Back to GetFilings.com
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, 1998
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 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 26, 1999, was $341,684,289.
The number of shares outstanding of the registrant's common stock, as of
March 12, 1999, was 28,255,747.
DOCUMENT INCORPORATED BY REFERENCE
Portions of Riggs National Corporation's definitive Proxy Statement
dated March 17, 1999 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 6
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 27
Item 9--Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 71
PART III
Item 10--Directors and Executive Officers of the Registrant 71
Item 11--Executive Compensation 73
Item 12--Security Ownership of Certain Beneficial Owners and Management 73
Item 13--Certain Relationships and Related Transactions 73
PART IV
Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K 73
(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 PART 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. Founded in 1980, 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; New Haven, Connecticut;
Miami, Florida; London, England; and Nassau, Bahamas. Additionally, the
Corporation provides investment advisory services domestically through
subsidiaries registered under the Investment Advisers Act of 1940. A subsidiary
located in the Bahamas provides trust and corporate services, as well as
traditional banking services. At December 31, 1998, the Corporation and its
subsidiaries had 1,598 full-time equivalent employees.
The Corporation's reportable segments are strategic business units providing
diverse products and services within the financial services industry. The
Corporation's segments include Banking, International Banking, Riggs & Company,
and Treasury. The Banking segment provides traditional banking services such as
lending and deposit taking to retail, corporate and commercial customers. The
International Banking segment includes the Corporation's Washington, D.C. based
embassy-banking business and the London based banking subsidiary, Riggs Bank
Europe Limited. The Riggs & Company segment is a division of the Corporation
providing trust and investment management services to a broad customer base. The
Treasury segment is responsible for asset and liability management throughout
the Corporation. Financial information about foreign and domestic operations is
included in Footnote 15 to the Financial Statements-Foreign Activities and
Footnote 17 to the Financial Statements-Segment Profitability (see Item 8).
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 division--Riggs & Company,
the orientation of its retail banking branches toward money management
relationships, the development and specialization in relationship banking of
banking products and services in specific growth industries 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 $5.0 billion, deposits
of $4.1 billion, and stockholder's equity of $426.5 million at December 31,
1998.
Riggs Bank N.A. operates 32 branches and an investment advisory subsidiary in
Washington, D.C., 15 branches in Virginia, seven branches in Maryland, a second
investment advisory subsidiary in New Haven, Connecticut, a commercial bank 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.
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 division, Riggs & Company 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") and J. Bush & Company Incorporated, both of
which are wholly-owned subsidiaries incorporated under the laws of Delaware and
registered under the Investment Advisers Act of 1940.
-3-
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 Bank N.A.'s automated teller
machines ("ATMs") as well as national and regional ATMnetworks.
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.
Additional international operations of Riggs Bank N.A. include:
o Riggs Bank Europe Limited, located in London, England, providing traditional
corporate banking services, commercial property financing and trade finance;
o The Riggs Bank and Trust Company (Bahamas)Limited, in Nassau, providing
trust services for international private banking customers;
o A London branch located in the U.S. Embassy, serving the Embassy, its
employees and official visitors.
RIGGS CAPITAL
Riggs Capital, a wholly-owned subsidiary of the Corporation, issued 150,000
shares of 8.625% Trust Preferred Securities, Series A, with a liquidation
preference of $1,000 per share, in December 1996. The Trust Preferred
Securities, Series A qualify as Tier I Capital with certain limitations, see
"Notes to Consolidated Financial Statements-Note 1 and Note 11" on pages 32 and
48, respectively, of this Form 10-K.
Riggs Capital II, a wholly-owned subsidiary of the Corporation, issued 200,000
shares of 8.875% Trust Preferred Securities, Series C, with a liquidation
preference of $1,000 per share, in March 1997. The Trust Preferred Securities,
Series C qualify as Tier I Capital with certain limitations, see "Notes to
Consolidated Financial Statements-Note 1 and Note 11" on pages 32 and 48,
respectively, of this Form 10-K.
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 OCCmust take "prompt corrective action" in respect of depository
institutions that do not meet minimum capital requirements. The OCChas
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
Under
Capitalized Less than 3% Less than 6% Less than 3% N/A
Critically
Under
Capitalized N/A N/A N/A 2% or less
-4-
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 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
OCCunder 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 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
the Interstate Act authorized a bank to merge with a bank in another state as
long as neither of the states had opted out of interstate branching between the
date of enactment of the Interstate Act and May 31, 1997. A bank may establish
and operate a de novo branch in a state in which the bank does not maintain a
branch if that state expressly permits de novo branching. Once a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger transaction could have
established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through de novo branching may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or de novo.
Effective June 1995, coinciding with the mandatory 1.25% funding of the Bank
Insurance Fund ("BIF") reserve, insurance rates were reduced from a range of
$.23 to $.26 per $100 in deposits insured to a range of $.04 to $.07 per $100 in
deposits insured. Further, in November 1995, based on the continuing increase in
reserves with BIF, the FDIC announced an additional reduction of insurance rates
to zero percent, however, banks must pay a mandatory minimum of $2 thousand per
year.
On September 30, 1996, Congress passed and the President signed an omnibus
funding bill which included legislation for the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC. This
legislation 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 provided for a new
Financing Corporation ("FICO") sharing formula between BIF and SAIF insured
institutions, which imposes a surcharge of 1.3 cents per one-hundred dollars of
BIF-insured deposits. The Corporation is subject to the FICO surcharge and is
required to pay one-fifth of the rate that SAIF institutions pay for three
years, ending in 1999.
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.
-5-
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.
The Corporation's subsidiaries face substantial competition in their operations
from banking and nonbanking institutions, including savings and loan
associations, credit unions, money market funds and other investment vehicles,
mutual fund advisory companies, brokerage firms, insurance companies, mortgage
banking companies, finance companies and other types of financial services
providers.
ITEM 2.
PROPERTIES
The Corporation owns properties located in Washington, D.C. which house its
executive offices, 15 of its branches, and certain operational units of Riggs
Bank N.A. The Corporation also owns an office building in Maryland, where
additional operational units of Riggs Bank N.A. are located. Further, the
Corporation owns an office building in London, England, and leases various
properties in Washington, D.C.; London, England; Miami, Florida;
New Haven, Connecticut; Northern Virginia and Maryland.
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, 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.
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 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Corporation 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 STOCKHOLDER 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 69 of this Form 10-K.
As of February 26, 1999, there were 2,457 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 46 and 48,
respectively, of this Form 10-K.
ITEM 6.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Interest Income $ 353,802 $ 330,792 $ 293,198 $ 298,799 $ 266,005
Interest Expense 163,450 151,501 139,891 147,821 112,723
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income 190,352 179,291 153,307 150,978 153,282
Less: Provision for Loan Losses -- (12,000) -- (55,000) 6,300
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 190,352 191,291 153,307 205,978 146,982
Noninterest Income Excluding
Securities Gains, Net 99,259 84,424 89,007 73,493 85,298
Securities Gains, Net 15,023 3,500 7,170 511 226
Noninterest Expense 193,752 186,030 176,947 191,834 199,020
- ---------------------------------------------------------------------------------------------------------------
Income before Taxes
and Minority Interest 110,882 93,185 72,537 88,148 33,486
Applicable Income Tax Expense (Benefit) 29,088 24,690 6,174 346 (533)
Minority Interest in Income
of Subsidiaries, Net of Taxes 19,947 17,616 420 -- --
===============================================================================================================
NET INCOME $ 61,847 $ 50,879 $ 65,943 $ 87,802 $ 34,019
Less: Dividends on Preferred Stock 9,854 10,750 10,750 10,750 12,124
Less: Excess of Call Price over
Carrying Amount of Preferred Stock 13,808 -- -- -- --
===============================================================================================================
Net Income Available
for Common Stock $ 38,185 $ 40,129 $ 55,193 $ 77,052 $ 21,895
EARNINGS PER COMMON SHARE
Basic $ 1.25 $ 1.32 $ 1.82 $ 2.55 $ .72
Diluted 1.21 1.27 1.79 2.54 .72
DIVIDENDS DECLARED AND
PAID PER COMMON SHARE .20 .20 .15 -- --
(See Note 10 to the Financial Statements)
YEAR-END BALANCES
Assets $5,502,331 $5,846,426 $5,135,100 $4,732,533 $4,425,665
Earning Assets 5,000,044 5,347,736 4,621,463 4,196,339 3,979,588
Loans 3,258,135 2,884,373 2,637,834 2,571,959 2,549,924
Deposits 4,144,848 4,297,918 4,050,683 3,885,179 3,602,794
Long-Term Debt 191,525 191,525 191,525 217,625 217,625
Stockholders' Equity 392,728 463,182 425,776 376,669 267,663
-7-
ITEM 7.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Riggs National Corporation achieved 21% earnings growth in 1998, as net income
for the Corporation was $61.8 million compared to $50.9 million in 1997. Income
before taxes and minority interest for 1998 reached a record $110.9 million,
representing a 19% increase over the 1997 total of $93.2 million.
The growth in earnings was attributable to increases in both of the major
components of the Corporation's revenue. Net interest income for 1998 was $190.4
million, an increase of 6% over $179.3 million for 1997. Noninterest income,
excluding securities gains, totaled $99.3 million in 1998, an 18% increase from
$84.4 in 1997.
Diluted earnings per share for 1998 and 1997 were $1.21 and $1.27, respectively.
1998 diluted earnings per share were reduced by a one-time charge of $.44 from
the redemption of $100 million of 10.75% preferred stock.
The Corporation's success in 1998 is reflected in the key measurements of
profitability, return on average assets, and return on average stockholders'
equity. Return on average assets was 1.11% for 1998, compared to a ratio of
0.97% for 1997, and the return on average stockholders' equity was 13.61% in
1998, compared to 11.69% for 1997.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the difference between interest income on earning assets
and interest expense on deposits and borrowed funds. Net interest income is
affected by changes in the level of interest rates and changes in the amount and
composition of interest-earning assets and interest-bearing liabilities (see
Tables A and B).
Net interest income on a tax-equivalent basis totaled $193.3 million in 1998, an
increase of $10.2 million, or 6%, over 1997 and an increase of $36.3 million, or
23%, over 1996. The net interest margin was 3.78% for 1998, a decrease of 3
basis points from the prior year. Average interest-earning assets increased
during 1998 by $309.7 million, while the average rate earned was relatively
unchanged between the years. This increase in average assets led to a $22.2
million increase in interest income. Average interest-bearing funds increased by
$340.3 million during the year with the average rate paid declining six basis
points, resulting in an $11.9 million increase in interest expense.
The increase in average earning assets during 1998 was generated by loan growth
of $426.9 million and $130.6 million in additions to short-term investments,
offset by a $247.8 million decline in the securities portfolio. Loan growth was
strong in the commercial, residential and commercial real estate, and foreign
loan portfolios and investments were shifted from the available for sale
portfolio to shorter term time-deposit placements. The average rates earned on
loans and investment securities were down modestly in 1998 due to overall
declines in the interest rate environment, while the rate on time deposit
placements increased 33 basis points from 1997. The net impact of these changes
was minimal on the average rate for earning assets which totaled 6.98% for 1998,
relatively unchanged from the prior year.
The increase in average interest-bearing funds during 1998 was due mostly to the
growth of $209.4 million in interest-bearing deposits and $129.6 million in
federal funds purchased and repurchase agreements which were used by the
Corporation to fund loan growth. The average rate paid on interest-bearing funds
decreased six basis points over 1997 with a four basis point decrease in total
interest-bearing deposits and a 19 basis point drop in federal funds purchased
and repurchase agreements.
Noninterest Income
The Corporation's revenue mix shifted in the most recent year, primarily through
increased trust and investment advisory income from Riggs & Company. Noninterest
revenue, excluding securities gains, accounted for 34% of combined revenue in
1998 compared to 32% in the prior year. Total noninterest income for 1998 was up
$26.4 million, or 30%, over 1997 and $18.1 million, or 19%, over 1996. Excluding
securities gains of $15.0 million and $3.5 million for 1998 and 1997,
noninterest income increased 18% in the current year. Trust and investment
advisory income growth was $8.5 million in 1998, an increase of 23% over 1997.
Service charges and fees also contributed to the growth in noninterest income,
with an increase of $2.3 million during the year, primarily from increases in
merchant credit card and debit card fees. The Corporation also recognized a $3.6
million gain in 1998 resulting from the termination of the Riggs Bank Europe
Limited pension plan, which was replaced by a defined contribution plan. This
gain is reported in other operating income on the Consolidated Statements of
Income.
-8-
Noninterest Expense
Noninterest expense for the year ended December 31, 1998 was $193.8 million, an
increase of $7.7 million or 4% over 1997 and an increase of $16.8 million, or
9%, over 1996. This increase is substantially the result of $7.2 million in
added personnel costs during the year, primarily attributable to increased
incentive-based compensation and staff costs associated with new business
initiatives. The number of employees at December 31, 1998 increased 1% from
December 31, 1997, with a year-end total of 1,598.
Income Taxes
The Corporation's provision for income taxes includes federal, state, local and
international tax obligations. Income tax expense increased $4.4 million in 1998
to $29.1 million from $24.7 million in 1997. The increased expense is a direct
result of increased earnings, as the effective tax rate of 26.2% for 1998 was
relatively unchanged from the effective tax rate of 26.5% for 1997. During 1998
and 1997, the Corporation reversed valuation allowances related to deferred tax
assets which reduced income tax expense. As substantially all of the valuation
allowances have been reversed it is likely that the effective tax rate will
increase in 1999.
FINANCIAL POSITION AND LIQUIDITY
Earning Assets
Loans and investments are the primary earning assets of the Corporation. For
1998, earning assets averaged $5.1 billion compared to $4.8 billion for 1997.
Average earning assets were over 90% of average total assets in both years.
Average loans represented 60% of earning assets in 1998 while average securities
and short-term investments were 40% of earning assets. In 1997, the mix was 55%
in average loans and 45% in average investments (see Table A).
Loans
Total loans at December 31, 1998 were $3.3 billion, an increase of 13% from
year-end 1997. About one-half of the loan portfolio consists of residential
mortgage, home equity, and consumer loans which are generated through community
banking. Commercial loans generated through both the relationship banking and
international banking activities represent the balance of the portfolio (see
Tables C, D and E).
Total loan growth was $377.8 million with increases in excess of $100 million in
three primary areas: residential mortgage, commercial and financial, and foreign
loans. The increase in residential mortgage loans was due primarily to the
purchase of $261.7 million of bulk loans offset by prepayments of loans during
the year. Commercial and financial growth was 26% year over year and resulted
from the Corporation's increased focus on new loan production along with
increased demand due to a strong economy in the Washington, D.C. metropolitan
area. Foreign lending increased 34% in 1998 with the primary increases noted in
Riggs Bank Europe Limited. RBEL's loans are commercial in nature and are made
predominantly in the United Kingdom. RBEL experienced growth in 1998 in each of
its three lending areas, property finance, trade finance and general corporate
lending.
Cross-Border Outstandings
The Corporation extends credit to borrowers domiciled outside of the United
States through several of its banking subsidiaries. Cross-border outstandings
include loans, acceptances, interest-bearing deposits with other banks,
investments, and other monetary assets that are denominated in U.S. dollars or
other currencies. In addition, cross-border outstandings include legally
enforceable guarantees issued on behalf of non-local third parties and local
currency outstandings to the extent they are not funded by local currency
borrowings. These assets may be impacted by changing economic conditions in the
respective countries. Management routinely reviews these credits and continually
monitors the international economic climate and assesses the impact of these
changes on foreign domiciled borrowers.
At December 31, 1998, the Corporation had no cross-border outstandings exceeding
1% of its total assets to countries experiencing difficulties in repaying their
external debt. At December 31, 1998, the United Kingdom was the only foreign
country with cross-border outstandings in excess of 1% of the Corporation's
total assets that had loans in either a nonperforming, past-due or potential
problem loan status (see Tables F and G).
Short-Term Investments
Short-term investments include time deposits with other banks, federal funds
sold and reverse repurchase agreements. These investments are liquid assets with
original maturities of less than 90 days. Short-term 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. Liquidity
is also available to the Corporation through credit facilities with Federal Home
Loan Banks. The Corporation has secured and unsecured lines of credit that
exceed $1 billion which could be drawn upon to meet potential funding
requirements.
-9-
At December 31, 1998, total short-term investments decreased by $19.6 million,
or 3%, when compared to year-end 1997 due to normal daily fluctuations from the
Corporation's ongoing liquidity management process. On average short-term
investments increased $130.6 million in 1998 partially due to decreases in the
securities portfolio.
Securities
Securities of the Corporation consist of securities available for sale that are
carried on the Statements of Condition at market value. The unrealized gains and
losses on these securities are reported net of tax in stockholders' equity. The
securities portfolio totaled $970.7 million at December 31, 1998, with an
average duration of 3.7 years and an average yield of 5.75%. These securities
consisted primarily of U.S. Treasuries, U.S. government agency and
mortgage-backed securities. At December 31, 1998, securities available for sale
had $1.8 million of unrealized losses before taxes (see Table H).
At December 31, 1997, the portfolio totaled $1.67 billion with an average life
of 2.2 years and an average yield of 6.06%. The securities portfolio decreased
$247.8 million on average in 1998. The decrease in average securities was mainly
due to repositioning of the balance sheet resulting from loan growth and
redemption of preferred stock by the Corporation of $109 million. These
decreases were offset by an increase in average short-term investments in 1998.
As part of the Corporation's asset/liability strategy, securities available for
sale may be sold in response to changes in interest rates, risk characteristics
and other factors. The Corporation realized net gains of $15.0 million in 1998
compared with $3.5 million in 1997. These sales were the result of a
repositioning of the securities portfolio as the Corporation replaced U.S.
Treasuries with mortgage-backed securities and extended the portfolio duration
to 3.7 years. The yield declined approximately 31 basis points due to the
declining interest rate environment in 1998.
ASSET QUALITY
Credit Risk Management
A key objective of management is to maintain the quality of the loan portfolio
through high underwriting standards and regular evaluation of credit risk in the
portfolio. The potential for loss is intrinsic to the lending process and
management attempts to minimize these losses. However, the amount of loss will
fluctuate depending on the risk characteristics of the loan portfolio.
The Corporation has comprehensive policies and procedures that cover both loan
origination and management of risk. The Corporation's Credit Administration
group establishes credit policies including approval of underwriting standards,
lending limit authorities and concentration limits. Business unit managers
throughout the Corporation have primary responsibility to evaluate, monitor and
manage credit risk within policy guidelines for each portfolio. Credit
Administration reports to the Chief Credit Officer and works with business units
to ensure the integrity of the credit process. An independent loan review
function monitors compliance with the Corporation's credit policies and further
ensures the integrity of the credit process.
Provision and Reserve for Loan Losses
The provision for loan losses is a charge to earnings to maintain the reserve
for loan losses at a level adequate to absorb estimated losses inherent in the
loan portfolio. The reserve for loan losses is based on management's assessment
of existing conditions and of potential losses determined to be probable and
subject to reasonable estimation. The Corporation determines the appropriate
balance of the reserve for loan losses based upon an analysis of inherent risk
and other factors that include: primary sources of repayment on individual loans
and groups of similar loans, liquidity and financial condition of the borrowers
and guarantors, historical charge-offs/writedowns within loan categories, loan
trends and general economic conditions. On a quarterly basis, the Loan Loss
Reserve Committee evaluates the adequacy of the reserve for loan losses.
In 1998, no provisions were made to the reserve for loan losses compared to a
negative provision of $12.0 million for 1997. The reserve for loan losses was
$54.5 million, or 1.67% of total loans, at December 31, 1998, compared to $52.4
million, or 1.82% of total loans, at December 31, 1997 (see Table I).
The reserve for loan losses is reduced by loans charged off during the year and
increased by recoveries of loans that were previously charged off. The loan
portfolio remained strong in 1998 as evidenced by net recoveries totaling $2.0
million compared with $472 thousand of net recoveries for 1997. Net recoveries
for 1998 were mostly attributed to $4.4 million recovered from commercial real
estate loans. These recoveries were partially offset by relatively low levels of
charge-offs, including $2.2 million related to consumer loans and $937 thousand
in foreign loans.
The net recoveries experienced during 1998 contributed to the Corporation's
decision to not record a provision for loan losses during the year. Net
recoveries were experienced in 1997 and 1996 as well, which contributed to the
decision to reverse $12.0 million from the reserve for loan losses in the fourth
quarter of 1997.
-10-
Foreign exchange translation adjustments in the reserve for loan losses were $94
thousand and $(577) thousand in 1998 and 1997, respectively. These adjustments
relate to reserves for the Bank's London branch and Riggs Bank Europe Limited,
recorded in British pounds sterling, and are made to account for changes in the
Corporation's reserve for loan losses resulting from fluctuating foreign
exchange rates.
The estimated allocation of the reserve for loan losses by loan category is
detailed in Table J and represents management's assessment of existing
conditions and risk factors within these categories. Changes in the risk
characteristics and commitment amounts within the loan portfolio impact the
overall level of required reserves.
During 1998, the commercial and financial allocation increased substantially
because of the increased lending in this area along with the specific reserve
assigned to a $25.0 million commercial loan which was placed on nonaccrual
status in the fourth quarter. The reserve allocation for real estate-residential
and commercial/construction loans decreased while the combined balances in these
portfolios remained relatively stable during 1998. The decreased allocation for
commercial/construction loans is primarily the result of significant criticized
loan balances in one industry concentration being paid down or upgraded in the
fourth quarter of the most recent year. Also, additions to the residential real
estate portfolio resulted from bulk loan purchases that are well-secured with
relatively low risk characteristics. The reduced allocation for home equity and
consumer loans is a direct result of continued low charge-off levels, as
reserves for this classification are determined based upon the Corporation's
historical charge-off experience. The allocation for foreign loans increased in
1998 in proportion to the overall balance increase in this portfolio.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, renegotiated loans, and other
real estate owned. Nonaccrual loans are loans for which recognition of interest
income has been discontinued. Impaired loans are nonaccrual loans for which it
is probable that all amounts due will not be collected according to the
contractual terms of the loan agreement (see Tables K and L).
Loans are placed on nonaccrual when, in 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. Nonaccrual loans totaled $26.8 million at December
31, 1998, an increase of $23.0 million from December 31, 1997. This increase
during 1998 was primarily attributable to a $25.0 million commercial loan
entering nonaccrual status in the fourth quarter of 1998.
A specific reserve was assigned to the $25.0 million commercial loan that
entered nonaccrual status in the fourth quarter of 1998; however, this specific
reserve did not cause an increase in the total amount of reserve for loan losses
as improvements in other factors offset the need for a provision. These factors
included the removal of certain commercial loans from the Corporation's
criticized loan classification and a reduction in the Corporation's overall
qualitative reserves. The reduction in qualitative reserves resulted from the
analysis of various factors, the most significant of which were a reduction in
industry concentration risk and an improvement in the Corporation's credit
process as determined by a series of independent loan reviews in 1998. The low
level of nonaccrual loans in 1997 contributed to the decision to reverse $12.0
million from the provision for loan losses in the prior year.
Renegotiated loans are those where there have been extensions of the original
repayment period or a reduction of principal or interest because of a
deterioration in the borrower's financial position. At December 31, 1998 and
1997, all renegotiated loans were not accruing interest. Renegotiated loans
remained at a low level during 1998 and ended the year at $2.9 million, compared
with $101 thousand at year-end 1997. The increase of $2.8 million during 1998 is
attributable to two foreign loans.
Loans are transferred to other real estate owned when collateral securing the
loans is acquired through foreclosure. Other real estate owned decreased to $1.7
million at December 31, 1998, from $5.1 million at December 31, 1997. The
remaining balance consists of two tracts of land in the Washington, D.C.
metropolitan area.
Past-Due and Potential Problem Loans
Past-due loans generally consist of residential real estate and consumer loans
that are well-secured and in the process of collection for which the Corporation
is accruing interest. At December 31, 1998 the past-due loan category also
included a foreign government overdraft of $15.8 million, on which the
Corporation is accruing interest. Past-due loan increases at year-end 1998 were
primarily the result of this foreign government loan.
Potential problem loans are defined as loans that are currently performing but
which management believes have certain attributes that may lead to nonaccrual or
past-due status in the foreseeable future. At December 31, 1998, the Corporation
had not identified any such loans compared to $10.0 million in potential problem
loans at December 31, 1997. At year-end 1997, the potential problem loans
consisted primarily of commercial and financial loans.
-11-
DEPOSITS AND FUNDING SOURCES
Deposits, short-term borrowings, long-term debt and trust preferred securities
are the primary funding sources of the Corporation. For 1998, interest-bearing
funds averaged $4.0 billion compared to $3.6 billion for 1997. Average
interest-bearing funds were over 80% of average total liabilities in 1998 and
1997. Noninterest-bearing demand deposits represent an additional 15% of total
liabilities (see Table A).
Deposits
Deposits remained the primary source of funding for the Corporation's activities
during 1998. On average in 1998 deposits totaled $4.09 billion compared with
$3.97 billion in 1997. The average 1998 balance consisted of $3.37 billion in
interest-bearing deposits and $723.1 million of noninterest- bearing demand
deposits. Demand deposits decreased during 1998 partially due to a new program
in which certain noninterest-bearing accounts are transferred to the money
market classification, thereby reducing the level of required reserves. Domestic
and foreign time deposits increased $293.5 million on average in 1998 with the
largest portion of growth occurring in deposits where individual balances are in
excess of $100,000. The increase in time deposits was partially offset by an
average decrease of $43.6 million in money market accounts. The rates paid on
time deposits in domestic offices were 4.55% and 4.34% in 1998 and 1997,
respectively, compared to rates of 2.96% and 2.59%, respectively, for time
deposits with denominations in excess of $100,000. The lower rate on larger
deposits is due primarily to the impact of balances maintained by corporate and
government customers for which interest rates are based on an analysis of all
banking services provided.
Short-Term Borrowings
Short-term borrowings consist primarily of federal funds purchased, repurchase
agreements, and U.S. Treasury demand notes. These short-term obligations are an
additional source of funds used to meet certain asset/liability and daily cash
management objectives. On average, short-term borrowings increased $130.9
million, or 46%, to $415.3 million at December 31, 1998. The increase in the
balances during 1998 was used to fund loan growth during the year (see Table M).
Long-Term Debt
Long-term debt totaled $191.5 million at December 31, 1998 and 1997. Included in
long-term debt were subordinated debentures of $66.5 million due in 2009 and
subordinated notes of $125.0 million due in 2006. The debentures due in 2009
have a fixed interest rate of 9.65% and are not callable in advance of maturity.
The notes due in 2006 have a fixed interest rate of 8.50% and are callable
beginning February 1, 1999 at a price 104.25%. The call premium on these Notes
is reduced by .85% annually until the Notes are callable at par beginning
February 1, 2004.
Trust Preferred Securities
(Guaranteed Preferred Beneficial Interests in Junior
Subordinated Deferrable Interest Debentures)
Trust Preferred Securities totaled $350 million at December 31, 1998 and 1997.
Included in these securities are $200 million of 8.875% securities issued in
1997 and $150 million of 8.625% securities issued in 1996. The securities were
issued by wholly owned subsidiaries of the Corporation and are classified on the
Consolidated Statements of Condition as Guaranteed Preferred Beneficial
Interests in Junior Subordinated Deferrable Interest Debentures. The related
expense is classified on the Consolidated Statements of Income as Minority
Interest in Income of Subsidiaries, Net of Taxes. Dividends are paid
semi-annually and the Trust Preferred Securities cannot be redeemed for ten
years from the date of issuance. The securities have a final maturity of 30
years from their issuance date. Dividends are cumulative and deferrable for a
period not to exceed five years. The Trust Preferred Securities qualify as Tier
I Capital, with certain limitations.
Sensitivity to Market Risk
The Corporation is exposed to various market risks. It has determined that
interest-rate risk has a material impact on the Corporation's financial
performance, and as such has established the Asset/Liability Committee ("ALCO")
to manage interest-rate risk and liquidity. Asset/liability management is the
process of managing earning assets and funding sources in changing interest rate
environments. The primary goal of asset/liability management is to manage the
asset/liability mix of the Corporation and maximize net interest income within
an acceptable range of risk.
The Corporation manages its interest-rate risk through the use of an income
simulation model that forecasts the impact on net interest income of a variety
of different interest-rate scenarios. The model evaluates the impact on net
interest income of rates moving significantly higher or lower than a "most
likely" scenario. The results are compared to risk-tolerance limits set by
corporate policy for 12 and 36-month horizons. The interest rate scenarios
monitored by ALCO are based upon a 100 basis point (1%) gradual increase or
decrease in rates (versus the "most likely" scenario) over a 12-month time
period and a 300 basis point (3%) gradual increase or decrease in rates (versus
the "most likely" scenario) over a 36-month time period. The results of the
simulation for year-end 1998 and 1997 indicated that the Corporation was within
the established guidelines (see Table N).
-12-
In managing the Corporation's interest-rate risk, ALCO uses financial derivative
instruments, such as foreign currency and interest-rate swaps. Financial
derivatives are employed to assist in the management and/or reduction of the
interest-rate risk and currency risk of the Corporation. All of these
instruments are considered off-balance sheet, as they do not materially affect
the level of assets or liabilities of the Corporation. At December 31, 1998, the
Corporation's use of derivatives was limited. First, the Corporation had an
interest rate swap for a notional amount of $25 million on a pool of mortgage
loans. This swap diminishes the risk of holding long-term, fixed-rate loans. The
Corporation also had foreign currency exchange contracts for a notional amount
of $87 million to hedge the equity investment at Riggs Bank Europe Limited. The
foreign currency contracts mitigate the risk of changes in exchange rates. In
addition, Riggs Bank Europe Limited used interest-rate swaps to convert fixed
rate loans into floating rate assets. There were 28 such interest-rate swap
agreements outstanding at December 31, 1998 for RBEL totaling $90.3 million in
notional principal balance. Also, the Corporation had approximately $33 million
in commitments to sell foreign exchange contracts for the purpose of hedging
intercompany loans.
Management finds that the methodologies discussed above provide a meaningful
representation of the Corporation's interest-rate and market risk sensitivity,
though factors other than changes in the interest rate environment, such as
levels of non-earning assets, and changes in the composition of earning assets,
may affect net interest income. Management believes its current interest-rate
sensitivity level is appropriate, considering the Corporation's economic outlook
and conservative approach taken in the review and monitoring of the
Corporation's sensitivity position.
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. The Corporation places an emphasis
on capital strength and the ability of the Corporation to withstand unfavorable
economic and/or business losses. The Corporation continues to maintain a strong
capital position at December 31, 1998.
Total stockholders' equity at December 31, 1998 was $392.7 million, down $70.5
million from year-end 1997. The decrease was the result of the Corporation
redeeming all outstanding shares of its $100 million Non-cumulative Perpetual
Series B Preferred Stock. The preferred stock had an annual dividend rate of
10.75% and a redemption price of $27.25 per share, resulting in a reduction to
the Corporation's equity of $109 million. This reduction in equity was offset by
earnings for the year totaling $61.8 million, less dividends paid on preferred
and common stock.
Regulators have issued risk-based capital guidelines for banks and bank holding
companies. These requirements provide minimum Total, Tier I, and Leverage
capital ratios that measure capital adequacy. Total capital measures combined
Tier I and Tier II capital to risk-weighted assets. Tier I capital measures Tier
I capital to risk-weighted assets. The Leverage ratio measures Tier I capital to
quarterly average assets. At December 31, 1998, the Corporation's and the Bank's
capital ratios exceed the "well-capitalized" levels under each of the regulatory
ratios (see Table O).
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, which are the same as those prescribed by the
Federal Reserve Board for bank holding companies.
YEAR 2000 READINESS DISCLOSURE
General
Advances and changes in technology can have a significant impact on the
Corporation's business. Financial institutions are dependent on information
systems and also have many external interdependencies with other companies. Many
computer programs were designed to recognize calendar years by their last two
digits. Calculations performed using these digits may not work properly with
dates beginning in the Year 2000 and beyond. The Year 2000 issue creates risk
for the Corporation from unforeseen problems in its computer systems and from
Year 2000 issues with the Corporation's vendors, service providers and
customers.
-13-
Approach and Risk
The Corporation began to identify the risks associated with the Year 2000 in
1995. Management established a corporate oversight structure to ensure timely
risk assessments, remediation plans, systems testing, conversions, and
centralized management of the project. The structure of the effort entails a
number of groups, each addressing a different aspect of the project, and
reporting to the Year 2000 Program Manager. Oversight of the entire project is
performed by the Year 2000 Advisory Group. This is a management committee
appointed by the Board of Directors that reports to the Board on a quarterly
basis.
Management determined that an enterprise-wide business risk-assessment approach
is most appropriate for addressing and remediating Year 2000 problems. This
included an assessment of the information technology resources of each of the
functional areas in the Corporation, as well as separate assessments of
information technology vendors and suppliers, mainframe applications, third
party suppliers, alternative platforms, and non-information technology and
facilities risks.
In addition to systems-related risks, the Corporation undertook a review of
risks created by potential business interruptions suffered by the Corporation's
major business counterparties, both domestic and foreign. The Corporation
divided its business counterparties into three broad categories: Funds Takers
(primarily borrowers), Funds Providers (depositors and other funding sources),
and Capital Markets Partners (trading counterparties and fiduciary
relationships). For those business partners that would have a significant impact
on the Corporation's liquidity, income or capital markets activities, should
they encounter significant business interruption due to the Year 2000,
management has worked through the functional areas involved to assess readiness
and contingency plans for recovering from an abrupt interruption.
After the assessment phase, Year 2000 efforts have focused on remediation and
verification. The Corporation has developed detailed action plans to address
mainframe systems, third party servicers, embedded technology and facilities and
non-information technology issues. For purchased systems and software and third
party servicers, the Year 2000 efforts have involved contacting the vendors or
suppliers and determining the Year 2000 status of the various systems and of the
plans to bring the systems into compliance. For in-house systems, the Year 2000
efforts include correction of the programs to ensure proper data processing. The
Corporation's action plans also include testing mission-critical systems to
verify the remediation efforts. Riggs records and tracks information to keep
management aware of the status of the Corporation's information technology
systems. The Program Manager is working with the functional areas of the
Corporation to develop contingency plans for a variety of situations, such as
the failure of a vendor to remediate Year 2000 issues by a particular date or a
system not being available for processing.
Inherent in the Year 2000, the failure to correct a material problem could
result in an interruption in or failure of certain business operations. Year
2000 risks and uncertainties include increased credit losses, service delays,
funding delays, counterparty failures, inaccurate information processing, ATM
failures, and problems with international accounts. There can be no assurance
that the Year 2000 issue will not have a material adverse impact on the
Corporation's financial position, results of operations, or relationships with
customers, vendors, or others.
State of Readiness
While there is general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the readiness of third party vendors and
customers, the Corporation's progress toward completing the enterprise-wide risk
assessment and remediating Year 2000 problems is on target. Management
substantially completed remediation and verification of all mission-critical
internal systems by December 31, 1998. Management expects to substantially
complete remediation and verification of mission-critical third party servicers
by March 31, 1999. This is in accordance with guidelines established by Bank
regulatory authorities. Verification of non-mission-critical system changes,
including non-information technology issues, will be performed throughout 1999.
The Corporation presently believes that the Year 2000 issue will not cause
significant operational problems.
Costs
The total cost to become Year 2000 compliant is not expected to be material to
the Corporation's financial position. The Corporation estimates the total cost
of the Year 2000 project will be approximately $7.6 million, with funds provided
from operating cash flows. As of December 31, 1998, the total amount expended
was $3.6 million, with $2.8 million of this expense incurred in 1998. The future
cost of completing the Year 2000 project is estimated to be $4.0 million. The
most significant components of the total estimated cost consist of 66% for
personnel related costs, including consultants and special Year 2000 incentives,
and 26% for data processing services. The Corporation does not separately track
all internal costs incurred for the Year 2000 project. Internal costs are
principally the payroll-related costs for the information systems group.
The Year 2000 expense represents approximately 9% of the Corporation's total
actual information technology expenditures for 1998. Other significant or
critical non-Year 2000 information technology efforts have not been materially
delayed or impacted by Year 2000 initiatives.
-14-
Contingency Plans
To prepare for the possibility that certain information systems or third-party
vendors and servicers will not be Year 2000 compliant, the Corporation is
developing detailed contingency plans. The Corporation has two types of
contingency plans, remediation plans and business resumption plans.
The remediation plans address those information systems that the Corporation
determines are not currently, or may not be, Year 2000 compliant through our
testing. These plans describe and schedule alternative provisions, including, if
necessary, the replacement of vendors or third party servicers to ensure
compliance. These remediation plans are complete.
The business-resumption plans address how the Corporation will continue
operations in the event a Year 2000 related interruption occurs. The
business-resumption plans for its mission-critical systems and third-party
servicers are scheduled to be complete by June 30, 1999. While implementation of
the business-resumption plans is not expected to be necessary, it will ensure
the Corporation has the ability to process transactions and serve its customers
under circumstances in which a Year 2000 problem actually occurs.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
estimates. Such forward-looking statements include, but are not limited to, (1)
projections on the Corporation's 1999 tax rate and tax expense in Management's
Discussion and Analysis (MD&A), (2) discussions of loans and loan losses in
MD&A, (3) comments related to the redemption of Preferred Stock and buyback of
Common Stock in MD&A, (4) discussions of Asset/Liability Management and related
risk in MD&A, and (5) disclosures related to the Year 2000 in MD&A.
The risks and uncertainties associated with forward-looking statements include,
among other things, significant changes in general economic conditions, both
domestic and international; the impact of market and economic conditions on
debt, equity and assumptions made in the redemption of preferred stock; sharp
changes in credit quality or interest rates; changes in the Corporation's tax
liability and rates; and the Corporation's ability and resources to execute its
business strategies and manage risks associated with potential expansion plans
or the Year 2000 issue.
FOURTH QUARTER 1998 VS.
FOURTH QUARTER 1997
For the fourth quarter of 1998, the Corporation reported net income of $14.4
million, or $(.04) per diluted share, compared with $17.0 million, or $.45 per
diluted share, for the fourth quarter of 1997. Results for the fourth quarter of
1998 included $13.8 million in costs (and $(.44) per share) for redemption of
the Corporation's preferred stock. Results for the fourth quarter of 1997
included a credit of $12.0 million in the provision for loan losses (see the
table on page 69).
Net interest income for the fourth quarter of 1998 was $46.6 million, a decrease
of $500 thousand, or 1%, year-to-year, reflecting the impact of relatively
stable average earning assets combined with a decline in the net interest margin
from the loss of funds related to the preferred stock redemption.
Noninterest income for the fourth quarter of 1998 was $28.0 million, an increase
of $5.0 million, or 22%, when compared with the same period in 1997. This
increase was attributable to a $3.6 million gain from termination of the RBEL
pension plan in the fourth quarter of 1998, combined with an increase in trust
and investment advisory income of $1.2 million.
Noninterest expense for the fourth quarter of 1998 totaled $49.1 million,
compared to $51.6 million a year earlier, a decrease of $2.5 million, or 5%.
This decrease was primarily the result of a decrease in data processing
expenses.
1997 VS. 1996
In 1997, the Corporation achieved consolidated net earnings of $50.9 million
compared with net earnings of $65.9 million in 1996. Earnings per diluted share
for 1997 and 1996 were $1.27 and $1.79, respectively. Net income for 1997
benefited from a $12.0 million reduction in the reserve for loan losses, as
continued improvement in credit quality resulted in the recording of these
reserve adjustments. Return on average assets was 0.97% for 1997 compared with
1.40% for 1996. Return on average stockholders' equity was 11.69% in 1997
compared with 16.48% for 1996.
-15-
Net interest income (before the provision for loan losses) totaled $179.3
million, an increase of $26.0 million from 1996's total. This is attributable to
an increase of $578.3 million in average earning assets, partially offset by an
increase in average interest-bearing liabilities of $188.4 million. The net
interest margin was 3.81% for 1997, an increase of nine basis points from 3.72%
in 1996.
Noninterest income for 1997, excluding securities gains, totaled $84.4 million,
compared to 1996's total of $89.0 million. The decrease from 1996, totaling $4.6
million, was partially due to $5.1 million in interest on tax settlements in the
1996 year, and $3.2 million from the sale of a portion of the corporate trust
business in 1996.
Noninterest expense for 1997 rose to $186.0 million, a 5% increase totaling $9.1
million from 1996's total of $176.9 million. The increase in expenses during
1997 was primarily the result of a $6.0 million increase in salaries and wages,
which was partially offset by a $2.8 million reduction in pension and benefit
expenses.
The Corporation's 1997 provision for income tax expense of $24.7 million
increased from a provision of $6.2 million in 1996. This represents an effective
tax rate of 26.5% for 1997, compared with an effective tax rate of 8.5% for
1996.
In October 1997, the Corporation acquired J. Bush &Co., a privately-held
investment advisor. At acquisition, J. Bush &Co. had approximately $250 million
in assets under management. This acquisition was accounted for as a purchase,
the impact of which was not material to the Corporation.
The securities portfolio consisted of securities available for sale which
increased $510.0 million, or 44%, to a balance of $1.67 billion at year-end
1997. The increase in securities from 1996 was mainly due to fund inflows from
the minority interest-trust preferred securities as well as increases in the
deposit and borrowing portfolios. Sale of securities in 1997 resulted in
securities gains of $3.5 million.
Loans, net of premiums, discounts and deferred fees totaled $2.88 billion at
December 31, 1997, an increase of $246.5 million, or 9%, from the prior year.
The commercial loan portfolio increased $86.3 million at year-end 1997 and the
real estate-commercial/construction portfolio increased $58.0 million over
year-end 1996. These increases were related to improved loan demand and a strong
local economy. Residential mortgage loans declined $69.6 million as a result of
paydowns and payoffs in excess of new loan production while the home-equity
portfolio increased $35.8 million in 1997. Foreign loans increased to $389.6
million at year-end 1997 from the balance at year-end 1996 of $251.8 million due
to strengthening of the economy in the United Kingdom, together with the
expansion of the recently established Embassy Banking division in London and a
regional Trade Finance office in Manchester, England.
Nonperforming assets decreased $29.1 million, or 77%, during the year to $9.0
million at December 31, 1997. This decrease in nonperforming assets during 1997
was primarily attributable to sales and paydowns of $26.8 million. At year-end
1997, the Corporation's reserve for loan losses totaled $52.4 million, a
decrease of $12.1 million from year-end 1996's balance, mainly due to a $12.0
million reduction in loan loss provisions as a result of increased credit
quality in the loan portfolio. Other real estate owned decreased 82% to $5.1
million at December 31, 1997, from sales and repayments totaling $22.4 million.
Total deposits at December 31, 1997 were $4.30 billion, compared with $4.05
billion at year-end 1996, an increase of $247.2 million, or 6%. The increase in
balances was concentrated in two categories, demand and time deposits in foreign
offices. The rise in demand deposits of $90.3 million is the result of increased
seasonal fluctuations above the prior year. Foreign time deposits increased
$142.1 million, due in part to increases in the funding of the Corporation's
London operations through inter-bank sources.
Average short-term borrowings for 1997 totaled $284.4 million, up from 1996's
average of $241.0 million, primarily due to increases in repurchase agreements,
which are a funding vehicle for the Corporation. Long-term debt totaled $191.5
million at December 31, 1997 and 1996, respectively. On March 12, 1997, Riggs
Capital II, a newly formed, wholly-owned subsidiary of the Corporation, sold
$200 million of preferred equity capital through the private placement of
redeemable trust preferred securities. These securities mature in 2027 and have
an annual dividend rate of 8.875%. The net proceeds from this sale will be
available for general corporate purposes.
Total stockholders' equity at December 31, 1997 was $463.2 million, or 7.9% of
total assets, up $37.4 million from year-end 1996. The increase was the result
of earnings for the year totaling $50.9 million, partially offset by dividends
on preferred stock and common stock.
The Corporation's Total and Tier I capital ratios were 31.52% and 18.45%,
respectively, at December 31, 1997, compared with 28.47% and 20.04%,
respectively, at December 31, 1996. The Corporation's capital ratios were
enhanced by the inclusion of the proceeds from the trust preferred securities.
The Corporation's leverage ratio was 11.15% at December 31, 1997, compared with
a leverage ratio of 11.84% at the prior year-end.
-16-
Table A:
THREE-YEAR AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES1
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(IN THOUSANDS) BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial-Taxable $ 551,179 $ 39,830 7.23% $ 388,865 $ 30,458 7.83% $ 359,303 $ 30,483 8.48%
Commercial-Tax-Exempt 57,232 4,598 8.03 47,768 4,041 8.46 29,180 2,748 9.42
Real Estate-
Commercial/Construction 408,314 35,468 8.69 346,404 30,245 8.73 327,594 28,953 8.84
Residential Mortgage 1,247,988 89,265 7.15 1,196,090 85,727 7.17 1,258,669 89,674 7.12
Home Equity 326,837 25,179 7.70 306,470 24,932 8.14 273,860 22,555 8.24
Consumer 69,199 8,685 12.55 75,383 9,177 12.17 76,006 9,285 12.22
Foreign 427,062 36,705 8.59 299,892 24,606 8.20 232,800 18,689 8.03
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans, Including Fees 3,087,811 239,730 7.76 2,660,872 209,186 7.86 2,557,412 202,387 7.91
Securities Available for Sale 2 1,178,271 71,331 6.05 1,426,082 86,702 6.08 1,115,466 65,739 5.89
Time Deposits with Other Banks 618,964 33,379 5.39 167,235 8,470 5.06 208,108 10,288 4.94
Federal Funds Sold and
Reverse Repurchase Agreements 225,219 12,351 5.48 546,358 30,283 5.54 341,279 18,487 5.42
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS AND
AVERAGE RATE EARNED 5,110,265 356,791 6.98 4,800,547 334,641 6.97 4,222,265 296,901 7.03
Less: Reserve for Loan Losses 53,625 63,768 59,556
Cash and Due from Banks 144,761 158,531 192,024
Premises and Equipment, Net 179,379 165,710 160,354
Other Assets 185,931 191,094 201,282
==================================================================================================================================
TOTAL ASSETS $5,566,711 $5,252,114 $4,716,369
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 244,604 $ 4,967 2.03% $ 285,068 $ 6,359 2.23% $ 645,258 $ 13,944 2.16%
Money Market Deposit Accounts 1,558,482 41,260 2.65 1,602,131 51,375 3.21 1,173,179 38,363 3.27
Time Deposits in Domestic Offices 989,658 45,029 4.55 809,133 35,091 4.34 834,759 38,738 4.64
Time Deposits in Foreign Offices 574,022 34,873 6.08 461,045 26,738 5.80 340,262 18,931 5.56
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,366,766 126,129 3.75 3,157,377 119,563 3.79 2,993,458 109,976 3.67
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements 396,438 19,442 4.90 266,828 13,569 5.09 212,206 10,036 4.73
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 18,824 406 2.16 17,563 896 5.10 28,747 1,267 4.41
Long-Term Debt 191,525 17,473 9.12 191,525 17,473 9.12 210,494 18,612 8.84
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING FUNDS
AND AVERAGE RATE INCURRED 3,973,553 163,450 4.11 3,633,293 151,501 4.17 3,444,905 139,891 4.06
Demand Deposits 3 723,138 815,690 812,515
Other Liabilities 65,481 56,358 51,095
Minority Interest in Preferred
Stock of Subsidiary 350,000 311,644 7,787
Stockholders' Equity 454,539 435,129 400,067
==================================================================================================================================
TOTAL LIABILITIES, MINORITY INTEREST
AND STOCKHOLDERS' EQUITY $5,566,711 $5,252,114 $4,716,369
NET INTEREST INCOME AND SPREAD $193,341 2.87% $183,140 2.80% $157,010 2.97%
==================================================================================================================================
NET INTEREST MARGIN ON
EARNING ASSETS 3.78% 3.81% 3.72%
- ----------------------------------------------------------------------------------------------------------------------------------
1 INCOME AND RATES ARE COMPUTED ON A TAX-EQUIVALENT BASIS USING A FEDERAL
INCOME TAX RATE OF 35% FOR 1998, 1997, AND 1996, IN ADDITION TO LOCAL TAX RATES
AS APPLICABLE. AVERAGE FOREIGN ASSETS AND AVERAGE FOREIGN LIABILITIES ARE FOUND
ON PAGE 70.
2 THE AVERAGES AND RATES FOR THE SECURITIES AVAILABLE FOR SALE PORTFOLIO
ARE BASED ON AMORTIZED COST.
3 1998 DEMAND DEPOSIT BALANCES EXCLUDE CERTAIN ACCOUNTS TRANSFERRED TO THE
MONEY MARKET CLASSIFICATION TO REDUCE THE LEVEL OF DEPOSIT RESERVES REQUIRED.
-17-
Table B: NET INTEREST INCOME CHANGES 1
1998 VERSUS 1997 1997 VERSUS 1996
- ---------------------------------------------------------------------------------------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- ---------------------------------------------------------------------------------------------------------------
Interest Income:
Loans, Including Fees $(2,916) $ 33,460 $ 30,544 $(2,411) $ 9,210 $ 6,799
Securities Available for Sale (367) (15,004) (15,371) 2,173 18,790 20,963
Time Deposits with Other Banks 584 24,325 24,909 253 (2,071) (1,818)
Federal Funds Sold and Reverse
Repurchase Agreements (318) (17,614) (17,932) 429 11,367 11,796
- ---------------------------------------------------------------------------------------------------------------
Total Interest Income (3,017) 25,167 22,150 444 37,296 37,740
Interest Expense:
Savings and NOWAccounts (539) (853) (1,392) 442 (8,027) (7,585)
Money Market Deposit Accounts (8,748) (1,367) (10,115) (757) 13,769 13,012
Time Deposits in Domestic Offices 1,793 8,145 9,938 (2,481) (1,166) (3,647)
Time Deposits in Foreign Offices 1,322 6,813 8,135 845 6,962 7,807
Federal Funds Purchased and
Repurchase Agreements (499) 6,372 5,873 798 2,735 3,533
U.S. Treasury Demand Notes and
Other Short-Term Borrowings (550) 60 (490) 177 (548) (371)
Long-Term Debt -- -- -- 581 (1,720) (1,139)
- ---------------------------------------------------------------------------------------------------------------
Total Interest Expense (7,221) 19,170 11,949 (395) 12,005 11,610
===============================================================================================================
Net Interest Income $ 4,204 $ 5,997 $ 10,201 $ 839 $25,291 $26,130
- ---------------------------------------------------------------------------------------------------------------
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
1998, 1997 AND 1996, IN ADDITION TO LOCAL TAX RATES AS APPLICABLE.
-18-
Table C:
YEAR-END LOANS
DECEMBER 31,
(IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Domestic:
Commercial and Financial $ 668,778 $ 529,894 $ 443,557 $ 400,280 $ 400,660
Real Estate-Commercial/Construction 409,586 410,011 352,015 326,965 323,835
Residential Mortgage 1,276,257 1,156,493 1,226,110 1,284,193 1,317,169
Home Equity 314,347 317,669 281,867 251,798 220,910
Consumer 69,419 78,932 78,617 79,867 75,887
- ---------------------------------------------------------------------------------------------------------------
Total Domestic 2,738,387 2,492,999 2,382,166 2,343,103 2,338,461
Foreign:
Governments and Official Institutions 74,676 50,606 17,131 30,849 26,013
Banks and Other Financial Institutions 9,451 8,506 5,457 6,570 11,517
Commercial and Industrial 395,552 293,609 213,236 171,070 146,153
Other 42,353 36,911 15,958 15,761 20,875
- ---------------------------------------------------------------------------------------------------------------
Total Foreign 522,032 389,632 251,782 224,250 204,558
Total Loans 3,260,419 2,882,631 2,633,948 2,567,353 2,543,019
Net Deferred Loan Fees,
Premiums and Discounts (2,284) 1,742 3,886 4,606 6,905
- ---------------------------------------------------------------------------------------------------------------
Loans 3,258,135 2,884,373 2,637,834 2,571,959 2,549,924
Reserve for Loan Losses (54,455) (52,381) (64,486) (56,546) (97,039)
===============================================================================================================
Total Net Loans $3,203,680 $2,831,992 $2,573,348 $2,515,413 $2,452,885
- ---------------------------------------------------------------------------------------------------------------
-19-
Table D:
YEAR-END MATURITIES AND RATE SENSITIVITY
DECEMBER 31, 1998
LESS THAN OVER
(IN THOUSANDS) 1 YEAR 1 1-5 YEARS 5 YEARS TOTAL
- ---------------------------------------------------------------------------------------------------------------
Maturities:
Commercial and Financial $146,068 $256,567 $ 266,143 $ 668,778
Real Estate-Commercial/Construction 50,836 179,505 179,245 409,586
Residential Mortgage 28,758 136,608 1,110,891 1,276,257
Home Equity 135,512 23,193 155,642 314,347
Consumer 47,535 20,764 1,120 69,419
Foreign 418,944 82,964 20,124 522,032
===============================================================================================================
Total Loans $827,653 $699,601 $1,733,165 $3,260,419
Rate Sensitivity:
With Fixed Interest Rates $125,761 $413,342 $1,203,082 $1,742,185
With Floating and Adjustable Interest Rates 701,892 286,259 530,083 1,518,234
- ---------------------------------------------------------------------------------------------------------------
Total Loans $827,653 $699,601 $1,733,165 $3,260,419
===============================================================================================================
1 INCLUDES DEMAND LOANS, LOANS HAVING NO STATED SCHEDULE OF REPAYMENTS OR
MATURITY, AND OVERDRAFTS.
Table E:
REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1998
GEOGRAPHIC LOCATION
- ---------------------------------------------------------------------------------------------------------------
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM TOTAL
- ---------------------------------------------------------------------------------------------------------------
Land Acquisition and
Construction Development $ 13,500 $ 4,120 $ 3,616 $ -- $ 21,236
Multi-Family Residential 15,189 10,169 2,653 -- 28,011
Commercial:
Office Buildings 91,623 38,959 25,514 -- 156,096
Shopping Centers 13,015 10,586 48,232 -- 71,833
Hotels 1,132 -- -- -- 1,132
Industrial/Warehouse 2,202 16,263 3,302 -- 21,767
Churches 22,117 792 39,986 -- 62,895
Other 14,318 17,533 14,765 -- 46,616
- ---------------------------------------------------------------------------------------------------------------
Total Commercial $144,407 $84,133 $131,799 $ -- $360,339
Total Domestic Real Estate-
Commercial/Construction Loans 173,096 98,422 138,068 -- 409,586
Foreign -- -- -- 178,083 178,083
===============================================================================================================
Total Real Estate-
Commercial/Construction Loans $173,096 $98,422 $138,068 $178,083 $587,669
- ---------------------------------------------------------------------------------------------------------------
-20-
Table F:
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS 1
GOVERNMENTS BANKS AND COMMERCIAL
AND OFFICIAL OTHER FINANCIAL AND
(IN THOUSANDS) INSTITUTIONS INSTITUTIONS INDUSTRIAL OTHER TOTAL
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1998
United Kingdom $313 $ (73,380) $344,081 $ 3,874 $274,888
United States2 -- 378,419 -- 21,262 399,681
===============================================================================================================
As of December 31, 1997
United Kingdom 472 (112,033) 264,549 1,724 154,712
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1996
United Kingdom 419 727 167,701 27,480 196,327
- ---------------------------------------------------------------------------------------------------------------
1 CROSS-BORDER OUTSTANDINGS INCLUDE LOANS, ACCEPTANCES, INVESTMENTS, ACCRUED
INTEREST AND OTHER MONETARY ASSETS, NET OF INTEREST-BEARING DEPOSITS WITH OTHER
BANKS THAT ARE DENOMINATED IN U.S. DOLLARS OR OTHER NON-LOCAL CURRENCIES.
2 UNITED STATES CROSS-BORDER OUTSTANDINGS CONSIST OF DEPOSITS PLACED BY THE
CORPORATION IN FOREIGN BRANCHES OF UNITED STATES BANKS.
Table G:
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
WITH NONPERFORMING OR PAST-DUE LOANS
TOTAL
NONACCRUAL NONPERFORMING PAST-DUE
(IN THOUSANDS) LOANS LOANS LOANS
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1998
United Kingdom $2,843 1 $2,843 $21
===============================================================================================================
As of December 31, 1997
United Kingdom 1,421 1,421 --
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1996
United Kingdom 287 287 --
- ---------------------------------------------------------------------------------------------------------------
1 AS OF DECEMBER 31, 1998, ALL NONACCRUAL LOANS ARE ALSO CLASSIFIED AS
RENEGOTIATED LOANS.
-21-
Table H:
MATURITIES OF SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1998
GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities:
Mature after 10 years $113,677 $ -- $1,927 $111,750
Government Agencies Securities:
Due within 1 year 299,237 1 2 299,236
Due after 1 year but within 5 years 49,961 56 -- 50,017
Due after 5 years but within 10 years 41,967 124 -- 42,091
Mortgage Backed Securities:
Due after 5 years but within 10 years 13,314 -- 25 13,289
Mature after 10 years 410,838 249 873 410,214
Other Securities:
Mature within 1 year 12,603 -- -- 12,603
Mature after 10 years 30,974 927 373 31,528
===============================================================================================================
Total Securities Available for Sale $972,571 $1,357 $3,200 $970,728
- ---------------------------------------------------------------------------------------------------------------
Table I:
RESERVE FOR LOAN LOSSES AND SUMMARY OF CHARGE-OFFS (RECOVERIES)
DECEMBER 31,
(IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Balance, January 1 $ 52,381 $ 64,486 $ 56,546 $ 97,039 $ 86,513
Provision for Loan Losses -- (12,000) -- (55,000) 6,300
Loans Charged Off:
Commercial and Financial 579 146 764 243 593
Real Estate-Commercial/Construction 183 -- 1,061 697 6,800
Residential Mortgage 5 10 11 -- 409
Home Equity 186 448 67 438 98
Consumer 2,232 2,047 1,513 906 1,511
Foreign 937 593 260 6,106 3,219
- ---------------------------------------------------------------------------------------------------------------
Total Loans Charged Off 4,122 3,244 3,676 8,390 12,630
Recoveries on Charged-Off Loans:
Commercial and Financial 72 220 397 2,084 695
Real Estate-Commercial/Construction 4,410 2,263 3,802 11,408 8,847
Residential Mortgage -- 10 -- 84 136
Home Equity 58 47 27 114 4
Consumer 546 510 512 838 942
Foreign 1,016 666 5,513 8,400 5,034
- ---------------------------------------------------------------------------------------------------------------
Total Recoveries on Charged-Off Loans 6,102 3,716 10,251 22,928 15,658
Net Charge-Offs (Recoveries) (1,980) (472) (6,575) (14,538) (3,028)
Foreign Exchange Translation Adjustments 94 (577) 1,365 (31) 1,198
===============================================================================================================
Balance, December 31 $ 54,455 $ 52,381 $ 64,486 $ 56,546 $ 97,039
- ---------------------------------------------------------------------------------------------------------------
Ratio of Net Charge-Offs (Recoveries) to
Average Loans (.06)% (.02)% (.26)% (.57)% (.12)%
Ratio of Reserve for Loan Losses to Total Loans 1.67 % 1.82 % 2.44 % 2.20 % 3.81 %
-22-
Table J:
RESERVE FOR LOAN LOSSES ALLOCATION AND LOAN DISTRIBUTION
DECEMBER 31,
Allocation of the Reserve for Loan Losses
(IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Commercial and Financial $20,990 $ 5,524 $ 6,838 $ 9,334 $11,658
Real Estate-Residential and
Commercial/Construction 5,714 9,109 8,191 9,543 11,988
Home Equity and Consumer 2,612 3,593 4,236 2,717 6,178
Foreign 7,845 4,765 4,752 5,030 11,981
Based on Qualitative Factors 17,294 29,390 40,469 29,922 55,234
===============================================================================================================
Balance, December 31 $54,455 $52,381 $64,486 $56,546 $97,039
- ---------------------------------------------------------------------------------------------------------------
Distribution of Year-End Loans
(IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Commercial and Financial 20.5 % 18.4 % 16.8 % 15.6 % 15.8 %
Real Estate-Residential and
Commercial/Construction 51.7 54.3 59.9 62.9 64.5
Home Equity and Consumer 11.8 13.8 13.7 12.8 11.7
Foreign 16.0 13.5 9.6 8.7 8.0
===============================================================================================================
Balance, December 31 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
- ---------------------------------------------------------------------------------------------------------------
-23-
Table K:
NONPERFORMING ASSETS AND PAST-DUE LOANS
DECEMBER 31,
(IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS:
Nonaccrual Loans:
Domestic $ 26,831 $ 1,916 $ 9,133 $ 7,542 $ 11,518
Foreign -- 1,877 743 1,784 15,865
- ---------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 26,831 3,793 9,876 9,326 27,383
Renegotiated Loans:1
Domestic 77 101 125 3,410 288
Foreign 2,843 -- -- -- 267
- ---------------------------------------------------------------------------------------------------------------
Total Renegotiated Loans 2,920 101 125 3,410 555
Other Real Estate Owned, Net:
Domestic 1,638 4,993 27,722 32,627 44,068
Foreign 42 83 399 570 3,695
- ---------------------------------------------------------------------------------------------------------------
Total Other Real Estate Owned, Net 1,680 5,076 28,121 33,197 47,763
===============================================================================================================
Total Nonperforming Assets, Net $ 31,431 $ 8,970 $ 38,122 $ 45,933 $ 75,701
- ---------------------------------------------------------------------------------------------------------------
PAST-DUE LOANS:
Domestic $ 25,254 $ 7,279 $ 3,849 $ 5,423 $ 6,091
Foreign 15 -- -- 36 30
===============================================================================================================
Total Past-Due Loans $ 25,269 $ 7,279 $ 3,849 $ 5,459 $ 6,121
- ---------------------------------------------------------------------------------------------------------------
Total Loans, Net of Deferred
Loan Fees, Premiums
and Discounts $3,258,135 $2,884,373 $2,637,834 $2,571,959 $2,549,924
Ratio of Nonaccrual Loans to Total Loans .82% .13 % .37% .36% 1.07%
Ratio of Nonperforming Assets to Total Loans
and Other Real Estate Owned, Net .96% .31 % 1.43% 1.76% 2.91%
- ---------------------------------------------------------------------------------------------------------------
1 RENEGOTIATED LOANS DO NOT INCLUDE $6.5 MILLION IN LOANS RENEGOTIATED AT MARKET
TERMS THAT HAVE PERFORMED IN ACCORDANCE WITH THEIR RESPECTIVE RENEGOTIATED
TERMS.
-24-
Table L:
INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS
DECEMBER 31,
(IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Interest Income at Original Terms:
Nonaccrual Loans:
Domestic $ 751 $ 385 $ 972 $ 1,230 $ 3,571
Foreign -- 65 228 1,156 2,476
Renegotiated Loans 586 18 68 54 444
===============================================================================================================
Total $ 1,337 $ 468 $ 1,268 $ 2,440 $ 6,491
- ---------------------------------------------------------------------------------------------------------------
Actual Interest Income Recognized:
Nonaccrual Loans:
Domestic $ -- $ 5 $ 254 $ 214 $ 458
Foreign -- -- 37 186 1,075
Renegotiated Loans -- -- -- -- --
===============================================================================================================
Total $ -- $ 5 $ 291 $ 400 $ 1,533
- ---------------------------------------------------------------------------------------------------------------
Table M:
SHORT-TERM BORROWINGS
FEDERAL FUNDS PURCHASED U.S. TREASURY DEMAND NOTES
AND REPURCHASE AGREEMENTS AND OTHER SHORT-TERM BORROWINGS
(IN THOUSANDS) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31 $353,303 $327,579 $237,166 $21,077 $24,929 $ 18,068
Average Amount Outstanding1 396,438 266,828 212,206 18,824 17,563 28,747
Weighted-Average Rate Paid1 4.90% 5.09% 4.73% 2.16% 5.10% 4.41%
Maximum Amount Outstanding at any
Month-End 547,934 346,086 347,017 27,014 26,522 125,145
- ---------------------------------------------------------------------------------------------------------------
1 AVERAGE AMOUNTS ARE BASED ON DAILY BALANCES. AVERAGE RATES ARE COMPUTED ON
ACTUAL INTEREST EXPENSE DIVIDED BY AVERAGE AMOUNTS OUTSTANDING.
-25-
Table N:
INTEREST-RATE SENSITIVITY ANALYSIS 1
MOVEMENTS IN INTEREST RATES FROM DECEMBER 31, 1998
(IN THOUSANDS) SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ---------------------------------------------------------------------------------------------------------------
+100BP -100BP +300BP -300BP
- ---------------------------------------------------------------------------------------------------------------
Simulated Impact Compared with a
Most Likely Scenario:
Net Interest Income Increase/(Decrease) (0.4)% 0.0% 0.6% (4.7)%
Net Interest Income Increase/(Decrease)$ (813) $ 65 $ 3,622 $(28,401)
- ---------------------------------------------------------------------------------------------------------------
MOVEMENTS IN INTEREST RATES FROM DECEMBER 31, 1997
SIMULATED IMPACT OVER NEXT SIMULATED IMPACT OVER NEXT
TWELVE MONTHS THIRTY-SIX MONTHS
- ---------------------------------------------------------------------------------------------------------------
+100BP -100BP +300BP -300BP
- ---------------------------------------------------------------------------------------------------------------
Simulated Impact Compared with a
Most Likely Scenario:
Net Interest Income Increase/(Decrease) 1.0% 0.1% 6.3% 0.7%
Net Interest Income Increase/(Decrease) $1,945 $156 $36,354 $ 3,844
- ---------------------------------------------------------------------------------------------------------------
1 KEY ASSUMPTIONS:
ASSUMPTIONS WITH RESPECT TO THE MODEL'S PROJECTION OF THE EFFECT OF CHANGES IN
INTEREST RATES ON NET INTEREST INCOME INCLUDE:
1. TARGET BALANCES FOR VARIOUS ASSET AND LIABILITY CLASSES, WHICH ARE
SOLICITED FROM THE MANAGEMENT OF THE VARIOUS UNITS OF THE CORPORATION.
2. INTEREST RATE SCENARIOS WHICH ARE GENERATED BY ALCO FOR THE "MOST LIKELY"
SCENARIO AND ARE DICTATED BY POLICY FOR THE ALTERNATIVE SCENARIOS.
3. SPREAD RELATIONSHIPS BETWEEN VARIOUS INTEREST RATE INDICES, WHICH ARE
GENERATED BY THE ANALYSIS OF HISTORICAL RELATIONSHIPS AND ALCO CONSENSUS.
4. ASSUMPTIONS ABOUT THE EFFECT OF EMBEDDED OPTIONS AND PREPAYMENT
SPEEDS:INSTRUMENTS THAT ARE CALLABLE ARE ASSUMED TO BE CALLED AT THE FIRST
OPPORTUNITY IF AN INTEREST RATE SCENARIO MAKES IT ADVANTAGEOUS FOR THE OWNER OF
THE CALL TO DO SO. PREPAYMENT ASSUMPTIONS FOR MORTGAGE PRODUCTS ARE DERIVED FROM
ACCEPTED INDUSTRY SOURCES.
5. REINVESTMENT RATES FOR FUNDS REPLACING ASSETS OR LIABILITIES THAT ARE
ASSUMED (THROUGH EARLY WITHDRAWAL, PREPAYMENT, CALLS, ETC.) TO RUN OFF THE
BALANCE SHEET, WHICH ARE GENERATED BY THE SPREAD RELATIONSHIPS.
6. MATURITY STRATEGIES WITH RESPECT TO ASSETS AND LIABILITIES, WHICH ARE
SOLICITED FROM THE MANAGEMENT OF THE VARIOUS UNITS OF THE CORPORATION.
Table O:
CAPITAL RATIOS
DECEMBER 31,
REQUIRED WELL
1998 1997 MINIMUMS CAPITALIZED
- ---------------------------------------------------------------------------------------------------------------
Riggs National Corporation
Tier I 14.63 % 18.45 % 4.00 % 6.00 %
Combined Tier I and Tier II 27.51 31.52 8.00 10.00
Leverage 9.33 11.15 4.00 5.00
Riggs Bank N.A.
Tier I 12.17 14.35 4.00 6.00
Combined Tier I and Tier II 13.43 15.60 8.00 10.00
Leverage 8.26 8.64 4.00 5.00
- ---------------------------------------------------------------------------------------------------------------
-26-
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth in the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Sensitivity to Market Risk and Table N" on Pages 12 and 26,
respectively, of this Form 10-K.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE(S)
(a) The following consolidated financial statements
and related documents are set forth in this Annual
Report on Form 10-K as follows:
Riggs National Corporation and Subsidiaries:
Consolidated Statements of Income 28
Consolidated Statements of Condition 29
Consolidated Statements of Changes in Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32-65
Management's Report on Financial Statements 66
Report of Independent Public Accountants 67
(b) The following supplementary data is set forth
in this Annual Report on Form 10-K as follows:
Quarterly Financial Information 68
Consolidated Financial Ratios and Other Information 68
Quarterly Stock Information 69
-27-
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $ 238,564 $208,100 $201,414
Interest and Dividends on Securities Available for Sale 69,508 83,939 63,009
Interest on Money Market Assets:
Time Deposits with Other Banks 33,379 8,470 10,288
Federal Funds Sold and Reverse Repurchase Agreements 12,351 30,283 18,487
- ---------------------------------------------------------------------------------------------------------------
Total Interest on Money Market Assets 45,730 38,753 28,775
TOTAL INTEREST INCOME 353,802 330,792 293,198
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 4,967 6,359 13,944
Money Market Deposit Accounts 41,260 51,375 38,363
Time Deposits in Domestic Offices 45,029 35,091 38,738
Time Deposits in Foreign Offices 34,873 26,738 18,931
- ---------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 126,129 119,563 109,976
Interest on Short-Term Borrowings and Long-Term Debt:
Federal Funds Purchased and Repurchase Agreements 19,443 13,569 10,036
U.S. Treasury Demand Notes and Other Short-Term Borrowings 405 896 1,267
Long-Term Debt 17,473 17,473 18,612
- ---------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 37,321 31,938 29,915
TOTAL INTEREST EXPENSE 163,450 151,501 139,891
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 190,352 179,291 153,307
Less: Provision for Loan Losses -- (12,000) --
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 190,352 191,291 153,307
NONINTEREST INCOME
Trust and Investment Advisory Income 45,847 37,343 33,303
Service Charges and Fees 39,161 37,590 36,689
Interest on Tax Receivables -- -- 5,135
Other Noninterest Income 14,251 9,491 13,880
Securities Gains, Net 15,023 3,500 7,170
- ---------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 114,282 87,924 96,177
NONINTEREST EXPENSE
Salaries and Wages 74,185 67,097 61,086
Pensions and Other Employee Benefits 11,109 11,046 13,860
Occupancy, Net 18,329 19,095 20,917
Data Processing Services 17,663 21,427 17,998
Furniture and Equipment 10,170 9,333 7,779
Credit Card Processing 6,643 5,857 5,154
Outsourcing Fees 5,761 5,893 4,995
Consultants 5,338 3,302 1,851
Advertising and Public Relations 3,992 5,405 4,898
FDIC Insurance 415 435 4
Other Real Estate Owned (Income) Expense, Net 107 (1,392) 431
Other Noninterest Expense 40,040 38,532 37,974
- ---------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 193,752 186,030 176,947
Income before Taxes and Minority Interest 110,882 93,185 72,537
Applicable Income Tax Expense 29,088 24,690 6,174
Minority Interest in Income of Subsidiaries, Net of Taxes 19,947 17,616 420
===============================================================================================================
NET INCOME $ 61,847 $ 50,879 $ 65,943
Less: Dividends on Preferred Stock 9,854 10,750 10,750
Excess of Call Price over Carrying Amount of Preferred Stock 13,808 -- --
- ---------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON STOCK $ 38,185 $ 40,129 $ 55,193
EARNINGS PER COMMON SHARE
Basic $ 1.25 $ 1.32 $ 1.82
Diluted 1.21 1.27 1.79
- ---------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-28-
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Due from Banks $ 155,003 $ 186,091
Federal Funds Sold and Reverse Repurchase Agreements 75,000 549,000
- ---------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 230,003 735,091
Time Deposits with Other Banks 696,181 241,813
Securities Available for Sale (at Market Value) 970,728 1,672,550
Loans 3,258,135 2,884,373
Reserve for Loan Losses (54,455) (52,381)
- ---------------------------------------------------------------------------------------------------------------
Total Net Loans 3,203,680 2,831,992
Premises and Equipment, Net 203,071 165,377
Other Real Estate Owned, Net 1,680 5,076
Other Assets 196,988 194,527
===============================================================================================================
TOTAL ASSETS $5,502,331 $5,846,426
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 732,099 $ 982,865
Interest-Bearing Deposits:
Savings and NOW Accounts 434,649 436,337
Money Market Deposit Accounts 1,414,278 1,492,842
Time Deposits in Domestic Offices 917,442 867,772
Time Deposits in Foreign Offices 646,380 518,102
- ---------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,412,749 3,315,053
Total Deposits 4,144,848 4,297,918
Short-Term Borrowings:
Federal Funds Purchased and Repurchase Agreements 353,303 327,579
U.S. Treasury Demand Notes and Other Short-Term Borrowings 21,077 24,929
- ---------------------------------------------------------------------------------------------------------------
Total Short-Term Borrowings 374,380 352,508
Other Liabilities 48,850 191,293
Long-Term Debt 191,525 191,525
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,759,603 5,033,244
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES 350,000 350,000
- ---------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock - $1.00 Par Value Shares Authorized - None at December 31, 1998,
and 25,000,000 at December 31, 1997
Liquidation Preference - $25 per share
Non-cumulative Perpetual Series B - None issued at December 31, 1998, and
4,000,000 shares issued at December 31, 1997 -- 4,000
Common Stock - $2.50 Par Value
Shares Authorized - 50,000,000 at December 31, 1998, and 1997 Shares Issued -
31,555,345 at December 31, 1998, and 31,461,786
at December 31, 1997 78,888 78,654
Surplus - Preferred Stock -- 91,192
Surplus - Common Stock 160,760 159,160
Undivided Profits 184,794 152,732
Accumulated Other Comprehensive Income (Loss) (2,548) 1,167
Treasury Stock - 1,175,798 shares at December 31, 1998,
and 900,798 at December 31, 1997 (29,166) (23,723)
TOTAL STOCKHOLDERS' EQUITY 392,728 463,182
===============================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,502,331 $5,846,426
- ---------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-29-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
ACCUMULATED
PREFERRED COMMON OTHER TOTAL
STOCK STOCK UNDIVIDED COMPREHENSIVE TREASURY STOCKHOLDERS'
(IN THOUSANDS, EXCEPT $1.00 PAR $2.50 PAR SURPLUS PROFITS INCOME (LOSS) STOCK EQUITY
PER SHARE AMOUNTS)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 4,000 $77,938 $247,512 $ 68,038 $ 2,904 $(23,723) $ 376,669
Comprehensive Income:
Net Income 65,943 $ 65,943
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gain/(Loss) on Securities
Available for Sale, Net of
Reclassification Adjustments (4,506) (4,506)
Foreign Exchange Translation Adjustments 1,984 1,984
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) (2,522)
- ---------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 63,421
Issuance of Common Stock for
Stock Option Plans - 98,082 shares 245 740 985
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 $118,682 $ 382 $(23,723) $ 425,776
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 50,879 $ 50,879
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gain/(Loss) on Securities
Available for Sale, Net of
Reclassification Adjustments 2,768 2,768
Foreign Exchange Translation Adjustments (1,983) (1,983)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss) 785
- ---------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 51,664
Issuance of Common Stock for
Stock Option Plans - 188,442 shares 471 2,100 2,571
Cash Dividends Declared:
Common Stock, $.20 Per Share (6,079) (6,079)
Series B Preferred Stock, $2.6875 Per Share (10,750) (10,750)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 4,000 $78,654 $250,352 $152,732 $ 1,167 $(23,723) $ 463,182
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 61,847 $ 61,847
Other Comprehensive Income
(Loss), Net of Tax:
Unrealized Gain/(Loss) on Securities
Available for Sale, Net of
Reclassification Adjustments (3,238) (3,238)
Foreign Exchange Translation Adjustments (477) (477)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income(Loss) (3,715)
- ---------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 58,132
Issuance of Common Stock for
Stock Option Plans - 93,559 shares 234 1,600 1,834
Cash Dividends Declared:
Common Stock, $.20 Per Share (6,123) (6,123)
Series B Preferred Stock, $2.6875 Per Share (9,854) (9,854)
Redemption of Preferred Stock (4,000) (91,192) (13,808) (109,000)
Common Stock Repurchase-275,000 Shares (5,443) (5,443)
=====================================================================================================================
BALANCE, DECEMBER 31, 1998 $ -- $78,888 $160,760 $184,794 $(2,548) $(29,166) $ 392,728
- ---------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-30-
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 61,847 $ 50,879 $ 65,943
Adjustments to Reconcile Net Income to Cash
(Used in) Provided by Operating Activities:
Provision for Loan Losses -- (12,000) --
Provision for Other Real Estate Owned Losses 1,036 1,437 906
Depreciation Expense and Amortization of Leasehold Improvements 11,459 11,659 11,165
Interest on Tax Receivables -- -- (5,135)
Gains on Sale of Securities Available for Sale (15,023) (3,500) (7,170)
Gains on Sale of Other Real Estate Owned (918) (2,694) (920)
Increase in Other Assets (719) (23,216) (13,968)
(Decrease) Increase in Other Liabilities (142,443) 129,411 10,297
- ---------------------------------------------------------------------------------------------------------------
Total Adjustments (146,608) 101,097 (4,825)
Net Cash (Used In) Provided by Operating Activities (84,761) 151,976 61,118
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Time Deposits with Other Banks (454,368) 39,313 (49,752)
Proceeds from Maturities of Securities Available for Sale 5,555,730 7,197,217 1,041,282
Proceeds from Sale of Securities Available for Sale 1,706,165 475,956 745,247
Purchase of Securities Available for Sale (6,550,030) (8,175,479) (1,978,684)
Net Increase in Loans (371,688) (247,467) (59,813)
Proceeds from Sale and Other Payments of Other Real Estate Owned 3,278 25,109 7,007
Net Increase in Premises and Equipment (49,153) (10,962) (22,469)
Other, Net -- 16 (39)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (160,066) (696,297) (317,221)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease) Increase in Demand, Savings, NOW and Money
Market Deposit Accounts (331,018) 58,095 143,703
Net Increase in Time Deposits 177,948 189,140 21,801
Net Increase in Federal Funds Purchased
and Repurchase Agreements 25,724 90,413 51,157
Net (Decrease) Increase in U.S. Treasury Demand Notes
and Other Short-Term Borrowings (3,852) 6,861 2,602
Proceeds from the Issuance of Common Stock 1,834 2,571 985
Repayments of Long-Term Debt -- -- (26,100)
Proceeds from Preferred Stock of Subsidiaries -- 200,000 150,000
Dividend Payments - Preferred (9,854) (10,750) (10,750)
- Common (6,123) (6,079) (4,549)
Redemption of Preferred Stock (109,000) -- --
Repurchase of Common Shares (5,443) -- --
- ---------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided by Financing Activities (259,784) 530,251 328,849
- ---------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (477) (1,983) 1,984
Net (Decrease) Increase in Cash and Cash Equivalents (505,088) (16,053) 74,730
Cash and Cash Equivalents at Beginning of Year 735,091 751,144 676,414
===============================================================================================================
Cash and Cash Equivalents at End of Year $ 230,003 $ 735,091 $ 751,144
Supplemental Schedule of Non-cash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned $ -- $ 823 $ 1,878
Supplemental Disclosures:
Interest Paid (Net of Amount Capitalized) $ 161,424 $ 150,642 $ 141,773
Income Tax Payments 23,178 7,630 23,131
- ---------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of Riggs
National Corporation (the "Corporation"), including its principal subsidiaries,
Riggs Bank National Association (the "Riggs Bank N.A." or the "Bank") and Riggs
Bank Europe Limited ("RBEL").
The Corporation engages in a variety of banking and financial services
activities, either directly or through its subsidiaries, serving a broad
customer base. These services include community banking, corporate and
commercial banking, international banking and trust and investment management
services.
Basis of Presentation
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 consolidated financial statements include the accounts
of the Corporation and its subsidiaries, after elimination of all intercompany
transactions. For purposes of comparability, certain prior period amounts have
been reclassified to conform with current year presentation. None of these
reclassifications had any effect on net income or earnings per share for the
periods presented.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying footnotes. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash equivalents include cash on hand,
amounts due from banks, federal funds sold and reverse repurchase agreements.
Cash equivalents have original maturities of 30 days or less.
Acquisitions and Additions
In October 1997, the Corporation acquired J. Bush &Co., a privately-held
investment advisor. At acquisition, J. Bush &Co. had approximately $250 million
in assets under management. J. Bush &Co. is a separate subsidiary of Riggs Bank
N.A. This acquisition was accounted for as a purchase, the impact of which was
not material to the Corporation.
In November 1996 and March 1997, the Corporation formed two Delaware business
trusts, Riggs Capital and Riggs Capital II, respectively, with all of the common
securities of each trust owned by the Corporation. Subsequently, in December
1996 and March 1997, respectively, each of the trusts sold preferred securities.
The preferred securities represent a minority interest in each trust, which is
reflected separately in the Consolidated Statements of Condition under the
caption "Guaranteed Preferred Beneficial Interests in Junior Subordinated
Deferrable Interest Debentures." Dividends on the trust preferred securities are
reflected in the Consolidated Statements of Income as a deduction from income
before taxes and minority interest under the caption of "Minority Interest in
Income of Subsidiaries, Net of Taxes"(See Note 11, "Common and Preferred
Stock").
Securities
All of the Corporation's securities are classified as securities available for
sale and are carried at fair value, with unrealized gains and losses, net of
tax, included as a separate component of stockholders' equity. Management has
established policies that require the periodic review of the securities
portfolio for proper classification of securities (See Note 2, "Securities").
Loans
Loans are carried at the principal amount outstanding, net of unearned
discounts, unamortized premiums and deferred fees and costs. Interest on loans
and amortization of unearned discounts/premiums and deferred fees and costs are
computed by methods that generally result in level rates of return on principal
amounts outstanding over the estimated lives of the loans. Loan origination fees
and certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment 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 actually has not been collected is reversed.
-32-
Impaired loans are defined 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
generally are defined as nonaccrual loans. Impaired loans do not include large
groups of smaller-balance loans with similar collateral characteristics such as
residential mortgages and consumer installment loans, which are evaluated
collectively for impairment. Impaired loans 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. The determination of the adequacy
of the reserve for loan losses involves uncertainties and matters of judgment
and, therefore, could result in adjustments to future results of operations.
The provision for loan losses is charged against, or credited to, earnings in
amounts necessary to maintain an adequate reserve for loan losses. A loan is
charged off if, in 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 are included in the reserves for loan
losses. Impaired loans are valued based on the fair value of the related
collateral if the loans are collateral dependent. For all other impaired loans,
the specific reserves are based on the present values of expected future cash
flows discounted at each loan's initial effective interest rate.
Other Real Estate Owned
Other real estate owned is property for which the Corporation has foreclosed and
taken title. 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 in other
noninterest expense.
Premises and Equipment
Premises, leasehold improvements and furniture and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization
are generally computed using the straight-line method over the estimated useful
lives of the assets. Ranges of useful lives for computing depreciation and
amortization are 25 to 35 years for premises, 5 to 20 years for leasehold
improvements and 5 to 15 years for furniture and equipment.
Major improvements and alterations to premises and leaseholds are capitalized.
Leasehold improvements are amortized over the shorter of the terms of the
respective leases or the estimated useful lives of the improvements. Interest
costs relating to the construction of certain fixed assets were capitalized at
the Bank's weighted-average cost of liabilities.
Other Assets
Included in other assets are intangible assets, such as goodwill and core
deposit intangibles. Goodwill is the excess of cost over net assets of acquired
entities and core deposit intangibles represent the net present value of the
future income streams related to deposits acquired through mergers or
acquisitions. In October 1997, the Corporation acquired J. Bush & Co. and
goodwill related to this transaction is being amortized using the straight-line
method over a 15-year period. All other goodwill is being amortized using the
straight-line method over 25 years. Core deposit intangibles are amortized on an
accelerated basis over 10 years. The Corporation had unamortized goodwill of
$8.6 million and $9.1 million at December 31, 1998, and 1997, respectively. The
unamortized core-deposit intangibles totaled $5.2 million and $8.3 million at
December 31, 1998, and 1997.
Income Taxes
The Corporation records a provision for income taxes based upon the amounts of
current taxes payable (or refundable) and the change in net deferred tax assets
or liabilities during the year. Deferred tax assets and liabilities are
recognized for the tax effects of differing carrying values of assets and
liabilities for tax and financial statement reporting purposes that will reverse
in future periods. Using management's judgment and estimates concerning the
likelihood of realization in future periods, deferred tax assets are reduced by
a valuation allowance as necessary.
-33-
Benefit Plans
Riggs Bank N.A. maintains a non-contributory 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 a portion of the life insurance
benefits for retired employees. The estimated cost of retiree health insurance
benefits is accrued for active employees. As of January 1, 1998, the Corporation
no longer provides life insurance benefits for persons retiring on or after
January 1, 1998. 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
In March 1997, Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," was issued. SFAS No. 128 supersedes Accounting Principles
Board (the "APB") Opinion No. 15 to conform earnings per share with
international standards as well as to modify the computation under APB No. 15.
Basic earnings per share is calculated by dividing net income, after deduction
for preferred stock dividends, by the weighted-average number of shares of
common stock. Diluted earnings per share is calculated by dividing net income,
after deduction for preferred stock dividends, by the weighted-average number of
shares of common stock and common stock equivalents, unless determined to be
anti-dilutive. The weighted-average shares outstanding were 30,603,384,
30,422,822, and 30,317,572 for 1998, 1997, and 1996. The dilutive effect of
stock option plans on weighted-average shares outstanding was 1,032,096,
1,164,568, and 547,492 for the same periods, respectively.
Foreign Currency Translation
The functional currency amounts of assets and liabilities of foreign entities
are translated into U.S. dollars at year-end exchange rates. Income and expense
items are translated using appropriate weighted-average exchange rates for the
period. Functional currency to U.S. dollar translation gains and losses, net of
related hedge transactions, are credited or charged directly to the
stockholders' equity account, Foreign Exchange Translation Adjustments.
Foreign Exchange Income
Open foreign currency trading and exchange positions, including spot and forward
exchange contracts, are valued monthly, and the resulting profits and losses are
recorded in other noninterest income. The amount of net foreign exchange trading
gains included in the accompanying Consolidated Statements of Income was $3.2
million for 1998, $2.3 million for 1997 and $2.2 million for 1996.
Financial Derivatives
Gains and losses on futures and forward contracts to hedge certain
interest-sensitive assets and liabilities are amortized over the life of the
hedged transaction as an adjustment to yield. Fees received or paid when
entering certain derivative transactions are deferred and amortized over the
lives of the agreements.
Interest rate agreements are entered into as hedges against fluctuations in the
interest rates of specifically identified assets or liabilities. The notional
amounts of the contracts do not affect total assets or liabilities of the
Corporation. Net receivables or payables under agreements designated as hedges
are recorded as adjustments to interest income or interest expense related to
the hedged asset or liability. Gains or losses resulting from early termination
of interest-rate agreements are deferred and amortized over the remaining terms
of the agreements.
New Financial Accounting Standards
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFASNo. 130 requires that certain financial activity typically disclosed in
stockholders' equity be reported in the financial statements as an adjustment to
net income in determining comprehensive income. Items applicable to the
Corporation would include activity in foreign exchange translation adjustments
and unrealized gain (loss) on securities available for sale. Items identified as
comprehensive income are reported in the Consolidated Statements of Condition
and the Consolidated Statements of Changes in Stockholders' Equity, under
separate captions. SFASNo. 130 was effective for the Corporation on January 1,
1998, including the restatement of prior periods reported, consistent with this
pronouncement.
-34-
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 requires the reporting of
selected segmented information in quarterly and annual reports. Information from
operating segments is derived from methods used by the Corporation's management
to allocate resources and measure performance. The Corporation is required to
disclose profit (loss), revenues and assets for each segment identified,
including reconciliations of these items to the consolidated results. The
Corporation is also required to disclose the basis for identifying the segments
and the types of products and services within each segment. SFAS No. 131 was
effective for the Corporation on January 1, 1998, including the restatement of
prior periods reported consistent with this pronouncement.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits--an amendment of FASB Statements No. 87, 88, and 106"
was issued. SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits and requires additional information
on changes in the benefit obligations and fair values of plan assets. SFAS No.
132 also eliminates certain disclosures that were required by SFAS Nos. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 132 was effective for the Corporation on
January 1, 1998. The required disclosures are included in the Notes to the
Financial Statements.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS No. 133 will require the Corporation to record
derivative instruments, such as interest-rate swap agreements on the
Consolidated Statements of Condition as assets or liabilities, measured at fair
value. Currently the Corporation treats such instruments as off-balance sheet
items. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the specific use of each derivative
instrument and whether it qualifies for hedge accounting treatment as stated in
the standard. SFAS No. 133 will be effective for the Corporation on January 1,
2000. The Corporation does not anticipate any material impact from the
implementation of SFAS No. 133.
-35-
NOTE 2. SECURITIES
SECURITIES AVAILABLE FOR SALE
DECEMBER 31,
1998 1997
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 $113,677 $ -- $1,927 $111,750 $ 504,990 $2,003 $272 $ 506,721
Government Agencies Securities 391,165 181 2 391,344 966,277 291 112 966,456
Mortgage-Backed Securities 424,152 249 898 423,503 156,997 126 97 157,026
Other Securities 43,577 927 373 44,131 41,150 1,197 -- 42,347
=======================================================================================================================
Total Securities Available for Sale $972,571 $1,357 $3,200 $970,728 $1,669,414 $3,617 $481 $1,672,550
- -----------------------------------------------------------------------------------------------------------------------
Gross gains from the sale of securities totaled $18.1 million during the year,
while gross losses totaled $3.1 million, compared with gross gains of $6.8
million and gross losses of $3.3 million for 1997. At December 31, 1998, a $1.2
million unrealized loss, net of tax, was recorded in stockholders' equity
(included in accumulated other comprehensive income (loss)), compared to a $2.0
million unrealized gain, net of tax, in 1997. Securities available for sale
pledged to secure deposits and other borrowings amounted to $727.4 million at
December 31, 1998, and $810.9 million at December 31, 1997.
The "Other Securities" category consists of $17.4 million of Federal Home Loan
Bank of Atlanta ("FHLB-Atlanta") Stock, $9.4 million of Federal Reserve Stock,
$12.2 million of U.S. Treasury money market mutual funds and $5.1 million of
equity securities at year-end 1998. 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.
-36-
The maturity distribution of securities at December 31, 1998 follows:
SECURITIES AVAILABLE FOR SALE
GOVERNMENT MORTGAGE-
U.S.TREASURY AGENCIES BACKED OTHER
SECURITIES SECURITIES SECURITIES SECURITIES TOTAL
- ---------------------------------------------------------------------------------------------------------------
Within 1 year
Amortized Cost $ -- $299,237 $ -- $12,603 $311,840
Book/Market -- 299,236 -- 12,603 311,839
Yield1 -- 5.04% -- 4.34% 5.01%
After 1 but within 5 years
Amortized Cost -- 49,961 -- -- 49,961
Book/Market -- 50,017 -- -- 50,017
Yield1 -- 6.09% -- -- 6.09%
After 5 but within 10 years
Amortized Cost -- 41,967 13,314 -- 55,281
Book/Market -- 42,091 13,289 -- 55,380
Yield1 -- 6.53% 5.92% -- 6.38%
After 10 years
Amortized Cost 113,677 -- 410,838 30,974 555,489
Book/Market 111,750 -- 410,214 31,528 553,492
Yield 1 5.24% -- 6.35% 5.40% 6.07%
===============================================================================================================
Total Securities Available for Sale
Amortized Cost $113,677 $391,165 $424,152 $43,577 $972,571
Book/Market 111,750 391,344 423,503 44,131 970,728
Yield 1 5.24% 5.33% 6.34% 5.09% 5.75%
- ---------------------------------------------------------------------------------------------------------------
1 WEIGHTED-AVERAGE YIELD TO MATURITY AT DECEMBER 31, 1998.
NOTE 3. LOANS AND RESERVE FOR LOAN LOSSES
The following schedule details the composition of the loan portfolio at
year-end:
1998 1997
- -------------------------------------------------------------------------------
Commercial and Financial $ 668,778 $ 529,894
Real Estate--
Commercial/Construction 409,586 410,011
Residential Mortgage 1,276,257 1,156,493
Home Equity 314,347 317,669
Consumer 69,419 78,932
Foreign 522,032 389,632
- -------------------------------------------------------------------------------
Total Loans 3,260,419 2,882,631
Net Deferred Loan Fees,
Premiums and Discounts (2,284) 1,742
===============================================================================
Loans $3,258,135 $2,884,373
- -------------------------------------------------------------------------------
A summary of nonperforming and renegotiated loans, loans contractually past-due
90 days or more and potential problem loans at year-end follows:
1998 1997
- -------------------------------------------------------------------------------
Nonaccrual Loans $26,831 $ 3,793
Renegotiated Loans 2,920 101
Past-Due Loans 25,269 7,279
Potential Problem Loans -- 10,000
- -------------------------------------------------------------------------------
The nonaccrual loans of $26.8 million and $3.8 million do not include
renegotiated loans that are also not accruing interest. At December 31, 1998,
nonaccrual loans included no foreign loans, while renegotiated loans included
$2.8 million of foreign loans. There were no transfers from nonaccrual loans to
foreclosed properties in 1998, while $823 thousand was transferred in 1997.
-37-
An analysis of the changes in the reserve for loan losses follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Balance, January 1 $ 52,381 $ 64,486 $ 56,546
Provision for Loan Losses -- (12,000) --
Loans Charged Off 4,122 3,244 3,676
Less:Recoveries on Charged-Off Loans 6,102 3,716 10,251
- ---------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) (1,980) (472) (6,575)
Foreign Exchange Translation Adjustments 94 (577) 1,365
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31 $ 54,455 $ 52,381 $ 64,486
Foreign exchange translation adjustments in the reserve for loan losses were $94
thousand and $(577) thousand in 1998 and 1997, respectively. These adjustments
relate to reserves for the Bank's London branch and Riggs Bank Europe Limited,
recorded in British pounds sterling, and are made to account for changes in the
Corporation's reserve for loan losses resulting from fluctuating foreign
exchange rates.
Included in the Corporation's nonaccrual and renegotiated loans are certain
impaired loans. Impaired loans totaling $28.8 million at December 31, 1998 were
comprised of $26.0 million in domestic loans and $2.8 million in foreign loans.
At December 31, 1997, domestic and foreign impaired loan balances were $621
thousand and $1.4 million, respectively. The 1998 average investments in
impaired loans were $9.5 million in domestic loans and $1.1 million in foreign
loans. For 1997, the average investments for domestic and foreign portfolios
were $1.2 million and $276 thousand, respectively.
All impaired loans had an allocated reserve for loan losses at December 31, 1998
and 1997. The allocated reserves on impaired loans were $14.1 million for 1998,
and $300 thousand for 1997.
Consistent with the Corporation's method for nonaccrual loans, cash payments
received on impaired loans are generally applied to principal. The proforma
interest income that would have been earned in 1998 and 1997, if such loans had
not been classified as impaired, was $817 thousand and $133 thousand,
respectively. No interest income was included in net interest income for
impaired loans in 1998 and 1997.
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.
Collateral dependent impaired loans are measured at the fair value of the
collateral. All other impaired loans are measured based on the present value of
expected cash flows.
NOTE 4. TRANSACTIONS WITH RELATED PARTIES
In the ordinary course of banking business, loans are made to officers and
directors of the Corporation and its affiliates as well as to their associates.
In the opinion of management, these loans are consistent with sound banking
practices and do not involve more than the normal risk of collectibility. At
December 31, 1998 and 1997, loans to executive officers and directors of the
Corporation and its affiliates, including loans to their associates, totaled
$44.6 million and $75.5 million, respectively. During 1998, loan additions were
$20.4 million, and loan repayments were $51.3 million.
-38-
In addition to the transactions set forth above, the Corporation's banking
subsidiaries had $322 thousand of letters of credit outstanding at December 31,
1998 to related parties. There were no related party loans that were impaired,
nonaccrual, past due, restructured or potential problems at December 31, 1998.
During 1998, Allbritton Communications Company ("ACC"), a company indirectly
owned by Mr. Allbritton (Chairman of the Board and Chief Executive Officer of
the Corporation), paid Riggs Bank N.A. $383 thousand to lease space in an office
building owned by Riggs Bank N.A. under a lease that has been extended through
2001. ACC paid $689 thousand and $484 thousand in 1997 and 1996, respectively,
to lease space from Riggs Bank N.A. During 1998 the Corporation paid ACC $1.0
million for a sublicense agreement to obtain an equal share of ACC's interest in
an entertainment suite at a sports complex. This transaction was at market value
based on a recent sale of a similar entertainment suite. In addition, ACC
reimbursed the Corporation $80,302 for use of a separate entertainment suite at
a sports stadium.
During 1997, the Corporation purchased equipment from Wang Federal, Inc. Ronald
Cuneo (a member of the Corporation's Board of Directors in 1997) was President
of Wang Federal, Inc. at the time of the purchase. Total expenditures equaled
$1.3 million in 1997, and were capitalized by the Corporation.
NOTE 5. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, 1998, and 1997 is summarized as follows:
1998 1997
- -------------------------------------------------------------------------------
Foreclosed Property - Domestic $1,638 $4,993
Foreclosed Property - Foreign 42 83
- -------------------------------------------------------------------------------
Total Foreclosed Property 1,680 5,076
Less: Reserve for Other Real
Estate Owned - -
===============================================================================
Total Other Real Estate Owned, Net $1,680 $5,076
- -------------------------------------------------------------------------------
An analysis of the changes in the reserves for other real estate owned follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Balance, January 1 $ -- $2,154 $2,349
Additions:
Provision for Other
Real Estate Owned Losses 1,036 1,437 906
- -------------------------------------------------------------------------------
Total Additions 1,036 1,437 906
Deductions:
Loss on Sales/Selling Expenses -- 1,111 199
Writedowns 1,036 2,478 906
- -------------------------------------------------------------------------------
Total Deductions 1,036 3,589 1,105
Foreign Exchange Translation
Adjustments -- (2) 4
===============================================================================
Balance, December 31 $ -- $ -- $2,154
- -------------------------------------------------------------------------------
-39-
NOTE 6. PREMISES AND EQUIPMENT
Investments in premises and equipment at year-end were as follows:
1998 1997
- -------------------------------------------------------------------------------
Premises and Land $ 175,377 $ 170,369
Furniture and Equipment 113,738 73,440
Leasehold Improvements 45,231 43,350
Accumulated Depreciation
and Amortization (131,275) (121,782)
===============================================================================
Total Premises and
Equipment, Net $ 203,071 $ 165,377
- -------------------------------------------------------------------------------
Depreciation and amortization expense amounted to $11.5 million in 1998, $11.7
million in 1997 and $11.2 million in 1996.
At December 31, 1998, 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 2018 in
varying amounts.
OPERATING
LEASES
- -------------------------------------------------------------------------------
1999 $ 6,980
2000 5,647
2001 4,946
2002 3,382
2003 2,521
2004 and thereafter 8,915
===============================================================================
Total Minimum Lease Payments $32,391
- -------------------------------------------------------------------------------
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 2000. Minimum sublease rental income for 1999 is
expected to be approximately $44 thousand. Rental expense for all operating
leases (cancelable and non-cancelable), less rental income for leased
properties, consisted of the following:
1998 1997 1996
- -------------------------------------------------------------------------------
Rental Expense $8,947 $9,037 $10,926
Rental Income (96) (102) (15)
===============================================================================
Net Rental Expense $8,851 $8,935 $10,911
- -------------------------------------------------------------------------------
In the normal course of business, the Corporation also leases space in buildings
it owns. This rental income amounted to $2.3 million in 1998, $2.0 million in
1997 and $1.9 million in 1996. Minimum lease commitments from buildings owned
for 1999 total approximately $2.2 million, compared with $2.1 million in 1998.
NOTE 7. TIME DEPOSITS, $100 THOUSAND OR MORE
The aggregate amount of time deposits, each with a minimum denomination of $100
thousand, was $522,746 and $439,948 at December 31, 1998 and 1997, respectively.
The average rate paid on time deposits of $100 thousand or more for 1998 was
2.96% compared with the average rate of 2.59% paid during 1997. A majority of
time deposits in foreign offices were in denominations of $100 thousand or more.
Total time deposits at December 31, 1998, had the following scheduled
maturities:
1999 $1,488,580
2000 45,588
2001 14,870
2002 6,310
2003 3,089
2004 and thereafter 5,385
===============================================================================
Total $1,563,822
- -------------------------------------------------------------------------------
-40-
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
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31 $353,303 $327,579 $237,166 $21,077 $24,929 $ 18,068
Average Amount Outstanding 1 396,438 266,828 212,206 18,824 17,563 28,747
Weighted-Average Rate Paid 1 4.90% 5.09% 4.73% 2.16% 5.10% 4.41%
Maximum Amount Outstanding at any
Month-End 547,934 346,086 347,017 27,014 26,522 125,145
===============================================================================================================
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 investment
securities. At December 31, 1998, the Corporation had one repurchase agreement
with a customer that individually exceeded 10% of total stockholders' equity.
This repurchase agreement was for $62.4 million, and matured overnight. 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, 1998, unused lines of credit
totaled approximately $1.5 billion. Of this total, $800 million is secured by a
blanket lien agreement with the Federal Home Loan Bank of Atlanta. Another
portion of these unused lines of credit is secured by residential mortgage loans
totaling $31.2 million. Long-Term Debt
Long-term debt outstanding at year-end and other related information follow:
BALANCE OUTSTANDING
INTEREST RATE DECEMBER 31,
DECEMBER 31, 1998 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Parent Corporation:
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 $191,525
- ---------------------------------------------------------------------------------------------------------------
-41-
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. These debentures qualify as Tier II capital for
regulatory purposes. Expenses relating to the issuance of the debentures are
being amortized to maturity on a straight-line basis.
Fixed-Rate Subordinated Notes Due 2006
On February 1, 1994, the Corporation sold $125 million of 8.5% Subordinated
Notes due 2006. The notes were priced at par. The first call date is scheduled
for February 1, 1999, at a call price of 104.25%. The call price is reduced
annually thereafter. These notes qualify as Tier II capital for regulatory
purposes. Expenses relating to the issuance of the notes are being amortized to
maturity on a straight-line basis.
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 currency products to its customers to meet their
financing objectives and to manage their currency rate risk.
Off-balance sheet activities involve varying degrees of credit, interest-rate or
liquidity risk in excess of amounts recognized on the consolidated statements of
condition. 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. Outstanding commitments and contingent liabilities
that do not appear in the consolidated financial statements at December 31, 1998
and 1997, are as follows:
1998 1997
- -------------------------------------------------------------------------------
Commitments to Extend Credit:
Commercial $ 821,776 $526,061
Real Estate:
Commercial/Construction 46,670 59,113
Mortgage 14,595 6,719
Home Equity 189,544 192,230
- -------------------------------------------------------------------------------
Total Real Estate 250,809 258,062
Consumer 97,085 89,671
===============================================================================
Total Commitments to
Extend Credit $1,169,670 $873,794
Letters of Credit:
Commercial $ 74,729 $ 72,731
Standby - Performance 11,386 10,208
Standby - Financial 30,619 49,831
===============================================================================
Total Letters of Credit $ 116,734 $132,770
Derivative Instruments:
Foreign Currency Contracts -
Commitments to Purchase $ 138,727 $111,215
Commitments to Sell 225,846 190,324
Interest-Rate Swap Agreements -
Notional Principal Amount 115,343 352,131
- -------------------------------------------------------------------------------
-42-
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer provided there
is no violation of any condition established in the contract. Commitments to
extend credit normally have fixed expiration dates or termination clauses and
may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements. The Corporation evaluates
each customer's creditworthiness on a case-by-case basis. The amount and type of
collateral obtained, if it is deemed necessary, is based upon management's
credit evaluation of the customer. Of the $1.2 billion of commitments at
December 31, 1998, $663.1 million are scheduled to expire in 1999.
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 Corporation's independent loan review function provides an
assessment of credit ratings, credit quality and the credit management process.
This assessment is achieved through regular reviews of loan documentation,
collateral, risk ratings and problem loan classifications.
Credit risk is reduced by maintaining a loan portfolio that is diverse in terms
of type of loan, as well as industry and borrower concentration, thus minimizing
the adverse impact of any single event or set of occurrences.
Geographically, the Corporation's domestic loans are concentrated in the
Washington, D.C. metropolitan area. Loans originated by the Corporation's United
Kingdom subsidiary represent 77% of foreign loans and are predominantly to
borrowers located in the United Kingdom.
At December 31, 1998, approximately $587.7 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 70% and 30%
were secured by properties located in the Washington, D.C. area and in the
United Kingdom, respectively. In addition, the Corporation had $1.7 million in
other real estate owned at December 31, 1998.
Approximately 49% of the Corporation's loan portfolio is secured by the primary
residence of the borrower. At December 31, 1998, residential mortgage loans were
$1.28 billion and home equity loans were $314.3 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.
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 non-financial 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.
Foreign Currency Contracts
Foreign currency contracts include commitments to purchase and sell foreign
currencies in the spot and forward markets. The Corporation utilizes these
products to manage its exposure to movements in currency rates and to generate
revenue by assisting customers in managing their foreign currency exposure.
These products normally include the exchange of currency at an agreed upon rate
at some time in the future. Risks associated with these contracts include credit
risk and currency risk. Credit risk relates to the ability of the counterparty
to meet its obligation under the contract and is limited to the costs of
replacing the contract at prevailing rates. Currency risk arises from changes in
the market value of the positions.
-43-
The Corporation enters foreign currency contracts to hedge foreign currency
risk. Hedges ensure that the Corporation will have a specific currency at a
specific rate at the maturity of the contract. Additional contracts are entered
to serve customer needs. The Corporation has established limits on the aggregate
amounts of contracts used for non-hedging purposes, as well as trading gaps,
counterparty limits and country limits.
At December 31, 1998, commitments to purchase and sell foreign exchange were
$138.7 million and $225.8 million, respectively. At year-end 1998, the
Corporation had approximately $87 million in commitments to sell foreign
exchange contracts, for the purpose of hedging the Corporation's Sterling equity
investment (Riggs Bank Europe Limited) and French Franc equity investment(Riggs
National Bank (Europe) S.A.). Also, the Corporation had approximately $33
million in commitments to sell foreign exchange contracts for the purpose of
hedging intercompany loans between Riggs Bank N.A. and the Corporation's United
Kingdom operations. The remaining foreign exchange contracts are related to
customer transactions.
Interest-Rate Agreements and Contracts
Financial derivatives, such as interest rate swaps, provide the Corporation with
the tools to effectively manage the balance sheet and interest rate risk. These
financial derivatives are entered into as hedges against fluctuations in the
interest rate of specifically identified assets or liabilities.
At December 31, 1998, the Corporation had an open interest rate swap with a
notional amount of $25 million. This agreement was contracted in January 1996
and effectively converted a portion of the fixed rate real estate mortgage loan
portfolio into a floating rate asset. The swap agreement entails the payment of
a 5.36% fixed rate and the receipt of a floating rate equal to the three-month
LIBOR. The swap resets quarterly and matures in January of 1999. At December 31,
1997 an additional swap was open for $25 million to convert another portion of
the fixed rate real estate mortgage loan portfolio into a floating rate asset.
This swap matured in January 1998.
In 1997 new derivative activity for the Corporation included callable swaps with
notional amounts of $175 million. These swaps were designed to convert a portion
of the floating rate home equity loan portfolio into fixed rate loans. The $175
million of swaps consisted of seven separate agreements, each with a $25 million
notional amount. Five of these swaps were terminated during 1997 and two
remained open at December 31, 1997. One of the $25 million swaps open at
year-end 1997 was called in January 1998 and the second was called in February
1998.
In March 1998, the Corporation closed its $200 million interest rate swap
position that was to mature in July 1998 and incurred a loss of $219 thousand.
Derivatives are also used by Riggs Bank Europe Limited to manage its interest
rate risk. Interest rate swaps are used to convert fixed rate loan assets into
floating rate assets. There were 28 different interest rate swap agreements
outstanding at December 31, 1998 for RBEL, totaling $90.3 million. The RBEL
swaps had notional amounts ranging from $1.7 million to $12.9 million, with an
average notional amount of $3.2 million. The maturity dates range from March
2000 to October 2004. The swap agreements entail the payment of a fixed rate and
the receipt of a floating rate. The fixed rate payments averaged 6.96% and the
variable rates received averaged 7.15% at December 31, 1998.
-44-
INTEREST-RATE SWAP AGREEMENTS
DECEMBER 31, 1998
1998
WEIGHTED- ACCRUED ACCRUED NET
NOTIONAL UNREALIZED AVERAGE RATE INTEREST INTEREST INTEREST
AMOUNT GAIN(LOSS) 1 RECEIVE PAY RECEIVABLE PAYABLE INC./(EXP)
- ---------------------------------------------------------------------------------------------------------------
Receive variable/pay fixed
Matures January 1999 $ 25,000 $ -- 5.20% 5.36% $ 239 $ 242 $ 78
Receive variable/pay fixed
Riggs Bank Europe Limited 90,343 (3,600) 7.15 6.96 2,002 1,929 (64)
Receive fixed/pay variable
Terminated March 1998 -- -- -- -- -- -- (219)
================================================================================================================
Total Interest-Rate Swap
Agreements $115,343 $(3,600) - - $2,241 $2,171 $(205)
- ---------------------------------------------------------------------------------------------------------------
1 UNREALIZED GAIN (LOSS)OBTAINED FROM THIRD-PARTY MARKET QUOTES FOR
REPLACEMENT OF DERIVATIVE POSITIONS.
The Corporation's notional amount of interest-rate swap activity for the year
ended December 31, 1998 is as follows:
DECEMBER 31, TERMINATIONS/ DECEMBER 31,
1997 ADDITIONS MATURITIES CALLS 1998
- ---------------------------------------------------------------------------------------------------------------
Interest-Rate Swaps:
Receive fixed/pay variable $250,000 $ -- $ -- $250,000 $ --
Receive variable/pay fixed 50,000 -- 25,000 -- 25,000
Riggs Bank Europe Limited 52,131 40,868 2,656 -- 90,343
===============================================================================================================
Total $352,131 $40,868 $27,656 $250,000 $115,343
Other Commitments
During the first quarter of 1998, the Corporation renegotiated its contract for
the management of operations directly associated with its computer and
telecommunications functions. Payments for the remaining five years of the
contract are approximately $52.3 million, with $13.3 million of expense expected
in 1999. Total expense under this new contract was $11.8 million in 1998. Total
expense under the previous contract was $17.7 million in 1997 and $15.1 million
in 1996.
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.
-45-
NOTE 10. RESERVE BALANCES, FUNDS RESTRICTIONS
AND CAPITAL REQUIREMENTS
Reserve Balances
Riggs Bank N.A. must maintain reserves against deposits and Eurocurrency
liabilities in accordance with Regulation D of the Federal Reserve Act (the
"Act"). The total average balances maintained with the Federal Reserve amounted
to $22.6 million in 1998 and $23.8 million in 1997.
Funds Restrictions
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 OCC to net profits retained in the current and preceding two
calendar years, plus additional amounts for dividends in excess of a given
year's earnings. The payment of dividends by the Corporation's national bank
subsidiaries may also be affected by other factors, such as requirements for the
maintenance of adequate capital.
Cash dividends paid by national bank subsidiaries to Riggs National Corporation
in 1998, 1997, and 1996 were $129.0 million, $112.0 million and $481 thousand,
respectively. Riggs Bank N.A. had combined net income of $210.7 million for
1998, 1997, and 1996.
Capital Requirements
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory (and possibly
additional discretionary) actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's and Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Bank must meet specific capital
guidelines that involve quantitative measures of the Corporation's and the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporation's and the Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
-46-
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of Total and Tier I capital to risk-weighted
assets (as defined in the regulations), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1998, that the Corporation
and the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Corporation and the Bank must maintain total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institutions' categories. The Corporation's and the Bank's actual
capital amounts and ratios are also presented in the table.
(DOLLAR AMOUNTS IN MILLIONS) MINIMUM TO BE WELL
REQUIREMENTS CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
- ---------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998
Total Capital (to Risk-Weighted
Assets):
Consolidated $ 972 27.51% $283 8.0% $353 10.0%
Riggs Bank N.A. 457 13.43 272 8.0 340 10.0
Tier I Capital (to Risk-Weighted
Assets):
Consolidated 517 14.63 141 4.0 212 6.0
Riggs Bank N.A. 414 12.17 136 4.0 204 6.0
Tier I Leverage (to Average
Assets):
Consolidated 517 9.33 222 4.0 277 5.0
Riggs Bank N.A. 414 8.26 200 4.0 251 5.0
AS OF DECEMBER 31, 1997
Total Capital (to Risk-Weighted
Assets):
Consolidated $1,035 31.52% $263 8.0% $328 10.0%
Riggs Bank N.A. 507 15.60 260 8.0 325 10.0
Tier I Capital (to Risk-Weighted
Assets):
Consolidated 606 18.45 131 4.0 197 6.0
Riggs Bank N.A. 466 14.35 130 4.0 195 6.0
Tier I Leverage (to Average
Assets):
Consolidated 606 11.15 217 4.0 272 5.0
Riggs Bank N.A. 466 8.64 216 4.0 270 5.0
-47-
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, 1998, the Corporation had
31,555,345 shares issued and 30,379,547 shares outstanding. On October 14, 1998,
the Board of Directors approved a plan authorizing the purchase of up to three
million shares of its Common Stock in the open market, subject to market
conditions. During 1998, the Corporation purchased 275,000 shares of its Common
Stock at an average price of $19.79. The shares purchased are recorded as an
addition to Treasury Stock at December 31, 1998.
Preferred Stock
The Corporation is authorized to issue 25 million shares of Preferred Stock, the
conditions of which are set at the time of issuance. On October 21, 1993, the
Corporation issued four million shares of 10.75% Non-cumulative Perpetual
Preferred Stock, Series B ("Series B Preferred"), in transactions exempt from
the registration requirements of the Securities Act of 1933. The Series B
Preferred shares had a liquidation preference of $25 per share, no preemptive
rights, limited public market and were non-voting (subject to certain limited
exceptions).
On October 1, 1998, the Corporation called for the redemption of all four
million shares outstanding of the Series B Preferred Stock. The redemption price
was $27.25 per share plus accrued but unpaid dividends. This resulted in a
one-time charge of $13.8 million to undivided profits.
Minority Interest in Preferred Stock of Subsidiaries
On December 13, 1996, Riggs Capital, a wholly owned subsidiary of the
Corporation, issued 150 thousand shares of its 8.625% Trust Preferred
Securities, Series A. The Trust Preferred Securities, Series A, have a
liquidation preference of $1,000 per share and are not redeemable until December
31, 2006, with a final maturity on December 31, 2026. Dividends are payable
semi-annually on June 30 and December 31 of each year and are cumulative and
deferrable for a period not to exceed five years. Riggs Capital invested all of
the proceeds of the sale of the Trust Preferred Securities, Series A, in Junior
Subordinated Deferrable Interest Debentures, Series A, issued by the Corporation
on December 13, 1996. The Trust Preferred Securities also qualify as Tier I
Capital, with certain limitations, and are accounted for as minority interest
(see Note 1, "Summary of Significant Accounting Policies").
On March 12, 1997, Riggs Capital II, a wholly owned subsidiary of the
Corporation, issued 200 thousand shares of 8.875% Trust Preferred Securities,
Series C, with a liquidation preference of $1,000 per share. Dividends are
payable semi-annually on June 30 and December 31 of each year. The Trust
Preferred Securities, Series C, cannot be redeemed until March 15, 2007, and
have a maturity of March 15, 2027. Riggs Capital II invested all of the proceeds
from its common and preferred stock sales in Junior Subordinated Deferrable
Interest Debentures, Series C, issued by the Corporation on March 12, 1997, at a
rate of 8.875%, with comparable interest payment dates and maturity to the Trust
Preferred Securities, Series C. Interest is cumulative and deferrable on the
Junior Subordinated Deferrable Interest Debentures for a period not to exceed
five years and thus is also cumulative and deferrable for the same periods for
the Trust Preferred Securities, Series C. The Trust Preferred Securities qualify
as Tier I Capital for regulatory purposes with certain limitations, and are
accounted for as a minority interest (see Note 1, "Summary of Significant
Accounting Policies").
-48-
NOTE 12. DISCLOSURE ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each major class of financial instrument for which it is practicable to estimate
that value:
Cash and Money Market Assets
For short-term investments that reprice or mature in 90 days or less, the
carrying amounts are a reasonable estimate of fair value. Money market assets
include federal funds sold, reverse repurchase agreements and time deposits with
other banks.
Securities
Fair values are based on quoted market prices or dealer quotes. Quoted market
prices were not available for $26.8 million of securities at year-end 1998 and
$24.8 million at year-end 1997. 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 values of investment and negotiable certificates of deposit, and foreign
time deposits with a repricing or maturity date extending beyond 90 days, are
estimated using discounted cash flows at the rates currently offered for
deposits of similar remaining maturities.
Short-Term Borrowings
For short-term liabilities, defined as those repricing or maturing in 90 days or
less, the carrying amounts are a reasonable estimate of fair value.
Long-Term Debt
For 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 values 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. Reasonable
comparability between financial institutions may not be likely because of the
wide range of permitted valuation techniques and numerous estimates that must be
made, given the absence of active secondary markets for many of the financial
instruments. In addition, the estimated fair values exclude non-financial
assets, such as premises and equipment, and certain intangibles. Thus, the
aggregate fair values presented do not represent the underlying market value or
entity value of the Corporation.
-49-
Estimated Fair Values of Financial Instruments
The estimated fair values of the Corporation's financial instruments are as
follows:
DECEMBER 31, 1998 DECEMBER 31, 1997
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
Financial Assets:
Cash and Due from Banks $ 155,003 $ 155,003 $ 186,091 $ 186,091
Money Market Assets 771,181 771,181 790,813 790,813
Securities Available for Sale 970,728 970,728 1,672,550 1,672,550
Total Net Loans 3,203,680 3,313,479 2,831,992 2,887,201
Financial Liabilities:
Deposits 4,144,848 4,148,140 4,297,918 4,298,831
Short-Term Borrowings 374,380 374,380 352,508 352,508
Long-Term Debt 191,525 206,176 191,525 209,062
Off-BalanceSheetCommitments-
Asset (Liability):
Foreign Exchange Contracts 502 502 217 217
Interest-Rate Swaps 70 (3,530) (116) (764)
===============================================================================================================
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 for 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:
1998 1997 1996
- -------------------------------------------------------------------------------
Domestic Offices $ 99,651 $89,289 $66,629
Foreign Offices 11,231 3,896 5,908
===============================================================================
Total $110,882 $93,185 $72,537
- -------------------------------------------------------------------------------
The current and deferred portions of the income tax provision were as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Current Provision
(Benefit):
Federal $25,299 $17,921 $ 17,527
State 4,671 1,868 (225)
Foreign 64 (79) (56)
- -------------------------------------------------------------------------------
Total Current
Provision (Benefit) 30,034 19,710 17,246
Deferred Provision
(Benefit):
Federal 1,488 6,801 (8,863)
State (352) (1,821) (2,209)
Foreign (2,082) -- --
- -------------------------------------------------------------------------------
Total Deferred
Provision (Benefit) (946) 4,980 (11,072)
===============================================================================
Provision for Income
Tax Expense $29,088 $24,690 $ 6,174
- -------------------------------------------------------------------------------
-50-
At December 31, 1998, and 1997, the Corporation maintained a valuation allowance
of approximately $1.0 million and $6.9 million, respectively, to reduce the net
deferred tax asset to $25.4 million and $21.4 million, respectively. The net
change in the valuation allowance for deferred tax assets during 1998 was a
decrease of $5.9 million. Substantially all of the decrease related to the
reversal of foreign and state valuation allowances.
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, 1998, and 1997 are detailed in the table below:
Reconciliation of Statutory Tax Rates to Effective
Tax Rates:
1998 1997 1996
- -------------------------------------------------------------------------------
Income Tax Computed at
Federal Statutory Rate
of 35% for 1998, 1997
and 1996 $38,809 $32,615 $ 25,388
Add (Deduct):
State Tax, Net of
Federal Tax Benefit 2,661 2,766 256
Tax-Exempt Loan
Interest (1,201) (975) (638)
Amortization of Fair Value
Adjustments 123 (63) 37
ESOP Loans -- -- (495)
Amortization of
Core Deposits 231 231 231
Reversal of Valuation
Allowance (5,869) (9,316) (17,524)
Other, Net (5,666) (568) (1,081)
===============================================================================
Provision for Income
Tax Expense $29,088 $24,690 $ 6,174
Effective Tax Rate 26.2 % 26.5 % 8.5 %
Sources of Temporary Differences Resulting in Deferred Tax Liabilities (Assets):
1998 1997
- -------------------------------------------------------------------------------
Excess Tax Over Book
Depreciation $ (763) $ 482
Pension Plan and Post-Retirement 5,959 3,610
Discount Accretion, Net
of Securities Gains 275 1,193
Other, Net 2,777 3,712
- -------------------------------------------------------------------------------
Total Deferred Tax Liabilities 8,248 8,997
Accrual to Cash Basis
Conversion 588 (165)
Allowance for Loan Losses (22,364) (21,968)
Other Real Estate Owned (1,736) (2,228)
Other Tax Credit Carryforward (2,106) (1,660)
Net Operating Loss Carryforward (4,296) (5,783)
Capitalized Costs (769) (3,535)
Other, Net (3,957) (1,964)
- -------------------------------------------------------------------------------
Total Deferred Tax Assets (34,640) (37,303)
Valuation Allowance 991 6,860
===============================================================================
Net Deferred Tax Asset $(25,401) $(21,446)
-51-
NOTE 14. BENEFIT PLANS
Pension Plans
RIGGS NATIONAL CORPORATION
Under the Corporation's non-contributory defined benefit pension plan, available
to substantially all employees who qualify with respect to age and length of
service, benefits are normally based on years of service and the average of the
highest base annual salary for a consecutive five-year period prior to
retirement.
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.
RIGGS BANK EUROPE LIMITED
Prior to October 1, 1998 Riggs Bank Europe Limited operated a defined benefit
pension plan. Effective October 1, 1998, future service benefits are being
provided on a defined contribution basis. The majority of active members and a
number of deferred eligible retirees opted to convert their past service rights
to the defined contribution plan elective under the plan. The assets of the plan
are held separately from the Bank in trustee-administered funds.
As a result of the settlement of the liabilities for those retirees who elected
to convert their past service rights to the new defined contribution plan, the
Corporation recognized a gain of $3.6 million in 1998. Any unamortized gains,
together with any future gains or losses, will be amortized over a period of 12
years. No further pension benefits accrue under the prior plan effective October
1, 1998.
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. As
of January 1, 1998, the Corporation no longer provides life insurance benefits
for persons retiring on or after January 1, 1998. Substantially all active
employees may become eligible for benefits if they reach normal retirement age
or if they retire earlier with at least 10 years' service. Similar benefits for
active employees are provided through an insurance company and several health
maintenance organizations. The Corporation recognizes the cost of providing
those benefits by expensing the annual insurance premiums, which were $3.8
million in 1998, $2.7 million in 1997 and $3.2 million in 1996.
The Corporation accounts for postretirement 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
$1.4 million in 1998 for postretirement health and life insurance expenses,
which included $357 thousand relating to the amortization of the transition
obligation. This compares to $1.6 million in health and life insurance expenses
for 1997 and $2.7 million for 1996, with transition obligation amortization of
$453 thousand and $651 thousand, respectively.
-52-
CHANGE IN PENSION BENEFIT OBLIGATION
RIGGS NATIONAL CORPORATION RIGGS BANK EUROPE LIMITED
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Benefit Obligation at Beginning of Year $76,167 $68,708 $ 13,106 $12,545
Service (Benefit) Cost (403) 1,017 481 562
Interest Cost 4,996 5,131 748 932
Actuarial Gain (2,210) -- -- --
Actuarial Loss Due to Discount Rate 7,317 6,959 3,151 288
Benefits Paid (6,199) (5,648) (549) (722)
Settlements -- -- (12,161) --
Other 1 -- -- 114 (499)
- ---------------------------------------------------------------------------------------------------------------
Benefit Obligation at End of Year $79,668 $76,167 $ 4,890 $13,106
===============================================================================================================
1 REPRESENTS FOREIGN EXCHANGE TRANSLATION ADJUSTMENTS
CHANGE IN PLAN ASSETS
RIGGS NATIONAL CORPORATION RIGGS BANK EUROPE LIMITED
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Fair Value of Plan Assets at
Beginning of Year $88,278 $80,143 $ 17,771 $16,311
Actual Return on Plan Assets 6,105 13,783 2,994 2,829
Settlements -- -- (12,161) --
Plan Participants' Contribution -- -- (125) --
Benefits Paid (6,199) (5,648) (549) (722)
Other 1 -- -- 153 (647)
- ---------------------------------------------------------------------------------------------------------------
Fair Value of Plan Assets at End of Year $88,184 $88,278 $ 8,083 $17,771
- ---------------------------------------------------------------------------------------------------------------
Funded Status $ 8,516 $12,111 $ 3,193 $ 4,665
Unrecognized Net Actuarial Gain/(Loss) 10,159 3,437 (1,275) (5,581)
Unrecognized Net Transition Asset -- -- (149) (762)
Unrecognized Prior Service Cost (718) (830) -- --
- ---------------------------------------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost $17,957 $14,718 $ 1,769 $(1,678)
===============================================================================================================
1 REPRESENTS FOREIGN EXCHANGE TRANSLATION ADJUSTMENTS
-53-
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31,
RIGGS NATIONAL CORPORATION RIGGS BANK EUROPE LIMITED
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Discount Rate 6.75% 7.25% 5.00% 8.08%
Expected Return on Plan Assets 9.00 9.00 5.00 8.50
Rate of Compensation Increase 4.00 4.00 N/A 6.00
COMPONENTS OF NET PERIODIC PENSION COST
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Service (Benefit) Cost $ (403) $ 1,017 $ 606 $ 562
Interest Cost 4,996 5,131 748 932
Expected Return on Plan Assets (7,720) (6,988) (941) (1,145)
Amortization of Transition Amount -- (727) (220) (224)
Amortization of Prior Service Cost (112) (112) -- --
Recognized Net Actuarial Loss -- -- (173) (90)
Settlements -- -- (3,609) --
Other 1 -- -- 119 --
- ---------------------------------------------------------------------------------------------------------------
Net Periodic (Benefit) Cost $(3,239) $(1,679) $(3,470) $ 35
===============================================================================================================
1 REPRESENTS FOREIGN EXCHANGE TRANSLATION ADJUSTMENTS
The funded status of the postretirement projected benefit obligation is as
follows:
RIGGS NATIONAL CORPORATION
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
Benefit Obligation at Beginning
of Year $14,463 $18,750
Service Cost 434 305
Interest Cost 903 1,003
Actuarial (Gain) Loss due
to Discount Rate 2,562 (1,061)
Benefits Paid (972) (1,363)
Plan Amendments (1,447) (3,171)
- -------------------------------------------------------------------------------
Benefit Obligation at
End of Year $15,943 $14,463
- -------------------------------------------------------------------------------
Unrecognized Net Actuarial Loss $ 4,883) $(3,868)
Unrecognized Prior Service Cost 1,043 1,391
Unrecognized Transition
Obligation (6,442) (6,799)
- -------------------------------------------------------------------------------
Accrued Postretirement
Benefit Cost $ 5,661 $ 5,187
===============================================================================
The net periodic costs for postretirement health and life insurance benefits are
as follows:
RIGGS NATIONAL CORPORATION
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
Service Cost $ 434 $ 305
Interest Cost 903 1,003
Amortization of Transition
Amount 357 453
Amortization of Prior Service
Costs (348) (348)
Recognized Net Actuarial Loss 100 175
- -------------------------------------------------------------------------------
Net Periodic Benefit Cost $1,446 $1,588
===============================================================================
-54-
The assumed health care cost trend rate averaged 8.0% for 1998, gradually
decreasing to 6.0% by the year 2002 and remaining constant thereafter. A range
of 6.0% to 8.0% was used in 1997. A discount rate of 6.75% was used at December
31, 1998 and a rate of 7.25% was used at December 31, 1997 to determine the
projected postretirement benefit obligation. Increasing the assumed health care
cost trend rate by one percentage point would increase the net periodic
postretirement benefit cost for 1998 by $272 thousand and increase the
accumulated postretirement benefit obligation at December 31, 1998 by $2.3
million. Decreasing the assumed health care cost trend rate by one percentage
point would decrease the net periodic postretirement benefit cost for 1998 by
$257 thousand and decrease the accumulated postretirement benefit obligation at
December 31, 1998 by $2.2 million.
Stock Option Plans
The Board of Directors and stockholders of the Corporation approved stock option
plans in 1993, 1994, and 1996 under which options to purchase shares of common
stock of the Corporation may be granted to key employees. The exercise price
cannot be less than the fair market value of the common stock at the date of
grant. For options under these plans, the vesting periods have ranged from zero
to three years. The total number of shares of common stock reserved for issuance
upon exercise of options granted is 1,250,000, 1,250,000 and 4,000,000 for the
1993, 1994 and 1996 Plans, respectively. Unless previously terminated by the
Board of Directors, the 1993, 1994 and 1996 Plans will terminate on March 10,
2003, February 9, 2004 and March 26, 2006, respectively.
A summary of the stock option activity under the 1993, 1994 and 1996 Plans
follows:
WEIGHTED-
STOCK AVERAGE
OPTIONS EXERCISE PRICE
- -------------------------------------------------------------------------------
Outstanding at December 31, 1995 1,296,500 $ 9.90
Granted 1,519,500 12.25
Exercised 98,082 10.04
Terminated 67,668 10.80
- -------------------------------------------------------------------------------
Outstanding at December 31, 1996 2,650,250 $11.22
Granted 771,000 20.29
Exercised 188,442 9.60
Terminated 10,000 17.43
- -------------------------------------------------------------------------------
Outstanding at December 31, 1997 3,222,808 $13.46
Granted 1,708,000 30.00
Exercised 48,559 10.58
Terminated 23,949 18.70
===============================================================================
Outstanding at December 31, 1998 4,858,300 $19.28
- -------------------------------------------------------------------------------
Members of the Board of Directors of the Corporation are eligible to participate
in the 1997 Non-employee Directors Stock Option Plan ("the 1997 Plan"). Under
the 1997 Plan, options to purchase up to 350,000 shares of common stock may be
granted to non-employee directors of the Corporation or a subsidiary. The
exercise price cannot be less than the fair market value of the common stock at
the date of grant, with vesting occurring at the date of grant. Unless
previously terminated by the Board of Directors, the 1997 Plan will terminate on
July 8, 2007.
A summary of the stock option activity under the 1997 Plan follows:
WEIGHTED-
STOCK AVERAGE
OPTIONS EXERCISE PRICE
- -------------------------------------------------------------------------------
Outstanding at December 31, 1996 -- $ --
Granted 307,500 20.50
Exercised -- --
Terminated -- --
- -------------------------------------------------------------------------------
Outstanding at December 31, 1997 307,500 $20.50
Granted 2,500 21.00
Exercised 45,000 20.50
Terminated -- --
===============================================================================
Outstanding at December 31, 1998 265,000 $20.50
- -------------------------------------------------------------------------------
-55-
The Corporation accounts for its stock option plans under Accounting Principles
Board Opinion No. 25, and is providing the fair value-based disclosures required
on a proforma basis (see Note 1, Summary of Significant Accounting Policies).
Accordingly, the stated net income and earnings per share in the Consolidated
Statements of Income, in addition to the proforma net income and earnings per
share reflecting the compensation costs for stock options granted in 1998, 1997
and 1996, are disclosed in the following table.
1998 1997 1996
- -------------------------------------------------------------------------------
NET INCOME:
As Reported $61,847 $50,879 $ 65,943
Proforma 48,182 42,039 55,687
EARNINGS PER SHARE:
As Reported - Basic $ 1.25 $ 1.32 $ 1.82
- Diluted 1.21 1.27 1.79
Proforma - Basic $ .80 $ 1.03 $ 1.48
- Diluted .78 0.99 1.46
WEIGHTED-AVERAGE FAIR
VALUE OF OPTIONS
GRANTED $ 15.68 $ 10.24 $ 6.62
WEIGHTED-AVERAGE
ASSUMPTIONS:
Expected Lives (Years) 9.99 9.87 9.89
Risk-Free Interest Rate 4.72% 5.80% 6.44%
Expected Volatility 37.28% 35.43% 46.27%
Expected Dividends
(Annual Per Share) $ 0.20 $ 0.20 $ 0.20
===============================================================================
The Corporation did not record any compensation costs in 1998, 1997 or 1996
relating to 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 are used to determine the proforma impact of the options to
compensation expense. Net income and earnings per share were based on the
Black-Scholes option pricing model for each grant made, using the key
assumptions detailed above.
At December 31, 1998, additional weighted-average details for all stock options
outstanding follow:
VESTED OPTIONS
- ---------------------------------------------------------------------------------------------------------------
RANGE OF STOCK OPTIONS WEIGHTED-AVERAGE STOCK OPTIONS
EXERCISE OUTSTANDING REMAINING CONTRACTUAL WEIGHTED-AVERAGE OUTSTANDING WEIGHTED-AVERAGE
PRICE AT DECEMBER 31, 1998 LIFE (YEARS) EXERCISE PRICE AT DECEMBER 31, 1998 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------
$ 9.00 to $12.15 1,397,700 6.19 $10.63 1,397,700 $10.63
$12.16 to $18.22 1,007,100 7.50 12.38 1,007,100 12.38
$18.23 to $21.26 1,013,000 8.50 20.35 847,691 20.44
$21.27 to $27.33 70,000 9.35 24.94 45,000 25.88
$27.34 to $30.38 1,635,500 9.30 30.22 1,150,000 30.38
- ---------------------------------------------------------------------------------------------------------------
Total 5,123,300 7.94 $19.35 4,447,491 $18.16
- ---------------------------------------------------------------------------------------------------------------
-56-
Other Benefit Plans
The Corporation has 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, 1998, the Corporation had a $3.3 million pension
benefit obligation for this supplemental plan, compared with $2.5 million at
year-end 1997. Accrued pension costs were $2.0 million at year-end 1998 and $1.6
million at year-end 1997. This supplemental plan has no assets and incurred $413
thousand in net periodic costs in 1998, compared with $369 thousand and $339
thousand for 1997 and 1996, respectively.
The Corporation sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code, that is available to substantially all employees (the
"401(k) Plan"). The Board of Directors also approved a matching program for the
401(k) Plan in 1996, equating to 100% of the first one-hundred dollars
contributed and 50% on the balance of contributions made thereafter, up to 6% of
the 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 in 1998 and 1997, based on the Corporation's
financial performance during those years. Expenses relating to both of these
programs totaled $2.1 million and $1.8 million for 1998 and 1997, respectively.
The Corporation has a deferred compensation plan to allow non-employee directors
to defer directors' fees. Under the plan, non-employee directors may elect to
defer fees and have the deferred amounts treated as having been invested in
cash, shares of the Corporation's Common Stock, or a combination of cash and
stock.
-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,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
Assets
Deposits with Banks in Foreign Countries:
Interest-Bearing $ 555,081 $ 173,963 $ 161,982
Other 8,538 6,633 5,257
- ---------------------------------------------------------------------------------------------------------------
Total Deposits with Banks in Foreign Countries 563,619 180,596 167,239
Loans to Foreign Customers:
Governments and Official Institutions 74,676 50,606 17,095
Banks and Financial Institutions 9,451 8,506 5,445
Commercial and Industrial and Commercial Property 390,217 291,077 211,928
Other 42,353 36,911 15,924
- ---------------------------------------------------------------------------------------------------------------
Total Loans, Net of Unearned Discount 516,697 387,100 250,392
Less: Reserve for Loan Losses 10,617 15,219 15,218
- ---------------------------------------------------------------------------------------------------------------
Total Net Loans 506,080 371,881 235,174
Pool Funds Provided, Net 1 274,625 831,292 704,957
Other Assets 50,568 44,334 45,934
===============================================================================================================
Total Assets $ 1,394,892 $ 1,428,103 $1,153,304
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Foreign Deposits:
Banks in Foreign Countries $ 218,183 $ 164,160 $ 99,941
Governments and Official Institutions 272,573 254,215 255,818
Other 615,746 723,768 570,236
- ---------------------------------------------------------------------------------------------------------------
Total Deposits 2 1,106,502 1,142,143 925,995
Short-Term Borrowings 141,876 161,805 99,337
Other Liabilities 146,514 124,155 127,972
===============================================================================================================
Total Liabilities $ 1,394,892 $ 1,428,103 $1,153,304
- ---------------------------------------------------------------------------------------------------------------
Supplemental Data on Foreign Deposits
Demand $ 125,695 $ 149,287 $ 158,725
Savings, NOW and Money Market 243,511 468,821 382,409
Time 3 737,296 524,035 384,861
===============================================================================================================
Total Foreign Deposits $ 1,106,502 $ 1,142,143 $ 925,995
- ---------------------------------------------------------------------------------------------------------------
1 POOL FUNDS PROVIDED, NET ARE AMOUNTS CONTRIBUTED BY FOREIGN ACTIVITIES TO FUND
DOMESTIC ACTIVITIES.
2 FOREIGN DEPOSITS IN DOMESTIC OFFICES TOTALED $494.4 MILLION, $656.9 MILLION
AND $553.2 MILLION AT DECEMBER 31, 1998, 1997 AND 1996, 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
1998 1997 1996
- -------------------------------------------------------------------------------
Balance, January 1 $15,219 $15,218 $11,968
Provision for Loan Losses (4,776) 221 (3,368)
Loans Charged Off 937 593 260
Less: Recoveries on
Charged-Off Loans 1,016 666 5,513
- -------------------------------------------------------------------------------
Net (Recoveries)Charge-Offs (79) (73) (5,253)
Foreign Exchange
Translation Adjustments 95 (293) 1,365
===============================================================================
Balance, December 31 $10,617 $15,219 $15,218
- -------------------------------------------------------------------------------
GEOGRAPHICAL PERFORMANCE
INCOME
TOTAL ASSETS TOTAL TOTAL BEFORE TAXES AND NET
DECEMBER 31, REVENUE EXPENSES MINORITY INTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------
Middle East and Africa 1998 $ 73,417 $ 5,102 $ 4,227 $ 875 $ 645
1997 45,895 6,188 5,276 912 670
1996 33,747 9,404 7,480 1,924 1,760
- ---------------------------------------------------------------------------------------------------------------
Europe 1998 $ 643,835 $51,766 $42,890 $ 8,876 $ 6,548
1997 454,233 65,880 56,181 9,699 7,129
1996 376,890 44,803 35,637 9,166 8,387
- ---------------------------------------------------------------------------------------------------------------
Asia/Pacific 1998 $ 8,435 $ 1,491 $ 1,235 $ 256 $ 189
1997 7,129 1,056 900 156 115
1996 7,696 3,057 2,431 626 572
- ---------------------------------------------------------------------------------------------------------------
South and Central America 1998 $ 58,462 $ 5,340 $ 4,423 $ 917 $ 676
1997 48,285 6,575 5,607 968 711
1996 5,067 926 736 190 174
- ---------------------------------------------------------------------------------------------------------------
Caribbean 1998 $ 332,362 $28,746 $23,816 $ 4,930 $ 3,637
1997 32,369 1,496 1,276 220 162
1996 13,042 3,721 2,960 761 696
- ---------------------------------------------------------------------------------------------------------------
Other 1998 $ 3,756 $ 461 $ 381 $ 80 $ 59
1997 8,900 2,686 2,290 396 291
1996 11,905 2,012 1,600 412 377
- ---------------------------------------------------------------------------------------------------------------
Total Foreign1 1998 $1,120,267 $92,906 $76,972 $15,934 $11,754
1997 596,811 83,881 71,530 12,351 9,078
1996 448,347 63,923 50,844 13,079 11,966
===============================================================================================================
Percentage of Foreign 1998 20% 20% 22% 14% 19%
to Consolidated 1997 10 20 22 13 18
1996 9 16 16 18 18
- ---------------------------------------------------------------------------------------------------------------
1 FOREIGN ASSETS AT DECEMBER 31, 1998, 1997 AND 1996, 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,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
REVENUES
Distributed Earnings from Subsidiaries 1 $ 74,878 $63,819 $ 481
Interest on Time Deposit Placements 23,911 -- --
Interest on Reverse Repurchase Agreements 2,685 26,187 5,228
Interest and Dividends on Securities Available for Sale 3,772 -- 233
Other Operating Income 1,598 1,065 2,989
- ---------------------------------------------------------------------------------------------------------------
Total Revenues 106,844 91,071 8,931
OPERATING EXPENSES
Interest Expense 49,108 45,411 19,280
Other Operating Expenses 2,594 1,334 2,556
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses 51,702 46,745 21,836
Income (Loss) before Taxes 55,142 44,326 (12,905)
Applicable Income Tax Benefit 2 (6,705) (6,553) (5,501)
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) before Undistributed Earnings of Subsidiaries 61,847 50,879 (7,404)
Undistributed Earnings of Subsidiaries 1 -- -- 73,347
===============================================================================================================
Net Income $ 61,847 $50,879 $ 65,943
- ---------------------------------------------------------------------------------------------------------------
1 FOR THE PURPOSE OF PARENT COMPANY ONLY FINANCIAL ACTIVITY, "DISTRIBUTED
EARNINGS FROM SUBSIDIARIES" ARE INCLUDED IN THE REVENUES OF THE PARENT
CORPORATION.
2 APPLICABLE INCOME TAXES ARE PROVIDED FOR BASED ON PARENT CORPORATION INCOME
ONLY, AND DO NOT REFLECT THE TAX EXPENSE OR BENEFIT OF THE SUBSIDIARIES'
OPERATIONS.
STATEMENTS OF CONDITION
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 231 $ 977
Time Deposits with Other Banks 469,000 --
Intercompany Reverse Repurchase Agreements 7,700 497,375
Securities Available for Sale (at Market Value) 4,671 5,197
Investment in Subsidiaries 439,113 496,522
Other Assets 29,909 21,129
===============================================================================================================
TOTAL ASSETS $ 950,624 $1,021,200
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES
Other Liabilities $ 5,563 $ 5,685
Long-Term Debt:
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 154,640 154,640
Junior Subordinated Deferrable Interest Debentures, Series C, due 2027 206,168 206,168
- ---------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 552,333 552,333
TOTAL LIABILITIES 557,896 558,018
- ---------------------------------------------------------------------------------------------------------------
Stockholders' Equity 392,728 463,182
===============================================================================================================
Total $ 950,624 $1,021,200
- ---------------------------------------------------------------------------------------------------------------
-60-
PARENT CORPORATION FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 61,847 $ 50,879 $ 65,943
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used In) Operating Activities:
Depreciation and Purchase Accounting Adjustments -- -- 592
Gain on Securities Available for Sale -- -- (1,200)
(Increase) Decrease in Other Assets (8,549) (5,512) 961
(Decrease) Increase in Other Liabilities (122) (1,419) 1,784
(Undistributed) Excess Earnings of Subsidiaries 54,122 -- (73,347)
- ---------------------------------------------------------------------------------------------------------------
Total Adjustments 45,451 (6,931) (71,210)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 107,298 43,948 (5,267)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Securities Available for Sale (133) (4,000) --
Proceeds from Maturities of Securities Available for Sale -- -- 5,000
Dividends from Subsidiaries in Excess of Earnings -- 48,181 --
Net Decrease (Increase) in Premises -- 4,457 (10)
Net Increase in Investment in Subsidiaries -- (6,168) (4,640)
- ---------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Investing Activities (133) 42,470 350
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from the Issuance of Long-Term Debt
and Trust Preferred Securities -- 206,168 154,640
Repayments of Long-Term Debt -- -- (26,100)
Net Proceeds from Issuance of Common Stock 1,834 2,571 985
Dividend Payments - Preferred Shares (9,854) (10,750) (10,750)
- Common Shares (6,123) (6,079) (4,549)
Redemption of Preferred Stock (109,000) -- --
Repurchase of Common Stock (5,443) -- --
- ---------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (128,586) 191,910 114,226
- ---------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (21,421) 278,328 109,309
Cash and Cash Equivalents at Beginning of Year 498,352 220,024 110,715
===============================================================================================================
Cash and Cash Equivalents at End of Year $476,931 $498,352 $220,024
Supplemental Disclosures:
Interest Paid $ 48,815 $ 46,334 $ 18,295
Income Tax Refunds -- (4,842) (5,042)
- ---------------------------------------------------------------------------------------------------------------
-61-
NOTE 17. SEGMENT PROFITABILITY
DECEMBER 31, 1998
INTERNATIONAL RIGGS & RIGGS NATIONAL
(IN THOUSANDS) BANKING BANKING COMPANY TREASURY OTHER RECONCILIATION CORPORATION
- ----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 192,335 $ 53,195 $ 12,750 $ 106,536 $ 61,871
Interest Expense 72,381 66,004 14,724 31,653 48,584
Funds Transfer Income (Expense) 15,382 41,734 14,309 (77,814) 6,389
- ----------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 135,336 28,925 12,335 (2,931) 19,676
Tax-Equivalent Adjustment (1,209) -- -- (1,780) --
- ----------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 134,127 $ 28,925 $ 12,335 $ (4,711) $ 19,676 $ -- $ 190,352
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income - External
Customers $ 39,442 $ 7,116 $ 48,386 $ 17,586 $ 1,752
Intersegment Noninterest Income - 4,426 442 2 1,766
- ----------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 39,442 $ 11,542 $ 48,828 $ 17,588 $ 3,518 $ (6,636) $ 114,282
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 7,006 $ 624 $ 1,614 $ 14 $ 6,921
Direct Expense 55,217 20,671 29,215 1,483 77,623
Overhead and Support 63,850 9,387 10,309 1,434 (84,980)
- ---------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 126,073 $ 30,682 $ 41,138 $ 2,931 $ (436)$ (6,636) $ 193,752
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes
and Minority Interest $ 47,496 $ 9,785 $ 20,025 $ 9,946 $ 23,630 $ -- $ 110,882
=====================================================================================================================
Total Average Assets $2,656,497 $723,158 $204,269 $1,850,848 $1,184,302 $(1,052,363) $5,566,711
The Corporation's reportable segments are strategic business units that provide
diverse products and services within the financial services industry. The
Corporation has five reportable segments: Banking, International Banking, Riggs
& Company, Treasury and Other. The Banking segment provides traditional banking
services such as lending and deposit taking to retail, corporate and commercial
customers. The International Banking segment includes the Corporation's
Washington, D.C. based embassy-banking business and the London-based banking
subsidiary, Riggs Bank Europe Limited. The Riggs & Company segment is a division
of the Corporation providing trust and investment management services to a broad
customer base. The Treasury segment is responsible for asset and liability
management throughout the Corporation. "Other" consists of the Corporation's
unallocated parent company income and expense, net interest income from
unallocated equity and foreclosed real estate activities.
The Corporation evaluates segment performance based on net income before taxes
and minority interest. The accounting policies of the segments are substantially
the same as those described in the summary of significant accounting policies.
The Corporation accounts for intercompany transactions as if the transactions
were to third parties under market conditions. Overhead and support expenses are
allocated to each operating segment based on number of employees, service usage
and other factors relevant to the expense incurred. Geographic financial
information is provided in a separate footnote entitled Foreign Activities.
Reconciliations are provided from the segment totals to the Corporation's
consolidated financial statements. The reconciliations of noninterest income and
noninterest expense offset as these items result from intercompany transactions.
The reconciliation of net income before taxes and minority interest includes a
$12 million addition in 1997 from the Corporation reducing the reserve for loan
losses. For years in which the Corporation has either no provision for loan
losses or a reduction to the reserve for loan losses, an allocation of loan loss
is not provided to the segments. The reconciliation of total average assets
represents the elimination of intercompany transactions.
-62-
DECEMBER 31, 1997
INTERNATIONAL RIGGS & RIGGS NATIONAL
(IN THOUSANDS) BANKING BANKING COMPANY TREASURY OTHER RECONCILIATION CORPORATION
- --------------------------------------------------------------------------------------------------------------------
NETINTEREST INCOME:
Interest Income $ 174,564 $ 37,085 $ 12,062 $ 140,397 $ 54,239
Interest Expense 72,304 57,507 12,500 47,458 45,437
Funds Transfer Income (Expense) 23,754 47,447 11,798 (93,822) 10,822
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 126,014 27,025 11,360 (883) 19,624
Tax-Equivalent Adjustment (1,121) -- -- (2,728) --
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 124,893 $ 27,025 $ 11,360 $ (3,611)$ 19,624 $ -- $ 179,291
- --------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Noninterest Income - External
Customers $ 38,952 $ 3,891 $ 39,921 $ 4,857 $ 303
Intersegment Noninterest Income - 3,491 3,753 6 1,486
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 38,952 $ 7,382 $ 43,674 $ 4,863 $ 1,789 $ (8,736) $ 87,924
- --------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Depreciation and Amortization $ 7,104 $ 524 $ 1,254 $ 18 $ 7,214
Direct Expense 54,332 18,491 29,145 1,729 74,955
Overhead and Support 63,006 9,120 11,199 1,024 (84,349)
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 124,442 $ 28,135 $ 41,598 $ 2,771 $ (2,180) $ (8,736) $ 186,030
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes
and Minority Interest $ 39,403 $ 6,272 $ 13,436 $ (1,519)$ 23,593 $ 12,000 $ 93,185
====================================================================================================================
Total Average Assets $2,393,464 $525,684 $192,653 $2,418,662 $1,057,786 $(1,336,135) $5,252,114
-63-
DECEMBER 31, 1996
INTERNATIONAL RIGGS & RIGGS NATIONAL
(IN THOUSANDS) BANKING BANKING COMPANY TREASURY OTHER RECONCILIATION CORPORATION
- --------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME:
Interest Income $ 175,658 $ 27,392 $ 13,696 $ 103,319 $ 6,214
Interest Expense 75,786 37,497 11,320 25,547 19,120
Funds Transfer Income (Expense) 24,778 34,476 9,881 (79,488) 10,354
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 124,650 24,371 12,257 (1,716) (2,552)
Tax-Equivalent Adjustment (966) -- -- (2,737) --
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 123,684 $ 24,371 $ 12,257 $ (4,453) $ (2,552) $ -- $ 153,307
- --------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Noninterest Income - External
Customers $ 37,684 $ 5,618 $ 37,851 $ 7,559 $ 7,465
Intersegment Noninterest Income -- 3,629 5,666 16 1,709
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 37,684 $ 9,247 $ 43,517 $ 7,575 $ 9,174 $ (11,020) $ 96,177
- --------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Depreciation and Amortization $ 6,769 $ 618 $ 1,145 $ 13 $ 6,117
Direct Expense 50,418 16,097 28,550 1,681 76,559
Overhead and Support 57,900 6,657 9,174 1,063 (74,794)
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 115,087 $ 23,372 $ 38,869 $ 2,757 $ 7,882 $ (11,020) $ 176,947
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Before Taxes
and Minority Interest $ 46,281 $ 10,246 $ 16,905 $ 365 $ (1,260) $ -- $ 72,537
====================================================================================================================
Total Average Assets $2,403,813 $416,412 $260,951 $1,858,161 $366,098 $(589,066) $4,716,369
-64-
NOTE 18. COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
BEFORE TAX
TAX (EXPENSE)/ NET OF TAX
AMOUNT BENEFIT AMOUNT
- ---------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1998:
Foreign Currency Translation Adjustments $ (734) $ 257 $ (477)
Unrealized Gain (Loss) on Securities:
Unrealized Holding Gain (Loss) Arising During Period 10,042 (3,515) 6,527
Less: Reclassification Adjustment for (Gains)
Losses Included in Net Income (15,023) 5,258 (9,765)
- ---------------------------------------------------------------------------------------------------------------
Net Unrealized Gain (Loss) (4,981) 1,743 (3,238)
Other Comprehensive Income $ (5,715) $ 2,000 $(3,715)
- ---------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1997:
Foreign Currency Translation Adjustments $ (3,051) $ 1,068 $(1,983)
Unrealized Gain (Loss) on Securities:
Unrealized Holding Gain (Loss) Arising During Period 758 (265) 493
Less: Reclassification Adjustment for (Gains)
Losses Included in Net Income 3,500 (1,225) 2,275
- ---------------------------------------------------------------------------------------------------------------
Net Unrealized Gain (Loss) 4,258 (1,490) 2,768
Other Comprehensive Income $ 1,207 $ (422) $ 785
- ---------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1996:
Foreign Currency Translation Adjustments $ 3,052 $(1,068) $ 1,984
Unrealized Gain (Loss) on Securities:
Unrealized Holding Gain (Loss) Arising During Period (14,102) 4,936 (9,166)
Less: Reclassification Adjustment for (Gains)
Losses Included in Net Income 7,170 (2,510) 4,660
- ---------------------------------------------------------------------------------------------------------------
Net Unrealized Gain (Loss) (6,932) 2,426 (4,506)
Other Comprehensive Income (Loss) $ (3,880) $ 1,358 $(2,522)
- ---------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN/(LOSS) OTHER
TRANSLATION ON COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME/(LOSS)
- ---------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1998
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
Current Period Change (477) (3,238) (3,715)
===============================================================================================================
Balance, December 31, 1998 $ (1,349) $(1,199) $(2,548)
- ---------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1997
Balance, December 31, 1996 $ 1,111 $ (729) $ 382
Current Period Change (1,983) 2,768 785
===============================================================================================================
Balance, December 31, 1997 $ (872) $ 2,039 $ 1,167
- ---------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1996
Balance, December 31, 1995 $ (873) $ 3,777 $ 2,904
Current Period Change 1,984 (4,506) (2,522)
===============================================================================================================
Balance, December 31, 1996 $ 1,111 $ (729) $ 382
- ---------------------------------------------------------------------------------------------------------------
-65-
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 consolidated financial statements and related notes are
prepared in accordance with generally accepted accounting principles and include
certain amounts based on management's best estimates and judgment. Financial
information beyond the consolidated financial statements is presented in a
manner consistent with the Corporation's financial statements.
Management maintains a system of accounting internal controls that includes an
internal audit program. The internal control system provides reasonable
assurance that assets are safeguarded against loss from unauthorized use or
disposition, transactions are properly authorized and accounting records are
reliable for the timely preparation of financial statements. The foundation of
the internal control system is 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 three 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
-66-
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, 1998, and 1997, 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, 1998. 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, 1998, and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
Washington, D.C.,
January 20, 1999
-67-
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL INFORMATION
1998
UNAUDITED FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------
Interest Income $86,932 $87,068 $93,772 $86,030
Interest Expense 39,247 39,706 45,020 39,477
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income 47,685 47,362 48,752 46,553
Less: Provision for Loan Losses - - - -
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 47,685 47,362 48,752 46,553
Noninterest Income 28,137 25,227 32,890 28,028
Noninterest Expense 47,408 47,070 50,134 49,140
Income before Taxes and Minority Interest 28,414 25,519 31,508 25,441
Applicable Income Tax Expense (Benefit) 7,792 5,987 9,206 6,103
Minority Interest in Income of Subsidiaries, Net of Taxes 4,987 4,986 4,987 4,987
===============================================================================================================
Net Income 15,635 14,546 17,315 14,351
Less: Dividends on Preferred Stock 2,688 2,687 2,688 1,791
Excess of Call Price over Carrying Amount of Preferred Stock- - - - 13,808
- ---------------------------------------------------------------------------------------------------------------
Net Income (Loss) Available for Common Stock $12,947 $11,859 $14,627 $(1,248)
EARNINGS (LOSS) PER COMMON SHARE - BASIC $ .42 $ .39 $ .48 $ (.04)
- DILUTED .41 .37 .46 (.04)
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL RATIOS AND OTHER INFORMATION
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
NET INCOME TO AVERAGE:
Earning Assets 1.21% 1.06% 1.56% 2.13% .84%
Total Assets 1.11 .97 1.40 1.92 .76
Stockholders' Equity 13.61 11.69 16.48 28.25 12.01
- ---------------------------------------------------------------------------------------------------------------
AVERAGE:
Loans to Deposits 75.50% 66.97% 67.19% 67.91% 69.80%
Stockholders' Equity to Loans 14.72 16.35 15.64 12.22 10.89
Stockholders' Equity to Deposits 11.11 10.95 10.51 8.30 7.60
Stockholders' Equity to Assets 8.17 8.28 8.48 6.80 6.29
AT DECEMBER 31:
Reserve for Loan Losses to Total Loans 1.67% 1.82% 2.44% 2.20% 3.81%
Common Stockholders 2,466 2,754 3,058 3,236 3,712
Employees 1,598 1,580 1,519 1,576 1,624
Banking Offices 60 62 63 65 68
- ---------------------------------------------------------------------------------------------------------------
PER SHARE DATA:
Dividend Payout Ratio 16.53% 15.75% 8.38% n/a n/a
Average Common Shares Outstanding 30,603,384 30,422,822 30,317,572 30,257,585 30,230,213
Book Value per Common Share $12.93 $12.04 $10.88 $9.30 $5.70
- ---------------------------------------------------------------------------------------------------------------
-68-
1997 1996
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------
$77,069 $83,120 $83,717 $ 86,886 $74,570 $71,740 $72,811 $74,077
35,652 37,527 38,529 39,793 35,638 34,467 35,059 34,727
- ---------------------------------------------------------------------------------------------------------------
41,417 45,593 45,188 47,093 38,932 37,273 37,752 39,350
-- -- -- (12,000) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
41,417 45,593 45,188 59,093 38,932 37,273 37,752 39,350
19,641 21,089 24,242 22,952 25,575 25,742 21,174 23,686
43,812 45,660 44,998 51,560 43,004 43,931 44,047 45,965
17,246 21,022 24,432 30,485 21,503 19,084 14,879 17,071
4,069 5,454 6,625 8,542 52 (2,370) 3,062 5,430
2,711 4,932 4,986 4,987 -- -- -- 420
- ---------------------------------------------------------------------------------------------------------------
10,466 10,636 12,821 16,956 21,451 21,454 11,817 11,221
2,688 2,687 2,688 2,687 2,688 2,687 2,688 2,687
-- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
$ 7,778 $ 7,949 $10,133 $ 14,269 $18,763 $18,767 $ 9,129 $ 8,534
$ .26 $ .26 $ .33 $ .47 $ .62 $ .62 $ .30 $ .28
.25 .25 .32 .45 .61 .62 .29 .27
- ---------------------------------------------------------------------------------------------------------------
QUARTERLY STOCK INFORMATION 1
DIVIDENDS
PRICE RANGE DECLARED
HIGH LOW AND PAID 2
- ---------------------------------------------------------------------------------------------------------------
1998 Fourth Quarter $26.25 $19.00 $.05
Third Quarter 30.25 22.00 .05
Second Quarter 30.625 26.688 .05
First Quarter 28.25 23.25 .05
- ---------------------------------------------------------------------------------------------------------------
1997 Fourth Quarter $28.50 $21.625 $.05
Third Quarter 24.00 19.75 .05
Second Quarter 20.625 17.375 .05
First Quarter 22.00 17.25 .05
- ---------------------------------------------------------------------------------------------------------------
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 --
- ---------------------------------------------------------------------------------------------------------------
1 THE STOCK INFORMATION LISTED ABOVE REPRESENTS HIGH AND LOW SALES PRICES AS
REPORTED ON THE NASDAQ NATIONAL MARKET SYSTEM, BASED ON DAILY CLOSING PRICES.
2 SEE NOTE 10 TO THE FINANCIAL STATEMENTS.
-69-
THREE-YEAR FOREIGN AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
1998 1997 1996
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 $ 425,938 $35,609 8.36% $ 299,367 $23,574 7.87% $232,716 $18,064 7.76%
Time Deposits with Other Banks 485,477 27,136 5.59 124,979 7,350 5.88 153,717 8,623 5.61
Pool Funds Provided, Net 1 364,692 20,130 5.52 822,831 47,065 5.72 536,683 29,517 5.50
- ------------------------------------------------------------------------------------------------------------------
Total Earning Assets and
Average Rate Earned 1,276,107 82,875 6.49 1,247,177 77,989 6.25 923,116 56,204 6.09
Less: Reserve for Loan Losses 11,635 15,197 13,162
Cash and Due from Banks 25,178 24,526 26,946
Premises and Equipment, Net 16,544 15,587 15,025
Other Assets 12,814 9,231 8,121
==================================================================================================================
Total Assets $1,319,008 $1,281,324 $960,046
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings, NOW and Money Market $ 278,519 $ 9,426 3.38% $ 445,874 $18,186 4.08% $302,031 $10,189 3.37%
Other Time 626,153 37,336 5.96 451,864 25,927 5.74 340,215 19,728 5.80
- ------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 904,672 46,762 5.17 897,738 44,113 4.91 642,246 29,917 4.66
Short-Term Borrowings 142,218 6,973 4.90 111,558 5,631 5.05 52,492 2,525 4.81
- ------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and
Average Rate Incurred 1,046,890 53,735 5.13 1,009,296 49,744 4.93 694,738 32,442 4.67
Demand Deposits 134,358 152,382 155,205
Other Liabilities and
Stockholders' Equity 137,760 119,646 110,103
==================================================================================================================
Total Liabilities and
Stockholders' Equity $1,319,008 $1,281,324 $960,046
==================================================================================================================
Net Interest Income and Spread $29,140 1.36% $28,245 1.32% $23,762 1.42%
Net Interest Margin on Earning Assets 2.28% 2.26% 2.57%
- ------------------------------------------------------------------------------------------------------------------
1 POOL FUNDS PROVIDED, NET, ARE AMOUNTS CONTRIBUTED BY FOREIGN ACTIVITIES TO
FUND DOMESTIC ACTIVITIES.
-70-
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 1999 Annual Meeting of
Stockholders, which is incorporated by reference. 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 and Chief Executive Officer of Riggs Bank N.A. 74
Robert L. Sloan Vice Chairman of the Board 52
Timothy C. Coughlin President of the Corporation 56
John L. Davis Chief Financial Officer and Treasurer of the Corporation and Executive Vice
President and Chief Financial Officer of Riggs Bank N.A. 57
Joseph W. Barr Executive Vice President of Riggs Bank N.A. Community Banking 49
Joseph M. Cahill Executive Director of Legal Affairs, Riggs Bank N.A. 45
Henry A. Dudley, Jr. Executive Vice President and Chief Trust Officer of Riggs Bank N.A. 52
J. David Hoffman Executive Vice President and Chief Infomation Officer of Riggs Bank N.A. 36
Timothy A. Lex Executive Vice President and Chief Operating Officer of Riggs Bank N.A. 41
Raymond M. Lund Executive Vice President of Riggs Bank N.A.International Banking Group 37
W. E. Tige Savage Executive Vice President of Riggs Bank N.A. 30
David W. Scott Executive Vice President and Chief Credit Officer of Riggs Bank N.A. 37
Alfred J. Serafino Executive Vice President of Riggs Bank N.A. Relationship Banking 50
* EXECUTIVE OFFICERS OF RIGGS NATIONAL CORPORATION, INCLUDING CERTAIN EXECUTIVE
OFFICERS OF RIGGS BANK N.A., AS OF MARCH 1, 1999.
-71-
EXPERIENCE OF MANAGEMENT
Joe L. Allbritton has been Chairman of the Board and Chief Executive Officer of
the Corporation since 1981. He has served as Chairman of the Board of Riggs Bank
N.A. since 1983 and has served as Chief Executive Officer of Riggs Bank N.A.
since 1997. He also served as Chief Executive Officer of Riggs Bank N.A.from
1982 to June 1993. Mr. Allbritton is the beneficial owner of approximately 40%
of the Common Stock of the Corporation as of February 26, 1999. He also serves
as Chairman of the Board of, and is the owner of, Perpetual Corporation,
Allbritton Communications Company, and Westfield News Advertiser, 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 was a Director of
Riggs Bank N.A. from 1983 to 1996.
John L. Davis has served as Chief Financial Officer of the Corporation and
Executive Vice President and Chief Financial Officer of Riggs Bank N.A. since
June 1993. 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.
Joseph M. Cahill was appointed Executive Director of Legal Affairs of Riggs Bank
N.A. in 1998. Mr. Cahill served as the Litigation Manager of Riggs Bank N.A.
from 1996 to 1997, and Associate Litigation Manager from 1993 to 1995. Prior to
1993, Mr. Cahill practiced law in private practice.
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.
J. David Hoffman, Executive Vice President, has served as Chief Information
Officer since June 1997. Prior to joining Riggs, Mr. Hoffman was with the
Financial Markets Business Consulting practice of Arthur Andersen LLP from 1986
to May 1997.
Timothy A. Lex, Executive Vice President, has served as Chief Operating Officer
of Riggs Bank N.A. since 1995. Mr. Lex has served in various management
positions during the past 13 years, including such positions as Managing
Director of Riggs Bank Europe Limited and President and Chief Executive Officer
of the subsidiary formerly known as The Riggs National Bank of Virginia.
Raymond M. Lund serves as Executive Vice President-International Banking Group.
Mr. Lund has served in various management positions during the past 10 years,
including Head of the International and Domestic Private Banking Divisions.
Prior to 1988, Mr. Lund was an Assistant Vice President and Trust Officer with
First RepublicBank in Texas.
W. E. Tige Savage has served as Executive Vice President of Riggs Bank N.A.
since 1998, supporting the activities of Riggs Capital Partners, the
Corporation's venture capital operation, and the Office of the Chairman. He has
also served at Riggs Bank N.A. as Vice President and Executive Assistant to the
Chairman and as a commercial lender. In addition, Mr. Savage has served as an
associate at Dillon Read & Co. Inc, a New York investment bank.
David W. Scott, Executive Vice President, has served as Chief Credit Officer of
Riggs Bank N.A. since 1995. Mr. Scott has served in various management positions
during the past 11 years, including such positions as Head of Loan Review and
Chief Credit Officer of Riggs Bank Europe Limited.
Alfred J. Serafino serves as Executive Vice President-Relationship Banking. He
also has served as Executive Vice President in Commercial Banking and President
and Chief Executive Officer of the subsidiary formerly known as The Riggs
National Bank of Maryland. Mr. Serafino served as Regional Executive Officer in
charge of the Maryland West Commercial Division at Sovran Bank for 12 years.
-72-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Since the filing of the Corporation's definitive Proxy Statement to
Stockholders, which is incorporated by reference, it has come to the attention
of the Corporation that Eddie N. Williams, a director of the Corporation, filed
a Form-4 report late with respect to three transactions effected through the
Corporation's Buy Direct program administered in connection with the dividend
reinvestment plan by the Corporation's transfer agent.
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.
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.
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.
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, 1998, 1997 and 1996. 28
Consolidated Statements of Condition--
At December 31, 1998 and 1997. 29
Consolidated Statements of Changes in Stockholders' Equity--
Years Ended December 31, 1998, 1997 and 1996. 30
Consolidated Statements of Cash Flows--
Years Ended December 31, 1998, 1997 and 1996. 31
Notes to Consolidated Financial Statements as of
December 31, 1998, 1997 and 1996. 32-65
Management's Report on Financial Statements 66
Report of Independent Public Accountants 67
14(B) REPORTS ON FORM 8-K
None.
14(C) EXHIBITS
The exhibits listed on the Index to Exhibits on Pages 75 through 76 hereof are
incorporated by reference or filed herewith in response to this item.
-73-
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
March 26, 1999
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
/s/ JOHN L. DAVIS Chief Financial Officer
- ---------------- (Principal Financial Officer)
John L. Davis
/s/ ELEANOR L. RUTLAND Comptroller
- ---------------------- (Principal Accounting Officer)
Eleanor L. Rutland
ROBERT L. ALLBRITTON* Director
- ---------------------
(Robert L. Allbritton)
JOHN M. FAHEY, JR.* Director
- -------------------
(John M. Fahey, Jr.)
LAWRENCE I. HEBERT* Director
- -------------------
(Lawrence I. Hebert)
STEVEN B.PFEIFFER* Director
- -------------------
(Steven B. Pfeiffer)
JOHN E.V. ROSE* Director
- --------------
(John E.V. Rose)
ROBERT L. SLOAN* Vice Chairman
- ---------------- of the Board
(Robert L. Sloan)
JACK VALENTI* Director
- -------------
(Jack Valenti)
EDDIE N. WILLIAMS* Director
- ------------------
(Eddie N. Williams)
*By: /s/ JOSEPH M. CAHILL
--------------------
Joseph M. Cahill, Attorney-in-fact
March 26, 1999
-74-
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGES
====================================================================================================================
(3.1) Certificate of Incorporation as Amended (Incorporated by reference to
the Registrant's Form 10-Q for the quarter ended September 30, 1989, SECFile No.
0-9756.)and Certificate of Amendment of Certificate of Incorporation of Riggs
National Corporation. Exhibit 3.1
(3.2) By-laws of the Registrant with amendments through April 10, 1996. Exhibit 3.2
(4.1) Indenture dated June 1, 1989 with respect to $100 million 9.65%
Subordinated Debentures due 2009 (Incorporated by reference to the Registrant's
Form 8-K dated June 20, 1989, SECFile No. 0-9756.)
(4.2) Indenture dated January 1, 1994 with respect to $125 million, 8.5%
Subordinated Debentures due 2006. (Incorporated by reference to the Registrant's
Form 10-Q for the quarter ended March 31, 1994, SECFile No. 0-9756.)
4.3) Indenture dated December 13, 1996 with respect to $150 million, 8.625%
Trust Preferred Securities, Series A due 2026 (Incorporated by reference to the
Registrant's S-3 dated February 6, 1997, SECFile No. 333-21297.)
(4.4) Indenture dated March 12, 1997, with respect to $200 million, 8.875%
Trust Preferred Securities, Series C due 2027 (Incorporated by reference to the
Registrant's S-3 dated May 2, 1997, SECFile No. 333-26447.)
(10.1) Split Dollar Life Insurance Plan Agreements. Exhibit 10.1
(10.2) The 1993 Stock Option Plan, the 1994 Stock Option Plan, and the 1996
Stock Option Plan, as amended April 15, 1998, and the 1997 Non-Employee
Directors Stock Option Plan (Incorporated by reference to the Registrant's
Annual Meeting Proxy Statement filed March 18, 1998.)
(10.3) Deferred Compensation Plan for Directors. Exhibit 10.3
(10.4) Description of 1998 General Incentive Plan. Exhibit 10.4
(10.5) Description of 1999 General Incentive Plan. Exhibit 10.5
-75-
EXHIBIT
NO. DESCRIPTION PAGES
====================================================================================================================
(10.6) Supplemental Executive Retirement Plan, as amended and restated July 12, 1995. Exhibit 10.6
(10.7) Trust Agreement, dated July 12, 1995, for the Supplemental Executive Retirement Plan
and the Split Dollar Life Insurance and Supplemental Death Benefit Plans. Exhibit 10.7
(11) Computation of Per Share Earnings Exhibit 11
(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 Capital and Riggs Capital II,
organized under the state laws of Delaware.
(23) Consent of Independent Public Accountants Exhibit 23
(24) Power of Attorney Exhibit 24
(27) Financial Data Schedule Exhibit 27
Exhibits omitted are not required or not applicable.
PORTIONS OF RIGGS NATIONAL CORPORATION'S DEFINITIVE PROXY STATEMENT TO
STOCKHOLDERS, EXCEPT FOR ITEMS 402 (K) AND (L) OF REGULATION S-K ARE
INCORPORATED BY REFERENCE IN PARTS I AND III OF THIS ANNUAL REPORT.