net of unearned
discounts, unamortized premiums and deferred fees and costs. Interest on loans
and amortization of unearned discounts/premiums and deferred fees and costs are
computed by methods that generally result in level rates of return on principal
amounts outstanding over the estimated lives of the loans. Loan origination fees
and certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield.
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.
34
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 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,
1996, are 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 at the time of
foreclosure of other real estate owned are charged to the reserve for loan
losses. Revenues and expenses incurred in connection with ownership of the
properties, and subsequent writedowns and gains and losses upon sale, are
included, 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 the operations center located in
Riverdale, Maryland were capitalized in the basis of the building 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 $4.4 million and $4.7 million at
December 31, 1996, and 1995, respectively, with amortization expense of $294
thousand for 1996 and 1995, and $397 thousand for 1994. 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 $11.5
million and $14.7 million at December 31, 1996, and 1995, respectively, with
amortization expense of $ 3.2 million, $3.3 million and $3.4 million for 1996,
1995 and 1994.
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. 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.
35
BENEFIT PLANS
Riggs Bank N.A. 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 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 PER COMMON SHARE
Earnings per common share are calculated by dividing net income, after deduction
for preferred stock dividends, by the weighted-average number of shares of
common stock and common stock equivalents outstanding during each period. Stock
options are considered common stock equivalents, unless determined to be
anti-dilutive. The weighted-average shares outstanding were 30,317,572 for 1996,
30,257,585 for 1995, and 30,230,213 for 1994.
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 appropriate weighted-average exchange rates for the
period. Functional currency to U.S. dollar translation gains and losses, net of
related hedge transactions, are credited or charged directly to the
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 1996 and 1995 and $2.3
million for 1994.
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.
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 implemented SFAS No. 121 on January 1, 1996, and has not experienced
any material effect on its financial position from its implementation.
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. The
Corporation is disclosing the impact of SFAS No. 123 in Note 14, "Benefit
Plans"; and thus, the Corporation will 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.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities, based on a financial
components approach that focuses on control. Under this approach, after a
transfer of financial assets, financial and servicing assets are recognized if
controlled, or liabilities are recognized if incurred. Financial and servicing
assets are removed from the statement of
36
condition when control has been surrendered, and liabilities are removed
when extinguished. SFAS No. 125 is effective January 1, 1997, and will be
applied prospectively. In addition, in December 1996, SFAS No. 127 "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125" was issued.
SFAS No. 127 defers implementation of certain portions of SFAS No. 125 for one
year relating primarily to repurchase agreements, securities lending and
comparable transactions. The Corporation does not anticipate any material effect
on the Corporation's financial position from the implementation of SFAS No. 125.
===============================================================================
NOTE 2. SECURITIES
SECURITIES AVAILABLE FOR SALE
1996 1995
--------------------------------------- ----------------------------------------
GROSS GROSS BOOK/ GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $ 734,719 $1,474 $2,521 $ 733,672 $291,514 $2,375 $111 $293,778
Government Agencies
Securities 399,219 -- 58 399,161 252,687 2,143 -- 254,830
Obligations of States &
Political Subdivisions -- -- -- -- 3,800 900 -- 4,700
Mortgage-Backed Securities -- -- -- -- 387,901 654 238 388,317
Other 29,670 -- -- 29,670 28,381 -- -- 28,381
============================================================================================================
Total Securities Available
for Sale $1,163,608 $1,474 $2,579 $1,162,503 $964,283 $6,072 $349 $970,006
Gross gains from the sale of securities totaled $7.2 million during the
year and no losses, compared with gross gains of $511 thousand and no losses for
1995. At December 31, 1996, a $729 thousand unrealized loss, net of tax, was
recorded in stockholders' equity, compared to a $3.8 million gain, net of tax,
in 1995. Securities available for sale pledged to secure deposits and other
borrowings amounted to $762.7 million at December 31, 1996, and $723.6 million
at December 31, 1995.
The "Other Securities" category consists of $14.9 million of Federal Home Loan
Bank of Atlanta ("FHLB-Atlanta") Stock, $9.4 million of Federal Reserve Stock
and $5.4 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.
SECURITIES HELD-TO-MATURITY
The Corporation transferred 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").
37
The maturity distribution of securities at December 31, 1996 follows:
SECURITIES AVAILABLE FOR SALE
GOVERNMENT MORTGAGE-
U.S. TREASURY AGENCIES BACKED OTHER
SECURITIES SECURITIES SECURITIES SECURITIES TOTAL
- ------------------------------------------------------------------------------------------------------------
Within 1 year
Amortized Cost $ 85,221 $399,219 $-- $ 5,400 $ 489,840
Book/Market 85,275 399,161 -- 5,400 489,836
Yield(1) 5.70% 5.36% -- 4.95% 5.41%
After 1 but within 5 years
Amortized Cost 479,518 -- -- -- 479,518
Book/Market 478,237 -- -- -- 478,237
Yield(1) 5.83% -- -- -- 5.83%
After 5 but within 10 years
Amortized Cost 169,980 -- -- -- 169,980
Book/Market 170,160 -- -- -- 170,160
Yield(1) 6.35% -- -- -- 6.35%
After 10 years
Amortized Cost -- -- -- 24,270 24,270
Book/Market -- -- -- 24,270 24,270
Yield(1) -- -- -- 6.13% 6.13%
============================================================================================================
Total Securities Available for Sale
Amortized Cost $734,719 $399,219 $-- $29,670 $1,163,608
Book/Market 733,672 399,161 -- 29,670 1,162,503
Yield(1) 5.94% 5.36% -- 5.92% 5.74%
[FN]
(1)--WEIGHTED-AVERAGE YIELD TO MATURITY AT DECEMBER 31, 1996.
================================================================================
NOTE 3. LOANS AND RESERVE FOR LOAN LOSSES
The following schedule details the composition of the loan portfolio at
year-end:
1996 1995
- -----------------------------------------------------
Commercial and Financial $ 443,557 $ 400,280
Real Estate-
Commercial/Construction 352,015 326,965
Residential Mortgage 1,226,110 1,284,193
Home Equity 281,867 251,798
Consumer 78,617 79,867
Foreign 251,782 224,250
- -----------------------------------------------------
Loans 2,633,948 2,567,353
Unamortized Premiums
(Unearned Discounts/
Net Deferred Fees) 3,886 4,606
=====================================================
Total Loans, Net $2,637,834 $2,571,959
A summary of nonperforming and renegotiated loans, loans contractually
past-due 90 days or more and potential problem loans at year-end follows:
1996 1995
- -----------------------------------------------------
Nonaccrual Loans $9,876 $9,326
Renegotiated Loans 125 3,410
Past-Due Loans 3,849 5,459
Potential Problem Loans 1,636 8,106
38
An analysis of the changes in the reserve for loan losses follows:
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Balance, January 1 $56,546 $ 97,039 $86,513
Provision for Loan Losses -- (55,000) 6,300
Loans Charged Off 3,676 8,390 12,630
Less: Recoveries on Charged-Off Loans 10,251 22,928 15,658
- ------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) (6,575) (14,538) (3,028)
Foreign Exchange Translation Adjustments 1,365 (31) 1,198
============================================================================================================
Balance, December 31 $64,486 $ 56,546 $97,039
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.
The Corporation did not have a provision for loan losses in 1996. 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.
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 the evaluation of the financial
strength of the borrower and the net realizable value of the collateral.
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 impaired loans, which are measured at the fair value of
the collateral, constitute all of the $2.9 million of impaired loans at December
31, 1996, and $4.1 million, or 76.9% of impaired loans at December 31, 1995. The
remaining impaired loans of $1.3 million at year-end 1995 were measured based on
the present value of expected cash flows.
Specific reserves for impaired loans are included in the reserve 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.
In accordance with SFAS No. 114, the statement was adopted prospectively on
January 1, 1995. 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 reserve for loan losses, and was not material
to the Corporation's consolidated financial statements or results from
operations.
39
The tables below present impaired loans as of December 31, 1996 and 1995.
YEAR-ENDED
TOTAL AVERAGE
TOTAL SPECIFIC INVESTMENT YEAR-ENDED
IMPAIRED RESERVES FOR IN IMPAIRED INTEREST
LOANS IMPAIRED LOANS LOANS RECOGNIZED
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
Domestic:
Real Estate-Commercial/Construction $2,890 $-- $3,946 $ --
Foreign -- -- 1,209 25
============================================================================================================
Total $2,890 $-- $5,155 $ 25
December 31, 1995
Domestic:
Commercial and Financial $ -- $-- $ 191 $ --
Real Estate-Commercial/Construction 4,696 -- 3,004 --
Foreign 674 -- 6,543 157
- ------------------------------------------------------------------------------------------------------------
Total $5,370 $-- $9,738 $157
================================================================================
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 1996, the Corporation purchased equipment and software from Wang
Federal, Inc. Ronald E. Cuneo (member of the Corporation's board of
directors) was President of Wang Federal, Inc. at the time of purchase. Total
expenditures equaled $1.0 million in 1996 and were capitalized by the
Corporation.
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 Bank N.A., their
associates and family members. In addition to the amounts set forth in the
table, the Corporation's banking subsidiaries had $11.8 million of letters of
credit outstanding at December 31, 1996 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, 1996.
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.
LOANS WITH RELATED PARTIES
DECEMBER 31, 1996 AND 1995
DECEMBER 31, AMOUNTS DECEMBER 31,
1995 ADDITIONS COLLECTED 1996
- ------------------------------------------------------------------------------------------------------------
Loans to Directors, Executive Officers
and Family Members $16,430 $ 53 $ 904 $15,579
Loans to Companies of which Directors
were Principal Stockholders or Directors 27,078 23,176 2,792 47,462
============================================================================================================
Total Loans $43,508 $23,229 $3,696 $63,041
Percent of Total Net Loans 1.73% 2.45%
40
NOTE 5. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, 1996, and 1995 is summarized as follows:
DECEMBER 31,
---------------------
1996 1995
- -----------------------------------------------------
Foreclosed Property - Domestic $29,833 $34,937
Foreclosed Property - Foreign 442 609
- -----------------------------------------------------
Total Foreclosed Property 30,275 35,546
Less: Reserve for Other Real
Estate Owned 2,154 2,349
=====================================================
Total Other Real Estate
Owned, Net $28,121 $33,197
An analysis of the changes in the reserves for other real estate owned
follows:
1996 1995 1994
- -----------------------------------------------------
Balance, January 1 $2,349 $2,270 $3,716
Additions:
Provision for Other
Real Estate Owned Losses 906 2,868 3,333
Other -- 237 763
- -----------------------------------------------------
Total Additions 906 3,105 4,096
Deductions:
Loss on Sales and
Selling Expenses 199 1,017 763
Writedowns 906 2,012 4,877
- -----------------------------------------------------
Total Deductions 1,105 3,029 5,640
Foreign Exchange
Translation Adjustments 4 3 98
=====================================================
Balance, December 31 $2,154 $2,349 $2,270
Net operating expense from other real estate owned totaled $431 thousand for
the year ended December 31, 1996, compared with $178 thousand for 1995, and net
operating income of $1.4 million for 1994.
Other real estate owned income and expense consisted of the following:
1996 1995 1994
- -----------------------------------------------------
Other Real Estate Owned
Operating Revenues $ 564 $ 626 $ 2,581
Net Gain on Sale of
Properties 920 3,990 4,711
- -----------------------------------------------------
Net Revenues 1,484 4,616 7,292
Provision for Other Real
Estate Owned Losses 906 2,868 3,333
Selling and Other Real
Estate Owned Operating
Expenses 1,009 1,926 2,556
- -----------------------------------------------------
Net Expenses 1,915 4,794 5,889
=====================================================
Total Other Real Estate
Owned Expense
(Income), Net $ 431 $ 178 $(1,403)
41
NOTE 6. PREMISES AND EQUIPMENT
Investments in premises and equipment at year-end were as follows:
1996 1995
- -----------------------------------------------------
Premises and Land $ 166,390 $ 153,458
Furniture and Equipment 68,465 67,478
Leasehold Improvements 42,615 56,625
Accumulated Depreciation
and Amortization (111,396) (122,829)
- -----------------------------------------------------
Subtotal 166,074 154,732
Capital Leases -- 51
Accumulated Amortization -- (13)
=====================================================
Total Premises and
Equipment, Net $ 166,074 $ 154,770
Depreciation and amortization expense amounted to $11.2 million in 1996, $11.7
million in 1995 and $12.6 million in 1994.
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 2010 in varying amounts. The
total minimum lease payments under these commitments at December 31, 1996, are
as follows:
OPERATING
LEASES
- -----------------------------------------------------
1997 $ 7,628
1998 6,249
1999 4,183
2000 2,575
2001 2,129
2002 and after 7,411
=====================================================
Total Minimum Lease Payments $30,175
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 1999. Minimum sublease rental income for 1997 is
expected to be approximately $84 thousand. Rental expense for all operating
leases (cancelable and non-cancelable), less rental income for leased
properties, consisted of the following:
1996 1995 1994
- -----------------------------------------------------
Rental Expense $10,926 $16,365 $15,273
Rental Income (15) (715) (1,856)
=====================================================
Net Rental Expense $10,911 $15,650 $13,417
In the normal course of business, the Corporation also leases space in
buildings it owns. This rental income amounted to $1.9 million in 1996, $3.0
million in 1995 and $3.1 million in 1994. Minimum lease commitments from
buildings owned for 1997 totals approximately $1.4 million, compared with $1.0
million in 1996.
================================================================================
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:
1996 1995
- ------------------------------------------------------------
Certificates of Deposit Due Within:
Three Months $231,771 $197,170
Three to Six Months 36,895 37,266
Six to Twelve Months 37,343 38,356
Over Twelve Months 13,065 15,228
============================================================
Total $319,074 $288,020
Average time deposits of $100 thousand or more in domestic offices were $296.4
million in 1996, compared with $282.8 million in 1995.
Interest expense related to time deposits of $100 thousand or more in domestic
offices amounted to $8.8 million in 1996, $7.6 million in 1995 and $4.7 million
in 1994.
The average rate paid on time deposits of $100 thousand or more for 1996 was
2.98% compared with the average rate of 2.70% paid during 1995.
A majority of time deposits in foreign offices were in denominations of $100
thousand or more.
42
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
------------------------------- -----------------------------------
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Balance, December 31 $237,166 $186,009 $264,878 $ 18,068 $ 15,466 $ 28,559
Average Amount Outstanding(1) 212,206 174,923 150,678 28,747 73,694 61,058
Weighted-Average Rate Paid(1) 4.73% 5.98% 4.56% 4.41% 5.70% 3.71%
Maximum Amount Outstanding at any
Month-End 347,017 311,086 308,850 125,145 335,750 235,517
[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 1 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 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. At December 31, 1996, unused lines of credit
totaled approximately $466 million.
================================================================================
LONG-TERM DEBT
Long-term debt outstanding at year-end and other related information follow:
BALANCE OUTSTANDING
DECEMBER 31,
--------------------------
DECEMBER 31, 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------
Parent Corporation:
Floating-Rate Subordinated Capital Notes due 1996 -- $ -- $ 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 $191,525 $217,625
FLOATING-RATE SUBORDINATED CAPITAL NOTES DUE 1996
The Floating-Rate Subordinated Capital Notes were paid in full during 1996 (the
"Subordinated Capital Notes"). Repayments totaling $26.1 million were made in
September 1996 when the Subordinated Capital Notes matured.
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 extraordinary 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 well as $51.5 million to redeem the remaining
balance outstanding (at that time) of floating-rate Subordinated Notes Due in
1996.
43
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 and to manage their interest and currency rate risk.
Outstanding commitments and contingent liabilities that do not appear in the
consolidated financial statements at December 31, 1996 and 1995, are as follows:
1996 1995
- -----------------------------------------------------
Commitments to Extend Credit:
Commercial $453,481 $360,800
Real Estate:
Commercial/Construction 50,214 25,612
Mortgage 4,219 6,314
Home Equity 179,721 184,402
- -----------------------------------------------------
Total Real Estate 234,154 216,328
Consumer 87,102 83,813
- -----------------------------------------------------
Total Commitments to
Extend Credit $774,737 $660,941
Letters of Credit:
Commercial $ 87,206 $ 92,052
Standby - Financial 34,098 52,772
Standby - Performance 7,639 13,501
=====================================================
Total Letters of Credit $128,943 $158,325
Derivative Instruments:
Foreign Currency Contracts -
Commitments to Purchase $104,259 $ 87,587
Commitments to Sell 202,844 180,417
Interest-Rate Agreements -
Notional Principal Amount:
Interest-Rate Swaps 324,469 313,609
Interest-Rate Option
Contracts - Corridors 100,000 300,000
- Caps 668 --
Off-balance-sheet activities involve varying degrees of credit, interest-rate
or liquidity risk in excess of amounts recognized on the consolidated statements
of condition. 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. The Corporation seeks to minimize its
exposure to loss under these commitments by subjecting them to credit approval
and monitoring procedures.
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 $774.7 million at
December 31, 1996, with 57.6% of these commitments scheduled to expire within 1
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 of monitoring
credit quality, identifying problem credits and recommending changes in risk
ratings. When signs of credit deterioration are detected, credit or other
specialists may become involved to minimize 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.
44
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 84.1% of foreign loans and are predominantly to borrowers
located in the United Kingdom.
At December 31, 1996, approximately $474.7 million, or 18.0%, of the
Corporation's loan portfolio consisted of loans secured by real estate
(excluding single-family residential loans), of which approximately 74% and 26%
were secured by properties located in the Washington, D.C., area and in the
United Kingdom, respectively. In addition, the Corporation had $28.1 million in
other real estate owned at December 31, 1996.
Approximately 57% of the Corporation's loan portfolio is secured by the
primary residence of the borrower. At December 31, 1996, residential mortgage
loans were $1.23 billion and home equity loans were $281.9 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 $87.2 million at December 31, 1996.
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, 1996, financial
standby letters of credit and performance standby letters of credit totaled
$34.1 million and $7.6 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, 1996, commitments to purchase
and sell foreign exchange were $104.3 million and $202.8 million, respectively.
At year-end 1996, the Corporation had approximately $70 million in commitments
to sell foreign exchange contracts, for the purpose of hedging the Corporation's
Sterling equity investment (Riggs AP) and French Franc equity investment(Riggs
National Bank (Europe) S.A.). The remaining foreign exchange contracts are for
customers.
45
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. 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, 1996, 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 the three-month
London Interbank Offered Rate (the "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 that 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%. One of these
swap agreements matured in March 1996 and the other matures in March of 1997.
Prior to its maturity in March 1996, $48 thousand in net interest expense
related to this $25 million swap agreement was recognized in 1996. 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%. One of these agreements matured in April 1996 and the other
matures in April 1997. Prior to its maturity in April 1996, $63 thousand in net
interest expense related to this $25 million swap agreement was recognized in
1996. In January 1996, the Corporation entered into two additional $25 million
(notional principal balance) interest-rate swap agreements hedging a portion of
the real estate mortgage loan portfolio. Both swap agreements entail the payment
of fixed rates of 5.21% and 5.36%, and the receipt of floating rates, equal to
the three-month LIBOR, reset quarterly, and mature in January of 1998 and 1999.
Payments for these swap agreements (which hedge the real estate mortgage loan
portfolio) are netted on a quarterly basis. The total aggregate net interest
income/expense from these swap agreements is included in interest income
relating to the real estate mortgage loan portfolio.
46
INTEREST-RATE AGREEMENTS
DECEMBER 31, 1996
1996
WEIGHTED- ACCRUED ACCRUED UNAMORTIZED NET
NOTIONAL UNREALIZED AVERAGE RATE INTEREST INTEREST FEES & INTEREST
AMOUNT GAIN (LOSS)(1) RECEIVE PAY RECEIVABLE PAYABLE PREMIUMS INC./(EXP.)
- ---------------------------------------------------------------------------------------------------------------
Receive fixed/pay variable,
Maturing July 1998 $200,000 $(1,562) 5.38% 5.53% $1,913 $2,028 $ -- $(556)
Receive variable/pay fixed,
Maturing March 1997 25,000 (81) 5.54 6.97 62 73 -- (320)
Receive variable/pay fixed,
Maturing April 1997 25,000 (132) 5.54 6.70 273 321 -- (251)
Receive variable/pay fixed,
Maturing January 1998 25,000 201 5.53 5.21 261 242 -- 98
Receive variable/pay fixed,
Maturing January 1999 25,000 375 5.53 5.36 261 249 -- 64
Corridor,
Maturing April 1997 100,000 (5) -- -- -- -- 129 (497)
For Customers 25,137 (316) -- -- 274 360 -- (284)
===============================================================================================================
Total Interest Rate
Agreements $425,137 $(1,520) $3,044 $3,273 $129 $(1,746)
[FN]
(1)--UNREALIZED GAIN (LOSS)OBTAINED FROM THIRD-PARTY MARKET QUOTES FOR
REPLACEMENT OF DERIVATIVE POSITIONS.
In April 1994, the Corporation purchased two $100 million (notional principal
balance) corridors maturing in April 1996 and April 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. Currently, there are no payments being paid or received as the
rate is below the 5.60% floor. In December 1995, the Corporation terminated one
of the $100 million corridor agreements, which would have matured in April 1996.
The remaining $100 million corridor matures in April 1997, and as of December
31, 1996, had unamortized fees and premiums of $129 thousand as well as total
net interest expense of $497 thousand relating to the amortization of the
premiums and fees during 1996. The unrealized loss on this $100 million corridor
was $5 thousand at December 31, 1996.
In August 1994, the Corporation entered into another corridor transaction in
the amount of $200 million (notional principal balance) that matured in August
1996. This corridor, executed to hedge the costs of certain short-term
borrowings against rising interest rates, included a termination agreement. In
1996, there were no payments paid or received as the rate was below the 6.00%
floor. A premium was also paid for this corridor, with the cost amortized over
the two-year life, of which, $400 thousand was amortized in 1996. The total
aggregate net interest income/expense for this corridor agreement is included in
interest expense relating to short-term borrowings.
The Corporation's interest rate swaps and option contracts activity for the
year ended December 31, 1996, is as follows:
BALANCE BALANCE
DECEMBER 31, DECEMBER 31,
1995 ADDITIONS MATURITIES OTHER 1996
- ------------------------------------------------------------------------------------------------------------
Interest-Rate Swaps:
Receive fixed/pay variable $200,000 $ -- $ -- $ -- $200,000
Receive variable/pay fixed 100,000 50,000 50,000 -- 100,000
For Customers 13,609 9,213 -- 2,315 25,137
Interest-Rate Option Contracts 300,000 -- 200,000 -- 100,000
============================================================================================================
Total $613,609 $59,213 $250,000 $2,315 $425,137
47
OTHER COMMITMENTS
During the first quarter of 1991, the Corporation entered into a ten-year
outsourcing agreement with IBM Global Services (formerly Integrated Systems
Solutions Corp.), for the management of operations directly associated with
computer and telecommunications functions of the Corporation. Payments for the
remaining four years of the contract are approximately $67.1 million. Total
expense under this contract for 1996 was $15.1 million, compared with $14.4
million in 1995 and 1994.
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.
================================================================================
NOTE 10. RESERVE BALANCES, FUNDS
RESTRICTIONS, REGULATORY
MATTERS AND CAPITAL
REQUIREMENTS
RESERVE BALANCES
On March 28, 1996, Riggs Bank N.A. was formed when the Corporation merged its
three national banking subsidiaries: The Riggs National Bank of Washington,
D.C., The Riggs National Bank of Virginia and The Riggs National Bank of
Maryland. Riggs Bank N.A. 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 $47.2 million in
1996 and a proforma $64.6 million in 1995 relating to the merged bank.
FUNDS RESTRICTIONS
The Federal Reserve Act ("The Act") imposes restrictions upon the amount of
loans or advances that banks, such as Riggs Bank N.A., 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 Bank N.A. had combined net income of $154.1 million for 1996 and 1995.
The combined net income has resulted in Riggs Bank N.A. having a net earnings
position for possible consideration of dividend payments to the Corporation.
Before the merger on March 28, 1996, The Riggs National Bank of Virginia made
dividend payments to the Corporation totaling $481 thousand, $1.7 million and
$1.8 million, respectively during 1996, 1995 and 1994. Riggs Bank N.A., however,
made no dividend payment to the Corporation in 1996. The former Riggs National
Bank of Washington, D.C. and The Riggs National Bank of Maryland made no
dividend payments to the Corporation in 1996, 1995 or 1994.
REGULATORY MATTERS
On September 30, 1996, Congress passed and the President signed an omnibus
funding bill which included legislation for the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). This legislation includes a provision
requiring the merger of the Bank Insurance Fund ("BIF"), which is also
administered by the FDIC, and SAIF in 1999, assuming that bank charters and
thrift charters are combined by that time. The legislation included several
other bank-related components, the most important of which is the one-time
assessment on institutions with deposits insured by SAIF equaling approximately
66 cents per one-hundred dollars of deposits insured, to be applied retroactive
to an institution's deposits as of March 31, 1995. This provision is effective
immediately. In addition, the legislation provides for a new Financing
Corporation ("FICO") sharing formula between BIF and SAIF insured institutions,
which will impose a surcharge of 1.3 cents per one-hundred dollars of
BIF-insured deposits.
The Corporation does not have any SAIF insured deposit balances as of December
31, 1996. The Corporation's deposits are insured through BIF. Therefore, the
Corporation is not subject to the one-time SAIF surcharge. However, the
Corporation is subject to the FICO surcharge and will be required to pay
one-fifth of the rate that SAIF institutions pay for a three year period
beginning in 1997. The FICO surcharge is expected to cost the Corporation
approximately $400 thousand annually.
48
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 28.47% and 20.04%, respectively, at December
31, 1996, as compared with 21.62% and 13.57% at December 31, 1995.
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 11.84% at December
31, 1996.
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 national bank subsidiary of the Corporation (Riggs Bank N.A.) is subject
to minimum capital ratios prescribed by the Office of the Comptroller of the
Currency, which are the same as those of the Federal Reserve Board.
Riggs Bank N.A. 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 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 subsidiary 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 subsidiary:
CAPITAL RATIOS
DECEMBER 31,
--------------------- REQUIRED
1996 1995 MINIMUMS
- -----------------------------------------------------------------------------------------------------
Riggs National Corporation
Tier I(1) 20.04% 13.57% 4.00%
Combined Tier I and Tier II(1) 28.47 21.62 8.00
Leverage(2) 11.84 8.03 4.00
Riggs Bank N.A.(3)
Tier I(1) 18.66 n/a 4.00
Combined Tier I and Tier II(1) 19.92 n/a 8.00
Leverage(2) 10.96 n/a 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, 1996 AND 1995, THE CORPORATION HAD A NET UNREALIZED LOSS
OF $729 THOUSAND AND A NET GAIN OF $3.8 MILLION, RESPECTIVELY.
(2)--MOST BANK HOLDING COMPANIES AND NATIONAL BANKS, INCLUDING THE CORPORATION
AND THE CORPORATION'S NATIONAL BANK SUBSIDIARY, 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, 1996.
(3)--ON MARCH 28, 1996, THE CORPORATION MERGED THE RIGGS NATIONAL BANK OF
VIRGINIA AND THE RIGGS NATIONAL BANK OF MARYLAND INTO THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C., AND RENAMED THE COMBINED NATIONAL BANK RIGGS BANK NATIONAL
ASSOCIATION ("RIGGS BANK N.A."). RIGGS BANK N.A. IS A WHOLLY-OWNED SUBSIDIARY
OF RIGGS NATIONAL CORPORATION.
49
NOTE 11. COMMON AND PREFERRED STOCK
COMMON STOCK
The Corporation is authorized to issue 50 million shares of Common Stock, par
value $2.50 (the "Common Stock"). At December 31, 1996, the Corporation had
30,372,546 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.
PREFERRED STOCK
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,
1996, 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.
MINORITY INTEREST IN PREFERRED STOCK OF SUBSIDIARY
Riggs Capital, a new Delaware business trust formed for the purpose of issuing
preferred securities, is a wholly-owned subsidiary of the Corporation. On
December 13, 1996, Riggs Capital issued 150,000 shares of 8.625% Trust Preferred
Securities, Series A, with a liquidation preference of $1,000 per share.
Dividends are paid semi-annually beginning in June 1997. The Trust Preferred
Securities, Series A, cannot be redeemed until December 31, 2006, and have a
maturity of December 31, 2026. Riggs Capital invested all of the proceeds from
its common and preferred stock sales in Junior Subordinated Deferrable Interest
Debentures, Series A, issued by the Corporation on December 13, 1996, at a rate
of 8.625%, with comparable interest payment dates and maturity as the Trust
Preferred Securities, Series A. Interest is cumulative and deferrable on the
Junior Subordinated Deferrable Interest Debentures for a period not to exceed
five years and thus is also cumulative and deferrable for the same period for
the Trust Preferred Securities, Series A. The Trust Preferred Securities, Series
A, are considered Tier I Capital for regulatory purposes. The Trust Preferred
Securities, Series A are accounted for as a minority interest, with the
dividends reflected as a deduction from income before taxes and minority
interest (see Note 1, "Summary of Significant Accounting Policies").
50
NOTE 12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each major class of financial instrument for which it is practicable to estimate
that value:
CASH AND MONEY MARKET ASSETS
For short-term investments that reprice or mature in 90 days or less, the
carrying amounts are a reasonable estimate of fair value.
SECURITIES
Fair values are based on quoted market prices or dealer quotes. Quoted market
prices were not available for $24.3 million of securities at year-end 1996 and
$19.6 million at year-end 1995. These securities were comprised of Federal
Reserve and Federal Home Loan Bank-Atlanta stock and management believes that
these assets' carrying values approximate their fair value.
LOANS
The fair values of loans are estimated by discounting the expected future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. For
short-term loans, defined as those maturing or repricing in 90 days or less,
management believes the carrying amounts are a reasonable estimate of fair
value. Criticized loans are predominantly collateral-dependent; therefore, their
carrying values, net of related reserves, are a reasonable estimate of fair
value.
DEPOSIT LIABILITIES
The fair values of demand deposit, savings and NOW accounts, and money market
deposit accounts are the amounts payable on demand at the reporting date. The
fair value of investment and negotiable certificates of deposit, and foreign
time deposits with a repricing or maturity date extending beyond 90 days, are
estimated using discounted cash flows at the rates currently offered for
deposits of similar remaining maturities.
SHORT-TERM BORROWINGS
For short-term liabilities, defined as those repricing or maturing in 90 days or
less, the carrying amounts are a reasonable estimate of fair value.
LONG-TERM DEBT
For 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 values of loan commitments and letters of credit, both standby and
commercial, are assumed to equal their carrying values, which are immaterial.
Extensions of credit under these commitments, if exercised, would result in
loans priced at market terms.
The fair value of financial derivatives are equal to their replacement values.
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 values of foreign exchange contracts represent the net asset or
liability already recorded by the Corporation, since these contracts are
revalued on a daily basis.
Changes in interest rates, assumptions or estimation methodologies may have a
material effect on these estimated fair values. As a result, 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.
51
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments are as
follows:
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and Due from Banks $ 211,144 $ 211,144 $ 253,414 $ 253,414
Money Market Assets 821,126 821,126 654,374 654,374
Securities Available for Sale 1,162,503 1,162,503 970,006 970,006
Total Net Loans 2,573,348 2,630,275 2,515,413 2,590,935
FINANCIAL LIABILITIES:
Deposits 4,050,683 4,052,140 3,885,179 3,886,891
Short-Term Borrowings 255,234 255,234 201,475 201,475
Long-Term Debt 191,525 205,839 217,625 236,254
OFF-BALANCE SHEET COMMITMENTS-
ASSET (LIABILITY):
Foreign Exchange Contracts (3,678) (3,678) 348 348
Interest-Rate Agreements:
Interest-Rate Swaps (229) (1,744) (370) (1,537)
Interest-Rate Option Contracts 129 124 1,093 253
==============================================================================
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.
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.
Income, before income taxes and minority interest, relating to the operations
of domestic offices and foreign offices was as follows:
1996 1995 1994
- -----------------------------------------------------
Domestic Offices $66,629 $75,551 $13,716
Foreign Offices 5,908 12,597 19,770
=====================================================
Total $72,537 $88,148 $33,486
The current and deferred portions of the income tax provision (benefit) were
as follows:
1996 1995 1994
- -----------------------------------------------------
Current Provision
(Benefit):
Federal $ 17,527 $ 8,749 $ 643
State (225) 276 364
Foreign (56) (132) (898)
- -----------------------------------------------------
Total Current
Provision (Benefit) 17,246 8,893 109
Deferred Provision
(Benefit):
Federal (8,863) (8,547) (642)
State (2,209) -- --
Foreign -- -- --
- -----------------------------------------------------
Total Deferred
Provision (Benefit) (11,072) (8,547) (642)
=====================================================
Provision for Income
Tax Expense (Benefit) $ 6,174 $ 346 $(533)
52
At December 31, 1996, and 1995, the Corporation maintained a valuation allowance
of approximately $16.2 million and $33.7 million, respectively, to reduce the
net deferred tax asset to $26.5 million and $12.1 million, respectively. The net
change in the valuation allowance for deferred tax assets during 1996 was a
decrease of $17.5 million. The change related to a reduction in regular domestic
deferred assets of $13.9 million and a reduction of $3.6 million in state and
foreign deferred assets.
The net deferred tax asset is included in other assets in the Consolidated
Statements of Condition. Management believes that it is more likely than not
that the net deferred tax asset will be realized. The components of income tax
liabilities (assets) that result from temporary differences in the recognition
of revenue and expenses for income tax and financial reporting purposes at
December 31, 1996, and 1995 are detailed in the table below:
RECONCILIATION OF STATUTORY TAX RATES TO EFFECTIVE
TAX RATES:
1996 1995 1994
- ---------------------------------------------------------
Income Tax Computed at
Federal Statutory Rate
of 35% for 1996 and
1995 and 34% for 1994 $ 25,388 $ 30,852 $11,386
Add (Deduct):
State Tax, Net of
Federal Tax Benefit (1,582) 179 241
Tax-Exempt Loan
Interest (638) (1,488) (1,427)
Amortization of Fair Value
Adjustments 37 65 100
ESOP Loans (495) (625) (273)
Alternative Minimum Tax -- -- 642
Amortization of
Core Deposits 231 231 225
Tax Benefit on Transfer
of Foreign Assets not
Recognized -- -- (1,928)
Tax Benefit on Foreign
Exchange Translation
Adjustments
not Recognized -- (141) (1,108)
Tax Benefit of
Foreign Operations (2,095) (911) (7,068)
Reversal of Valuation
Allowance (17,524) (31,134) --
Other, Net 2,852 3,318 (1,323)
- ---------------------------------------------------------
Provision for Income Tax
Expense (Benefit) $ 6,174 $ 346 $ (533)
=========================================================
Effective Tax Rate 8.5 % 0.4 % (1.6)%
SOURCES OF TEMPORARY DIFFERENCES RESULTING IN DEFERRED TAX LIABILITIES (ASSETS):
1996 1995
- ---------------------------------------------------------
Excess Tax Over Book
Depreciation $ 665 $ 542
Pension Plan and Post-Retirement 2,529 2,243
Unrealized Gain on Securities
Available for Sale -- 1,946
Discount Accretion, Net
of Securities Gains 903 234
Other, Net 1,918 --
- ---------------------------------------------------------
Total Deferred Tax Liabilities 6,015 4,965
Accrual to Cash Basis
Conversion (715) (1,004)
Provision for Loan Losses (27,945) (24,760)
Other Real Estate Owned (3,221) (5,061)
Deferred Loan Fees -- (308)
Alternative Minimum
Tax Carryforward -- (3,455)
Other Tax Credit Carryforward (2,106) (886)
Net Operating Loss Carryforward (7,819) (9,040)
Capital Loss Carryforward -- (1,236)
Amortization of Derivative
Contract Payments -- (762)
Capitalized Costs (2,546) (2,042)
Other, Net (4,331) (2,173)
- ---------------------------------------------------------
Total Deferred Tax Assets (48,683) (50,727)
Valuation Allowance 16,176 33,700
=========================================================
Net Deferred Tax Asset $(26,492) $(12,062)
53
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.
RECONCILIATION OF FUNDED STATUS AND PREPAID PENSION COST
RIGGS NATIONAL CORPORATION RIGGS AP BANK
---------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Plan assets at fair value--
primarily unit funds $80,143 $75,165 $62,831 $16,311 $13,976 $11,693
Actuarial present value of
accumulated benefit
obligation:
Vested benefits 68,903 73,420 60,167 11,823 10,075 8,608
Nonvested benefits 1,115 1,506 1,195 -- -- --
- ------------------------------------------------------------------------------------------------------------
Total accumulated
benefit obligation 70,018 74,926 61,362 11,823 10,075 8,608
Actuarial present value of
future benefits 2,378 1,047 6,006 467 445 416
- ------------------------------------------------------------------------------------------------------------
Actuarial present value of
projected benefit obligation 72,396 75,973 67,368 12,290 10,520 9,024
- ------------------------------------------------------------------------------------------------------------
Plan assets in excess
(deficit) of projected
benefit obligation $ 7,747 $ (808) $(4,537) $ 4,021 $ 3,456 $ 2,669
Unrecognized net loss (gain) 6,961 13,481 12,463 (4,704) (3,966) (3,009)
Unrecognized balance of initial
net asset (727) (1,458) (2,189) (1,028) (1,142) (1,367)
Unrecognized prior service cost (942) (1,054) (1,166) -- -- --
============================================================================================================
Prepaid (accrued) pension cost $13,039 $10,161 $ 4,571 $(1,711) $(1,652) $(1,707)
54
NET PERIODIC PENSION COST
RIGGS NATIONAL CORPORATION RIGGS AP BANK
-------------------------------- ------------------------------------
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Service cost - benefits earned
during the period $ 1,130 $ 1,299 $ 1,357 $ 473 $ 517 $ 489
Interest cost on projected
benefit obligation 5,311 5,727 5,329 827 778 733
Actual return on plan assets (6,558) (10,551) (788) (1,483) (2,413) 521
Net amortization and deferral (261) 4,435 (5,373) 289 1,156 (1,571)
============================================================================================================
Net periodic pension (benefit)
cost $ (378) $ 910 $ 525 $ 106 $ 38 $ 172
Assumptions used in accounting
for the plans:
Weighted-average discount rate 7.75% 7.25% 8.50% 8.50% 8.50% 8.50%
Rates of increase in
compensation levels 4.00 4.00 4.00 6.50 6.50 6.50
Expected long-term rate of
return on plan assets 9.00 9.00 10.00 8.50 8.50 8.50
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 10 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 $3.2 million in 1996, $4.3 million in 1995 and $4.9 million in 1994.
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
$2.7 million in 1996 for postretirement health and life insurance expenses,
which included $651 thousand relating to the amortization of the transition
obligation. This compares to $2.2 million in health and life insurance expenses
for 1995 and $2.4 million for 1994, with transition obligation amortization of
$651 thousand in both years.
The net periodic costs for postretirement health and life insurance benefits
are as follows:
1996 1995
- -----------------------------------------------------
Service Cost $ 348 $ 293
Interest Cost 1,381 1,317
Other 940 635
=====================================================
Total $2,669 $2,245
The funding status of the postretirement plans and the amounts recognized in
the Corporation's Consolidated Statements of Condition at December 31,
1996, and 1995, follow:
1996 1995
- -----------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ 11,768 $ 11,714
Fully eligible active
plan participants 2,065 2,337
Other active
plan participants 4,917 5,004
- -----------------------------------------------------
Total 18,750 19,055
Unrecognized transition
obligation (10,423) (11,074)
Unrecognized net loss (5,104) (6,449)
Unrecognized prior
service cost 1,739 2,087
=====================================================
Accrued postretirement
benefit cost $ 4,962 $ 3,619
55
The assumed health care cost trend rate ranged from 6.0% to 8.5% for 1996,
gradually decreasing to 6.0% by the year 2002 and remaining constant thereafter.
A range of 6% to 9% was used in 1995. A discount rate of 7.75% was used at
December 31, 1996 and a rate of 7.25% was used at December 31, 1995 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, 1996 by $1.4 million and
increase the net periodic postretirement benefit cost for 1996 by $175 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, with vesting
periods ranging from zero to three years. 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
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
GRANTED 124,000 12.00
EXERCISED 67,950 9.60
TERMINATED 14,100 9.62
=====================================================
OUTSTANDING AT DECEMBER 31, 1996 1,118,450 $10.12
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. Generally, the
exercise price cannot be less than the fair market value of the common stock at
the date of grant, with vesting periods ranging from zero to five years. 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
OPTIONS PER SHARE
- -----------------------------------------------------
Outstanding at December 31, 1994 -- $ --
Granted 220,000 10.05
Exercised -- --
Terminated -- --
- -----------------------------------------------------
Outstanding at December 31, 1995 220,000 $10.05
GRANTED 395,500 12.01
EXERCISED 30,132 11.02
TERMINATED 53,568 11.11
=====================================================
OUTSTANDING AT DECEMBER 31, 1996 531,800 $11.35
On March 26, 1996, the Board of Directors of the Corporation approved the 1996
Stock Option Plan (the "1996 Plan"), which was approved by the shareholders on
May 15, 1996. Under the 1996 Plan, options to purchase up to 2,000,000 shares of
common stock may be granted to key employees. Generally, the exercise price
cannot be less than the fair market value of the common stock at the date of
grant, with vesting periods determined by the market price of the common stock
equaling or exceeding a $14 to $16 range for 60 or more consecutive trading
days. Unless previously terminated by the Board of Directors, the 1996 Plan will
terminate on March 26, 2006. During 1996, 1,000,000 shares were granted and
remain outstanding under the 1996 Plan, with an average price per share of
$12.38, with no shares exercised or terminated during the year.
56
In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and elected to continue to account for its stock option plans
under Accounting Principles Board Opinion No. 25, and thus is providing the fair
value-based disclosures required under SFAS No. 123 on a proforma basis (see
Note 1, "Summary of Significant Accounting Policies"). Accordingly, the
stated net income and earnings per share in the Consolidated Statements of
Income, in addition to the proforma net income and earnings per share
reflecting the compensation costs for stock options granted in 1996 and 1995,
are disclosed in the table to the right.
1996 1995
- -----------------------------------------------------
NET INCOME:
As Reported $65,943 $87,802
Proforma 55,687 86,699
EARNINGS PER SHARE:
As Reported $ 1.79 $ 2.54
Proforma 1.46 2.50
WEIGHTED-AVERAGE FAIR
VALUE OF OPTIONS GRANTED $ 6.62 $ 4.80
WEIGHTED-AVERAGE ASSUMPTIONS:
Expected Lives (Years) 9.89 7.02
Risk-Free Interest Rate 6.44% 6.28%
Expected Volatility 46.27% 46.27%
Expected Dividends
(annual per share) $ 0.20 $ 0.20
==============================================================================
The Corporation did not record any compensation costs in 1996 or 1995 relating
to any of its stock option plans. In addition, no significant modifications to
the plans were made during the periods. The fair values of the stock options
outstanding used to determine the proforma impact of the options to compensation
expense, and thus, net income and earnings per share, were based on the
Black-Scholes option pricing model for each grant made in 1996 and 1995, using
the key assumptions detailed above. None of the options granted in 1996 or 1995
are tax deductible for the Corporation.
At December 31, 1996, additional weighted-average details for all stock
options outstanding which were granted in 1995 and 1996, follows:
VESTED OPTIONS
------------------------------
STOCK OPTIONS STOCK OPTIONS STOCK OPTIONS
EXERCISE OUTSTANDING EXPIRATION AVERAGE OUTSTANDING AVERAGE
PRICE AT YEAR-END (YEARS)1 PER SHARE (1) AT YEAR-END PER SHARE(1)
- ------------------------------------------------------------------------------------------------------------
$9.01 to $10.00 174,000 9.35 $ 9.98 34,684 $10.00
$10.01 to $11.00 300,000 5.47 10.63 100,000 10.63
$11.01 to $12.00 469,800 9.68 12.00 307,040 12.00
$12.01 to $13.25 1,012,000 10.00 12.38 1,004,800 12.38
============================================================================================================
Total 1,955,800 9.17 $11.80 1,446,524 $12.12
[FN]
(1) -- WEIGHTED-AVERAGE.
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. At December 31, 1996, the
Corporation had a $2.3 million pension benefit obligation for this supplemental
plan, compared with $2.2 million at year-end 1995. Accrued pension costs were
$1.2 million at year-end 1996 and $900 thousand at year-end 1995. This
supplemental plan has no assets and incurred $339 thousand in net periodic costs
in 1996, compared with $362 thousand and $308 thousand for 1995 and 1994,
respectively.
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. The Board of Directors of the Corporation approved
a matching program for the 401(k) Plan in 1996, equating to 100% of the first
one-hundred dollars contributed and 50% on the balance of contributions made
thereafter, up to 6% of the employees' eligible earnings. The Board of Directors
also approved a discretionary profit sharing contribution into the 401(k) Plan
of up to 2% of the employees' eligible earnings, based on the Corporation's
financial performance during 1996. Expenses relating to both of these programs
totaled $1.6 million for 1996. The Corporation did not provide a matching
contribution to the 401(k) Plan in 1995 or 1994.
57
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,
-----------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
ASSETS
Deposits with Banks in Foreign Countries:
Interest-Bearing $ 161,982 $118,982 $176,384
Other 5,257 3,430 2,299
- ------------------------------------------------------------------------------------------------------------
Total Deposits with Banks in Foreign Countries 167,239 122,412 178,683
Loans to Foreign Customers:
Governments and Official Institutions 17,095 30,849 26,013
Banks and Financial Institutions 5,445 6,570 11,517
Commercial and Industrial and Commercial Property 211,928 170,831 146,104
Other 15,924 15,760 20,886
- ------------------------------------------------------------------------------------------------------------
Total Loans, Net of Unearned Discount 250,392 224,010 204,520
Less: Reserve for Loan Losses 15,218 11,968 22,899
- ------------------------------------------------------------------------------------------------------------
Total Net Loans 235,174 212,042 181,621
Pool Funds Provided, Net (1) 704,957 582,793 351,157
Other Assets 45,934 44,560 47,161
============================================================================================================
TOTAL ASSETS $1,153,304 $961,807 $758,622
LIABILITIES
Foreign Deposits:
Banks in Foreign Countries $ 99,941 $ 35,130 $ 53,575
Governments and Official Institutions 255,818 341,677 201,905
Other 570,236 425,514 390,262
- ------------------------------------------------------------------------------------------------------------
Total Deposits (2) 925,995 802,321 645,742
Short-Term Borrowings 99,337 45,034 228
Other Liabilities 127,972 114,452 112,652
============================================================================================================
TOTAL LIABILITIES $1,153,304 $961,807 $758,622
SUPPLEMENTAL DATA ON FOREIGN DEPOSITS
Demand $ 158,725 $150,284 $135,746
Savings, NOW and Money Market 382,409 278,563 236,241
Time (3) 384,861 373,474 273,755
============================================================================================================
Total Foreign Deposits $ 925,995 $802,321 $645,742
[FN]
(1) -- POOL FUNDS PROVIDED, NET ARE AMOUNTS CONTRIBUTED BY FOREIGN ACTIVITIES
TO FUND DOMESTIC ACTIVITIES.
(2) -- FOREIGN DEPOSITS IN DOMESTIC OFFICES TOTALED $553.2 MILLION,
$510.6 MILLION AND $370.5 MILLION AT DECEMBER 31, 1996, 1995
AND 1994, RESPECTIVELY.
(3) -- A MAJORITY OF TIME DEPOSITS ARE IN AMOUNTS OF $100 THOUSAND OR MORE.
58
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
1996 1995 1994
- -------------------------------------------------------
Balance, January 1 $11,968 $ 22,899 $27,785
Provision for Loan Losses (3,368) (13,192) (7,899)
Loans Charged Off 260 6,107 3,219
Less: Recoveries on
Charged-Off Loans 5,513 8,399 5,034
- -------------------------------------------------------
Net (Recoveries)Charge-Offs (5,253) (2,292) (1,815)
Foreign Exchange
Translation Adjustments 1,365 (31) 1,198
=======================================================
Balance, December 31 $15,218 $ 11,968 $22,899
GEOGRAPHICAL PERFORMANCE
INCOME (LOSS) NET
TOTAL ASSETS TOTAL TOTAL BEFORE TAXES AND INCOME
DECEMBER 31, REVENUE EXPENSES MINORITY INTEREST (LOSS)
- ---------------------------------------------------------------------------------------------------------------
Middle East and Africa 1996 $ 33,747 $ 9,404 $ 7,480 $ 1,924 $ 1,760
1995 52,980 7,925 4,706 3,219 3,206
1994 53,890 10,581 11,704 (1,123) (1,105)
- ---------------------------------------------------------------------------------------------------------------
Europe 1996 $376,890 $44,803 $35,637 $ 9,166 $ 8,387
1995 266,821 37,451 22,242 15,209 15,150
1994 291,837 22,825 11,592 11,233 11,054
- ---------------------------------------------------------------------------------------------------------------
Asia/Pacific 1996 $ 7,696 $ 3,057 $ 2,431 $ 626 $ 572
1995 11,425 1,557 925 632 630
1994 12,122 3,184 1,765 1,419 1,396
- ---------------------------------------------------------------------------------------------------------------
South and Central America 1996 $ 5,067 $ 926 $ 736 $ 190 $ 174
1995 3,911 467 277 190 189
1994 9,869 7,940 3,192 4,748 4,673
- ---------------------------------------------------------------------------------------------------------------
Caribbean 1996 $ 13,042 $ 3,721 $ 2,960 $ 761 $ 696
1995 28,819 11,078 6,579 4,499 4,482
1994 26,093 1,209 1,780 (571) (562)
- ---------------------------------------------------------------------------------------------------------------
Other 1996 $ 11,905 $ 2,012 $ 1,600 $ 412 $ 377
1995 15,058 1,374 815 559 557
1994 13,654 1,353 690 663 653
===============================================================================================================
Total Foreign (1) 1996 $448,347 $63,923 $50,844 $13,079 $11,966
1995 379,014 59,852 35,544 24,308 24,214
1994 407,465 47,092 30,723 16,369 16,109
===============================================================================================================
Percentage of Foreign 1996 9% 16% 16% 18% 18%
To Consolidated 1995 8 16 12 28 28
1994 9 13 10 49 47
[FN]
(1) -- FOREIGN ASSETS AT DECEMBER 31, 1996, 1995 AND 1994, EXCLUDE NET
POOL FUNDS CONTRIBUTED BY FOREIGN ACTIVITIES TO FUND DOMESTIC ACTIVITIES.
59
NOTE 16. PARENT CORPORATION FINANCIAL STATEMENTS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
REVENUES
Dividends from Subsidiaries $ 481 $ 1,674 $ 1,850
Interest on Time Deposit Placements -- -- 43
Interest on Reverse Repurchase Agreements 5,228 6,153 6,287
Interest and Dividends on Securities Held-to-Maturity -- -- 217
Interest and Dividends on Securities Available for Sale 233 471 --
Other Operating Income 2,989 2,329 1,484
- ------------------------------------------------------------------------------------------------------------
Total Revenues 8,931 10,627 9,881
OPERATING EXPENSES
Interest Expense 19,280 19,176 20,229
Other Operating Expenses 2,556 3,082 4,710
- ------------------------------------------------------------------------------------------------------------
Total Operating Expenses 21,836 22,258 24,939
- ------------------------------------------------------------------------------------------------------------
Loss before Taxes (12,905) (11,631) (15,058)
Applicable Income Tax (Benefit) Expense (1) (5,501) (4,886) (10,478)
- ------------------------------------------------------------------------------------------------------------
Loss before Undistributed Earnings of Subsidiaries (7,404) (6,745) (4,580)
Undistributed Earnings of Subsidiaries 73,347 94,547 38,599
============================================================================================================
NET INCOME $ 65,943 $ 87,802 $ 34,019
[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,
----------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Due from Banks $ 1,374 $ 1,015
Intercompany Reverse Repurchase Agreements 218,650 109,700
Securities Available for Sale (at Market Value) -- 4,700
Premises and Equipment, Net 4,457 9,346
Investment in Subsidiaries 538,528 458,221
Other Assets 16,036 16,632
============================================================================================================
TOTAL $779,045 $599,614
LIABILITIES
Other Liabilities $ 7,104 $ 5,320
Long-Term Debt:
Subordinated Capital Notes due 1996 -- 26,100
Subordinated Debentures due 2009 66,525 66,525
Subordinated Notes due 2006 125,000 125,000
Junior Subordinated Deferrable Interest Debentures, Series A, due 2026 154,640 --
- ------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 346,165 217,625
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 353,269 222,945
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 425,776 376,669
============================================================================================================
TOTAL $779,045 $599,614
60
PARENT CORPORATION FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 65,943 $ 87,802 $ 34,019
Adjustments to Reconcile Net Income to Net Cash
(Used In) Provided by Operating Activities:
Depreciation and Purchase Accounting Adjustments 592 1,349 1,431
(Gain) Loss on Securities Available for Sale (1,200) -- 1,198
Decrease (Increase) in Other Assets 961 6,785 (10,326)
Increase (Decrease) in Other Liabilities 1,784 (718) 8,163
Undistributed Earnings of Subsidiaries (73,347) (94,547) (38,599)
- -------------------------------------------------------------------------------------------------------------
Total Adjustments (71,210) (87,131) (38,133)
- -------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Operating Activities (5,267) 671 (4,114)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Maturities 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 5,000 --
Net Increase in Premises (10) (21) (252)
Net Increase in Investment in Subsidiaries (4,640) -- (11)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities 350 4,979 124,520
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Decrease in Short-Term Borrowings -- -- (134,660)
Net Proceeds from the Issuance of Long-Term Debt 154,640 -- 121,250
Repayments of Long-Term Debt (26,100) -- (120,700)
Net Proceeds from the Repurchase of Preferred Stock -- -- (19,113)
Net Proceeds from Issuance of Common Stock 985 272 201
Dividend Payments - Preferred Shares (10,750) (10,750) (12,124)
- Common Shares (4,549) -- --
Other, Net -- -- (162)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 114,226 (10,478) (165,308)
- ------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes -- 44 893
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 109,309 (4,784) (44,009)
Cash and Cash Equivalents at Beginning of Year 110,715 115,499 159,508
============================================================================================================
Cash and Cash Equivalents at End of Year $220,024 $110,715 $ 115,499
Supplemental Disclosures:
Interest Paid $ 18,295 $ 19,181 $ 19,145
Income Tax Refunds (5,042) (7,870) (7,409)
NOTE 17. SUBSEQUENT EVENT
On March 4, 1997, the Corporation formed an additional Delaware business trust,
Riggs Capital II, for the purpose of issuing preferred securities. Riggs Capital
II, a wholly-owned subsidiary of the Corporation, issued 200,000 shares of
8.875% Trust Preferred Securities, Series C on March 12, 1997, with a
liquidation preference of $1,000 per share, for a total of $200 million. The
Trust Preferred Securities, Series C, cannot be redeemed until March 15, 2007
and have a maturity of March 15, 2027. Riggs Capital II invested all the
proceeds from its common and preferred stock sales in Junior Subordinated
Deferrable Interest Debentures, Series C, which have comparable rates, dividend
payment dates and maturity as the Trust Preferred Securities, Series C. These
Securities will also enhance the capital ratios of the Corporation and will be
available for its general corporate purposes.
61
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 the independent
public accountants, internal auditors and management to determine the
effectiveness of the internal control system and to review the scope and/or
results of audits and other related matters. The independent public accountants
and internal auditors have direct access to the Corporation's Audit Committee.
The consolidated financial statements have been audited by Arthur Andersen
LLP, independent public accountants, in accordance with generally accepted
auditing standards, whose audit includes a review of the system of internal
controls, test of accounting records and other auditing procedures considered
necessary to formulate an opinion on the consolidated financial statements.
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 and President Chief Financial Officer
Chief Executive Officer
62
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, 1996, and 1995, 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, 1996. 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, 1996, and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.,
January 14, 1997 (except with respect to the matter discussed in Note 17, as
to which the date is March 12, 1997).
63
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION
1996
-------------------------------------------
Unaudited for the Years Ended December 31, 1996, 1995 and 1994 FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------
Interest Income $74,570 $71,740 $72,811 $74,077
Interest Expense 35,638 34,467 35,059 34,727
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 38,932 37,273 37,752 39,350
Less: Provision for Loan Losses -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 38,932 37,273 37,752 39,350
Noninterest Income 25,575 25,742 21,174 23,686
Noninterest Expense 43,004 43,931 44,047 45,965
- ------------------------------------------------------------------------------------------------------------
Income before Taxes and Minority Interest 21,503 19,084 14,879 17,071
Applicable Income Tax (Benefit) Expense 52 (2,370) 3,062 5,430
Minority Interest in Dividends of Subsidiary, Net of Taxes -- -- -- 420
============================================================================================================
NET INCOME 21,451 21,454 11,817 11,221
Less: Dividends on Preferred Stock 2,688 2,687 2,688 2,687
- ------------------------------------------------------------------------------------------------------------
Net Income Available for Common Stock $18,763 $18,767 $ 9,129 $ 8,534
- ------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ .61 $ .62 $ .29 $ .27
CONSOLIDATED FINANCIAL RATIOS AND OTHER INFORMATION
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
NET INCOME TO AVERAGE:
Earning Assets 1.56% 2.13% .84% (2.18)% (.46)%
Total Assets 1.40 1.92 .76 (1.91) (.40)
Stockholders' Equity 16.48 28.25 12.01 (42.84) (7.99)
- ------------------------------------------------------------------------------------------------------------
AVERAGE:
Loans to Deposits 67.19% 67.91% 69.80% 51.65 % 55.33 %
Stockholders' Equity to Loans 15.64 12.22 10.89 10.08 10.26
Stockholders' Equity to Deposits 10.51 8.30 7.60 5.21 5.68
Stockholders' Equity to Assets 8.48 6.80 6.29 4.46 5.00
- ------------------------------------------------------------------------------------------------------------
AT DECEMBER 31:
Reserve for Loan Losses to Net Loans 2.44% 2.20% 3.81% 3.42 % 3.86 %
Common Stockholders 3,058 3,236 3,712 4,488 4,481
Employees 1,519 1,576 1,624 1,667 2,147
Banking Offices 63 65 68 75 76
- ------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Dividend Payout Ratio 8.38% n/a n/a n/a n/a
Average Common Shares Outstanding 30,317,572 30,257,585 30,230,213 26,208,315 24,534,063
Book Value per Common Share $10.88 $9.30 $5.70 $5.92 $8.98
- ------------------------------------------------------------------------------------------------------------
64
1995 1994
- ---------------------------------------------- -------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------
$72,225 $76,475 $ 75,863 $74,236 $63,898 $64,423 $67,419 $70,265
34,173 38,488 38,508 36,652 26,939 26,189 27,936 31,659
- ------------------------------------------------------------------------------------------------------------
38,052 37,987 37,355 37,584 36,959 38,234 39,483 38,606
-- -- (55,000) -- 2,100 2,100 2,100 --
- ------------------------------------------------------------------------------------------------------------
38,052 37,987 92,355 37,584 34,859 36,134 37,383 38,606
17,998 18,338 18,345 19,323 26,771 22,562 18,793 17,398
47,151 46,870 53,994 43,819 53,587 49,556 47,775 48,102
- ------------------------------------------------------------------------------------------------------------
8,899 9,455 56,706 13,088 8,043 9,140 8,401 7,902
104 87 64 91 130 (693) 171 (141)
-- -- -- -- -- -- -- --
============================================================================================================
8,795 9,368 56,642 12,997 7,913 9,833 8,230 8,043
2,688 2,687 2,688 2,687 3,345 3,046 3,045 2,688
- ------------------------------------------------------------------------------------------------------------
$ 6,107 $ 6,681 $ 53,954 $10,310 $ 4,568 $ 6,787 $ 5,185 $ 5,355
- ------------------------------------------------------------------------------------------------------------
$ .20 $ .22 $ 1.78 $ .34 $ .15 $ .23 $ .17 $ .17
QUARTERLY STOCK INFORMATION (1)
Dividends
Price Range Declared
High Low and Paid
- -------------------------------------------------------------------------------------------------------
1996 FOURTH QUARTER $18.00 $15.625 $.05
THIRD QUARTER 17.125 11.50 .05
SECOND QUARTER 12.75 11.875 .05
FIRST QUARTER 14.25 11.75 --
- -------------------------------------------------------------------------------------------------------
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 --
- -------------------------------------------------------------------------------------------------------
[FN]
(1) -- THE HIGH AND LOW INFORMATION LISTED ABOVE REPRESENTS HIGH AND LOW
SALES PRICES AS REPORTED ON THE NASDAQ NATIONAL MARKET SYSTEM.
65
THREE-YEAR FOREIGN AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
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 $232,716 $18,064 7.76% $195,058 $16,229 8.32% $237,617 $18,397 7.74%
Securities -- -- -- -- -- -- 5,967 909 15.23
Time Deposits with Other Banks 153,717 8,623 5.61 158,063 10,200 6.45 132,753 6,286 4.74
Pool Funds Provided, Net (1) 536,683 29,517 5.50 462,003 27,905 6.04 285,210 13,547 4.75
- ------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS AND
AVERAGE RATE EARNED 923,116 56,204 6.09 815,124 54,334 6.66 661,547 39,139 5.92
Less: Reserve for Loan Losses 13,162 18,436 24,589
Cash and Due from Banks 26,946 24,501 25,571
Premises and Equipment, Net 15,025 15,607 16,482
Other Assets 8,121 9,380 17,710
============================================================================================================
TOTAL ASSETS $960,046 $846,176 $696,721
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings, NOW and Money Market $302,031 $10,189 3.37% $247,755 $7,750 3.13% $252,225 $ 6,047 2.40%
Other Time 340,215 19,728 5.80 311,832 18,975 6.09 207,427 11,341 5.47
- ------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 642,246 29,917 4.66 559,587 26,725 4.78 459,652 17,388 3.78
Short-Term Borrowings 52,492 2,525 4.81 36,062 1,883 5.22 4,093 135 3.29
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING FUNDS AND
AVERAGE RATE INCURRED 694,738 32,442 4.67 595,649 28,608 4.80 463,745 17,523 3.78
Demand Deposits 155,205 144,322 143,470
Other Liabilities and
Stockholders' Equity 110,103 106,205 89,506
============================================================================================================
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $960,046 $846,176 $696,721
============================================================================================================
NET INTEREST INCOME AND SPREAD $23,762 1.42% $25,726 1.86% $21,616 2.14%
NET INTEREST MARGIN ON EARNING ASSETS 2.57% 3.16% 3.27%
[FN]
(1) -- POOL FUNDS PROVIDED, NET, ARE AMOUNTS CONTRIBUTED BY FOREIGN
ACTIVITIES TO FUND DOMESTIC ACTIVITIES.
FOREIGN NET INTEREST INCOME CHANGES(1)
1996 VERSUS 1995 1995 VERSUS 1994
- ------------------------------------------------------------------------------------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- ------------------------------------------------------------------------------------------------------------
Interest Income:
Loans, Including Fees $(1,147) $2,982 $ 1,835 $1,304 $(3,472) $(2,168)
Securities -- -- -- (455) (454) (909)
Time Deposits with Other Banks (1,302) (275) (1,577) 2,560 1,354 3,914
Pool Funds Supplied, Net (2,648) 4,260 1,612 4,374 9,984 14,358
- ------------------------------------------------------------------------------------------------------------
Total Interest Income (5,097) 6,967 1,870 7,783 7,412 15,195
Interest Expense:
Savings, NOW and
Money Market Accounts 639 1,800 2,439 1,812 (109) 1,703
Other Time Deposits (935) 1,688 753 1,403 6,231 7,634
Short-Term Borrowings (158) 800 642 121 1,627 1,748
- ------------------------------------------------------------------------------------------------------------
Total Interest Expense (454) 4,288 3,834 3,336 7,749 11,085
- ------------------------------------------------------------------------------------------------------------
Net Interest Income $(4,643) $2,679 $(1,964) $4,447 $ (337) $ 4,110
[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.
66
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 1997 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 Bank N.A. 72
Robert L. Sloan Vice Chairman of the Board 50
Timothy C. Coughlin President of the Corporation and Vice Chairman of the Board, Riggs Bank N.A. 54
Fred L. Bollerer Director of the Corporation and President and Chief Executive Officer
of Riggs Bank N.A. 54
John L. Davis Chief Financial Officer of the Corporation and Executive Vice
President and Chief Financial Officer of Riggs Bank N.A. 55
Joseph W. Barr Executive Vice President of Riggs Bank N.A.
Community Banking 47
Henry A. Dudley, Jr. Executive Vice President and Chief Trust Officer of Riggs Bank N.A. 50
Timothy A. Lex Director of the Corporation and Executive Vice President
and Chief Operating Officer of Riggs Bank N.A. 39
Linda A. Madrid Corporate Secretary of the Corporation and Senior Vice President,
Managing Director of Legal Affairs and Corporate Secretary
of Riggs Bank N.A. 37
David W. Scott Senior Vice President and Chief Credit Officer of Riggs Bank N.A. 35
Alfred J. Serafino Executive Vice President of Riggs Bank N.A.
Relationship Banking 48
[FN]
* EXECUTIVE OFFICERS OF RIGGS NATIONAL CORPORATION, INCLUDING CERTAIN
EXECUTIVE OFFICERS OF RIGGS BANK N.A., AS OF JANUARY 15, 1997.
67
EXPERIENCE OF MANAGEMENT
JOE L. ALLBRITTON has been Chairman of the Board and Chief Executive
Officer of the Corporation since 1981. He has served as Chairman of the Board of
Riggs Bank N.A. since 1983 and was the Chief Executive Officer of Riggs Bank
N.A. from 1982 to June 1993. Mr. Allbritton is the beneficial owner of
approximately 34% of the Common Stock of the Corporation as of March 26, 1997.
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 Bank N.A. from 1983
to 1992. He has been a Director of the Corporation since 1988 and a Director of
Riggs Bank N.A. since 1983.
FRED L. BOLLERER has served as President and Chief Executive Officer of
Riggs Bank N.A. since 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 Bank N.A. 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.
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.
TIMOTHY A. LEX, Executive Vice President, has served as Chief Operating Officer
of Riggs Bank N.A., in charge of Relationship, International and Retail Banking
since 1995. 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 the former Riggs National Bank of
Virginia.
LINDA A. MADRID, was appointed Managing Director of Legal Affairs and
Corporate Secretary of the Corporation and Senior Vice President, Managing
Director of Legal Affairs and Corporate Secretary of Riggs Bank N.A. in 1996.
Ms. Madrid has served as the Litigation Manager of Riggs Bank N.A. from 1993
to 1996. Prior to 1993, Ms. Madrid practiced law in private practice and also
served as an Assistant General Counsel for AMTRAK.
DAVID W. SCOTT, Senior Vice President has served as Chief Credit Officer of
Riggs Bank N.A. since 1995. 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 the former Riggs National Bank of
Maryland. Mr. Serafino served as Regional Executive Officer in charge of the
Maryland West Commercial Division at Sovran Bank for 12 years.
68
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.
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, 1996, 1995 and 1994. 30
Consolidated Statements of Condition--
At December 31, 1996 and 1995. 31
Consolidated Statements of Changes in
Stockholders' Equity--Years Ended December 31, 1996,
1995 and 1994. 32
Consolidated Statements of Cash Flows--Years Ended
December 31, 1996, 1995 and 1994. 33
Notes to Consolidated Financial Statements
as of December 31, 1996, 1995 and 1994. 34-61
Management's Report on Financial Statements 62
Report of Independent Public Accountants 63
14(B) REPORTS ON FORM 8-K
On December 13, 1996, the Corporation filed a Form 8-K, announcing that Riggs
Capital, a wholly-owned subsidiary of Riggs National Corporation, sold 150,000
shares of redeemable Trust Preferred Securities, liquidation amount of $1,000,
for a total of $150 million at an annual dividend rate of 8.625 percent.
14(C) EXHIBITS
The exhibits listed on the Index to Exhibits on Pages 71 through 72 hereof are
incorporated by reference or filed herewith in response to this item.
69
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
JOE L. ALLBRITTON*
- --------------------
Joe L. Allbritton,
Chairman of the Board and Chief Executive Officer
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.
TIMOTHY C. COUGHLIN* President
- ------------------------
Timothy C. Coughlin
JOHN L. DAVIS* Chief Financial Officer
- ------------------------ (Principal Financial
John L. Davis and Accounting Officer)
BARBARA B. ALLBRITTON* Director DAVID J. GLADSTONE* Director
- --------------------- -------------------
(Barbara B. Allbritton) (David J. Gladstone)
ROBERT L. ALLBRITTON* Director LAWRENCE I. HEBERT* Director
- -------------------- ------------------
(Robert L. Allbritton) (Lawrence I. Hebert)
FREDERICK L. BOLLERER* Director MICHAEL J. JACKSON* Director
- ---------------------- -------------------
(Frederick L. Bollerer) (Michael J. Jackson)
CALVIN CAFRITZ* Director TIMOTHY A. LEX* Director
- -------------- --------------
(Calvin Cafritz) (Timothy A. Lex)
CHARLES A. CAMALIER, III* Director LEO J. O'DONOVAN, S.J.* Director
- ------------------------ ----------------------
(Charles A. Camalier, III) (Leo J. O'Donovan, S.J.)
RONALD E. CUNEO* Director STEVEN B.PFEIFFER* Director
- --------------- -----------------
(Ronald E. Cuneo) (Steven B. Pfeiffer)
FLOYD E. DAVIS, III* Director JOHN A. SARGENT* Director
- ------------------- ---------------
(Floyd E. Davis, III) (John A. Sargent)
JACQUELINE C. DUCHANGE* Director ROBERT L. SLOAN* Vice Chairman
- ----------------------- --------------- of the Board
(Jacqueline C. Duchange) (Robert L. Sloan)
MICHELA A. ENGLISH* Director JAMES W. SYMINGTON* Director
- ------------------ ------------------
(Michela A. English) (James W. Symington)
JAMES E. FITZGERALD* Director JACK VALENTI* Director
- ------------------------- ------------
(James E. Fitzgerald) (Jack Valenti)
HEATHER S. FOLEY* Director EDDIE N. WILLIAMS* Director
- ---------------- ------------------
(Heather S. Foley) (Eddie N. Williams)
*By: /s/ LINDA A. MADRID
---------------------------------
Linda A. Madrid, Attorney-in-fact
March 27, 1997
70
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.)
71
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 Riggs Bank N.A., 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
1-25
Exhibits omitted are not required or not applicable.
[FN]
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.
72