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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 52-1217953
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. 20005
_______________________________________________ ___________________
(Address of principal executive offices) (Zip Code)
(301) 887-6000
___________________________________________________
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
___________________ _________________________________________
None None
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
_______________________ _________________________________________
Common Stock, par value OTC, NASDAQ National Market System
$2.50 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No. __.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the Corporation's voting stock held by
non-affiliates of the registrant as of February 28, 1997, was $382,339,264.
The number of shares outstanding of the registrant's common stock, as
of March 26, 1997, was 30,374,496.
DOCUMENT INCORPORATED BY REFERENCE
Portions of Riggs National Corporation's definitive Proxy Statement to
Stockholders are incorporated by reference, except for Items 402 (k) and (l) of
Regulation S-K, in Parts I and III of this Annual Report.
FORM 10-K INDEX
PART I PAGE(S)
Item 1--Business 3
Item 2--Properties 5
Item 3--Legal Proceedings 6
Item 4--Submission of Matters to a Vote of Security Holders 6
PART II
Item 5--Market for Registrant's Common Equity
and Related Stockholder Matters 7
Item 6--Selected Financial Data 7
Item 7--Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 8--Financial Statements and Supplementary Data 29
Item 9--Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 67
PART III
Item 10--Directors and Executive Officers of the Registrant (A),67
Item 11--Executive Compensation 69
Item 12--Security Ownership of Certain
Beneficial Owners and Management 69
Item 13--Certain Relationships and Related Transactions 69
PART IV
Item 14--Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 69
(A)--PORTIONS OF RIGGS NATIONAL CORPORATION'S DEFINITIVE PROXY STATEMENT TO
STOCKHOLDERS ARE INCORPORATED BY REFERENCE, EXCEPT FOR ITEMS 402 (K) AND (L) OF
REGULATION S-K, IN PARTS I AND III OF THIS ANNUAL REPORT.
2
PART I
ITEM 1.
BUSINESS
Riggs National Corporation
Riggs National Corporation ("the Corporation") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"),
and incorporated in the State of Delaware. The Corporation engages in a variety
of banking-related activities through its bank and non-bank subsidiaries. The
Corporation currently has banking operations or separate subsidiaries in the
Washington, D.C. metropolitan area; Miami, Florida; London, England; Paris,
France; and Nassau, Bahamas. Additionally, the Corporation provides investment
advisory services domestically through a subsidiary registered under the
Investment Advisers Act of 1940. Subsidiaries located in the Bahamas and France
provide trust and corporate services, as well as traditional banking services.
Key elements of the Corporation's business strategy for its subsidiaries are
to continue to focus on: growth opportunities through the additional
accumulation of assets under management in its Financial Services Group, the
orientation of its retail banking branches toward money management
relationships, the development and specialization of products and services in
specific growth industries in its markets and the continued preeminence in the
embassy banking operations coupled with growth in selected international
business lines. Such growth will entail internally developed programs as well as
possible alliances or acquisitions in these areas. The Corporation will continue
to serve the varied financial needs of the Washington, D.C. metropolitan area
and to meet its commitments under the Community Reinvestment Act.
Riggs Bank National Association
The Corporation's principal subsidiary is Riggs Bank National Association (the
"Riggs Bank N.A.", formerly The Riggs National Bank of Washington, D.C., and
successor to The Riggs National Bank of Virginia and The Riggs National Bank of
Maryland, which entities merged on March 28, 1996), a national banking
association founded in 1836 and incorporated under the national banking laws of
the United States in 1896. Riggs Bank N.A. had assets of $5.1 billion, deposits
of $4.1 billion, and stockholder's equity of $533.9 million at December 31,
1996.
Riggs Bank N.A. operates 32 branches and an investment advisory subsidiary in
Washington, D.C., 16 branches in Virginia, 9 branches in Maryland, commercial
banks in London, England, an Edge Act subsidiary in Miami, Florida, branch
offices in London, England and Nassau, Bahamas, and a Bahamian bank and trust
company. At December 31, 1996, Riggs Bank N.A. and its subsidiaries had 1,517
full-time equivalent employees.
As a commercial bank, Riggs Bank N.A. provides a wide array of financial
services to customers in the Washington, D.C., metropolitan area, throughout the
United States and internationally.
Riggs Bank N.A.'s Corporate and Commercial Banking Groups provide services to
customers ranging from small regional businesses to major multinational
companies. These services include lines of credit, secured and unsecured term
loans, letters of credit, credit support facilities, foreign currency
transactions and cash management.
Riggs Bank N.A.'s Financial Services Group provides fiduciary and
administrative services, including financial management and tax planning for
individuals, investment and accounting services for governmental, corporate and
non-profit organizations, estate planning and trust administration.
Riggs Bank N.A. provides investment advisory services through Riggs Investment
Management Corporation ("RIMCO"), a wholly-owned subsidiary incorporated under
the laws of Delaware and registered under the Investment Advisers Act of 1940.
Riggs Bank N.A.'s Retail Banking Group provides a variety of services
including checking, NOW, savings and money market accounts, loans and personal
lines of credit, certificates of deposit and individual retirement accounts.
Additionally, the Retail Banking Group provides 24-hour banking services through
its telebanking operations and a network of Riggs' automated teller machines
("ATMs") as well as national and regional ATM networks.
Riggs Bank N.A.'s International Banking Group furnishes a variety of financial
services including issuing letters of credit in connection with trade and other
transactions, taking deposits, foreign exchange, private banking and cash
management. Customers include embassies and foreign missions in Washington,
D.C., foreign governments, central banks, and over 200 correspondent banks
around the world. These services are provided through both domestic and
international offices.
The Riggs Bank and Trust Company (Bahamas) Limited, in Nassau, provides
trust services for international private banking customers. Riggs Bank N.A.
operates a branch in the U.S. Embassy in London which serves the Embassy, its
employees and official visitors. In 1991, Riggs Bank N.A. opened a banking
subsidiary under the laws of France. A full service commercial bank, The Riggs
National Bank (Europe) S.A. ("Riggs-Europe") has one branch located in the U.S.
Embassy in Paris. In addition to serving the Embassy, its employees and official
visitors, the Riggs-Europe office also assists the U.S. Government with
disbursement activities for the Department of Defense and Department of State
for all their facilities in Europe.
3
Riggs AP Bank Limited
Riggs AP Bank Limited ("Riggs AP"), a merchant bank located in London, England
is a wholly-owned subsidiary of Riggs Bank N.A. Riggs AP provides traditional
corporate banking services, commercial property financing, investment banking
services and trade finance. At December 31, 1996, Riggs AP had total assets of
$348.2 million, representing 6.8% of the Corporation's total assets, and had
loans of $213.8 million, or 84.9% of the Corporation's total foreign loans and
8.1% of total loans. Riggs AP was renamed Riggs Bank Europe Limited, effective
March 1, 1997.
Supervision And Regulation
The Corporation and Riggs Bank N.A. are subject to the supervision of and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Corporation's national banking subsidiaries and certain of
their subsidiaries are subject to the supervision of and regulation by the
Office of the Comptroller of the Currency (the "OCC"). Other federal, state and
foreign laws govern many aspects of the businesses of the Corporation and its
subsidiaries.
Under the BHCA, bank holding companies may not directly or indirectly acquire
the ownership or control of five percent or more of the voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. The BHCA also restricts the types
of businesses and activities in which a bank holding company and its
subsidiaries may engage. Generally, activities are limited to banking and
activities found by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto.
The Corporation is required to maintain minimum levels of qualifying capital
under Federal Reserve Board risk-based capital guidelines. For full discussion
of these guidelines, see "Management's Discussion and Analysis--Capital
Resources" and "Notes to Consolidated Financial Statements-Note 10."
Under Federal Deposit Insurance Corporation ("FDIC") regulations, the
assessment rate for an insured depository institution varies according to the
level of risk incurred in its activities. An institution's risk category is
based partly upon whether the institution is assigned to one of the following
"supervisory subgroups": "healthy"; "supervisory concern"; or "substantial
supervisory concern."
The OCC must take "prompt corrective action" in respect of depository
institutions that do not meet minimum capital requirements. The OCC has
established levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
The following table details the minimum capital levels for each category:
CAPITAL CATEGORY
COMBINED TANGIBLE
TIER I TIER I AND II LEVERAGE EQUITY
- --------------------------------------------------------------------
RATIOS:
WELL
CAPITALIZED 6% or above 10% or above 5% or above N/A
ADEQUATELY
CAPITALIZED 4% or above 8% or above 4% or above N/A
UNDER-
CAPITALIZED Less than 4% Less than 8% Less than 4% N/A
SIGNIFICANTLY
UNDERCAPITALIZED Less than 3% Less than 6% Less than 3% N/A
CRITICALLY
UNDERCAPITALIZED N/A N/A N/A 2% or less
Beyond the minimum capital levels, well capitalized institutions may not be
subject to any order or written directive to meet and maintain a specific
capital level.
Riggs Bank N.A. exceeds current minimum regulatory capital requirements, and
qualifies, at a minimum, as "well capitalized." The applicable federal bank
regulator for a depository institution may, under certain circumstances,
reclassify a "well capitalized" institution as "adequately capitalized" or
require an "adequately capitalized" or "undercapitalized" institution to comply
with supervisory actions as if it were in the next lower category. Such a
reclassification may be made if the regulatory agency determines that the
institution is in an unsafe or unsound condition (which could include
unsatisfactory examination ratings). A summary of applicable regulatory capital
ratios and the minimums required by the OCC under its capital guidelines for
Riggs Bank N.A., on a historical basis, is shown in the "Notes to Consolidated
Financial Statements--Note 10."
A depository institution may not make any capital distribution (including
payment of a dividend) or pay any management fee to its holding company if the
depository institution would thereafter be undercapitalized. Undercapitalized
depository institutions are subject to increased regulatory monitoring and
growth limitations and are required to submit capital restoration plans.
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
the Interstate Act authorizes a bank to merge with a bank in another state as
long as neither of the states has opted out of interstate branching between the
date of enactment of the Interstate Act and May 31, 1997. The Interstate Act
further provides that states may enact laws permitting interstate bank merger
transactions prior to June 1, 1997. A bank may establish
4
and operate a de novo branch in a state in which the bank does not maintain a
branch if that state expressly permits de novo branching. Once a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger transaction could have
established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through de novo branching may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or de novo.
Effective June 1995, coinciding with the mandatory 1.25% funding of the Bank
Insurance Fund ("BIF") reserve, insurance rates reduced from a range of $.23 to
$.26 per $100 in deposits insured to a range of $.04 to $.07 per $100 in
deposits insured. Further, in November 1995, based on the continuing increase in
reserves with BIF, the FDIC announced an additional reduction of insurance rates
to zero percent, however, banks must pay a mandatory minimum of $2 thousand per
year.
On September 30, 1996, Congress passed and the President signed an omnibus
funding bill which included legislation for the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC. This
legislation includes a provision requiring the merger of the BIF, which is also
administered by the FDIC, and SAIF in 1999, assuming that bank charters and
thrift charters are combined by that time. The legislation included several
other bank-related components, the most important of which is the one-time
assessment on institutions with deposits insured by SAIF equaling approximately
66 cents per one-hundred dollars of deposits insured, to be applied retroactive
to an institution's deposits as of March 31, 1995. This provision is effective
immediately. In addition, the legislation provides for a new Financing
Corporation ("FICO") sharing formula between BIF and SAIF insured institutions,
which will impose a surcharge of 1.3 cents per one-hundred dollars of
BIF-insured deposits.
The Corporation does not have any SAIF insured deposit balances as of December
31, 1996. The Corporation's deposits are insured through BIF. Therefore, the
Corporation is not subject to the one-time SAIF surcharge. However, the
Corporation is subject to the FICO surcharge and will be required to pay
one-fifth of the rate that SAIF institutions pay for a three year period
beginning in 1997. The FICO surcharge is expected to cost the Corporation
approximately $400 thousand annually.
There are legal restrictions on the extent to which the Corporation and its
non-bank subsidiaries may borrow or otherwise obtain credit from Riggs Bank N.A.
Subject to certain limited exceptions, a bank subsidiary may not extend credit
to the Corporation or to any other affiliate (as defined) in an amount which
exceeds 10% of its capital stock and surplus and may not extend credit in the
aggregate to such affiliates in an amount which exceeds 20% of its capital stock
and surplus. Further, there are legal requirements as to the type, amount and
quality of collateral which must secure such extensions of credit by each bank
subsidiary to the Corporation or to other affiliates. Finally, extensions of
credit and other transactions between a bank subsidiary and the Corporation or
other affiliates must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to such a
bank subsidiary as those prevailing at the time for comparable transactions with
non-affiliated companies.
Under Federal Reserve Board policy, bank holding companies are expected to act
as a source of financial strength to their subsidiary banks and to commit
resources to support such banks in circumstances where a bank holding company
might not do so absent such policy. In addition, any capital loans by a bank
holding company to any of its subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary bank.
In the event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
ITEM 2.
PROPERTIES
The Corporation owns properties located in Washington, D.C. which house its
executive offices, 13 of its branches and certain operational units of Riggs
Bank N.A. The Corporation also owns an office building and a residential
property in London, England, and leases various properties in Washington, D.C.;
London, England; Miami, Florida; Northern Virginia; Maryland; and Paris, France.
5
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of business, the Corporation is involved in various types
of litigation, including litigation with borrowers who are in default under
their loan agreements. In the opinion of management, based on its assessment and
consultation with outside counsel, litigation which is currently pending against
the Corporation will not have a material impact on the financial condition or
future operations of the Corporation as a whole.
During 1996, the Corporation contested in Tax court the disallowance of
Brazilian Foreign Tax Credits by the Internal Revenue Service, which resulted in
a ruling in favor of the Internal Revenue Service. The net tax benefit of these
tax credits were not recognized for financial reporting purposes, therefore,
there was no adverse impact on earnings from this ruling.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth quarter
of 1996.
Information required by this Item for Executive Officers of the Registrant is
included in Item 10--"Directors and Executive Officers of the Registrant" which
is incorporated herein by reference.
6
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The common stock of Riggs National Corporation is traded on the NASDAQ National
Market tier of The NASDAQ Stock Market under the symbol: "RIGS."
A history of the Corporation's stock prices and dividends can be found under
"Quarterly Stock Information" on Page 65 of this Form 10-K.
As of December 31, 1996, there were 3,058 stockholders of record.
Other information required by this item is set forth in the "Notes to
Consolidated Financial Statements--Notes 10 and 11" on Pages 48 and 50,
respectively, of this Form 10-K.
ITEM 6.
FINANCIAL REVIEW
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Interest Income $293,198 $298,799 $266,005 $256,951 $327,540
Interest Expense 139,891 147,821 112,723 122,130 189,604
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 153,307 150,978 153,282 134,821 137,936
Less: Provision for Loan Losses -- (55,000) 6,300 69,290 52,067
- ------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 153,307 205,978 146,982 65,531 85,869
Noninterest Income Excluding
Securities Gains, Net 89,007 73,493 85,298 88,509 96,200
Securities Gains, Net 7,170 511 226 24,141 34,213
Noninterest Expense 176,947 191,834 199,020 266,752 238,403
- ------------------------------------------------------------------------------------------------------------
Income (Loss) before Taxes
and Minority Interest 72,537 88,148 33,486 (88,571) (22,121)
Applicable Income Tax Expense (Benefit) 6,174 346 (533) 5,640 (1,069)
Minority Interest in Dividends
of Subsidiary, Net of Taxes 420 -- -- -- --
============================================================================================================
NET INCOME (LOSS) $ 65,943 $ 87,802 $ 34,019 $ (94,211) $ (21,052)
Less: Dividends on Preferred Stock 10,750 10,750 12,124 1,434 358
============================================================================================================
Net Income (Loss) Available for Common Stock $ 55,193 $ 77,052 $ 21,895 $ (95,645) $ (21,410)
EARNINGS (LOSS) PER COMMON SHARE $ 1.79 $ 2.54 $ .72 $ (3.65) $ (.87)
Dividends Declared and Paid Per Common Share $ .15 $ -- $ -- $ -- $ --
7
ITEM 7.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In 1996, Riggs National Corporation (the "Corporation") achieved consolidated
net earnings of $65.9 million. By comparison, the Corporation had net earnings
of $87.8 million in 1995 and $34.0 million in 1994. Earnings per common share
for 1996, 1995 and 1994, were $1.79, $2.54 and $0.72, respectively. Net income
for 1995 benefited from a $55.0 million reduction in the reserve for loan losses
in the third quarter, as continued improvement in credit quality resulted in the
recording of this reserve adjustment. Key measurements of profitability include
the Corporation's net income to average total assets, net income to average
stockholders' equity and the net interest margin. Net income to average total
assets was 1.40% for 1996, compared with ratios of 1.92% and 0.76% for 1995 and
1994, respectively. Net income to average stockholders' equity was 16.48% in
1996, compared with 28.25% for 1995 and 12.01% for 1994. The net interest margin
for 1996, 1995 and 1994 was 3.72%, 3.74% and 3.89%, respectively.
Net interest income (before the provision for loan losses) was a significant
component of earnings in 1996, totaling $153.3 million, a slight increase of
$2.3 million from 1995's total. Though the net interest margin decreased two
basis points between the years, the impact of this decrease was more than offset
by a $100.2 million increase in average earning assets between periods, while
average interest-bearing liabilities increased $50.3 million. This improvement
in net earning assets is the result of continued reductions in nonperforming
assets and increases in stockholders' equity during the year.
Noninterest income, excluding securities gains, for 1996 totaled $89.0
million, compared with 1995's total of $73.5 million. The increase from 1995,
totaling $15.5 million (21.1%), was partially due to $5.1 million of interest
from tax settlements recorded in the second quarter of 1996, a $3.4 million
increase in trust income, and $3.2 million from the sale of a portion of the
Corporation's corporate trust business in the fourth quarter of 1996.
Noninterest expense for 1996 declined to $176.9 million, a 7.8% decrease,
totaling $14.9 million from 1995's total of $191.8 million. The decrease in
expenses during 1996 was primarily the result of a $5.5 million reduction in net
occupancy expense, $5.6 million reduction in salaries and benefits and $4.3
million reduction in FDIC premiums.
Nonperforming assets, including other real estate owned, decreased $7.8
million, or 17.0%, during the year to $38.1 million at December 31, 1996. At
year-end 1996, the Corporation's reserve for loan losses totaled $64.5 million,
an increase of $7.9 million from year-end 1995's balance. The reserve to total
loans ratio stood at 2.4% at December 31, 1996. Nonperforming loans totaled
$10.0 million at year-end 1996, with a reserve to nonperforming loans (coverage)
ratio of 644.8%.
On December 13, 1996, Riggs Capital, a newly formed, wholly-owned subsidiary
of the Corporation, sold preferred equity capital through the private placement
of redeemable trust preferred securities. Riggs Capital sold, at par, 150,000
shares of redeemable trust preferred securities, liquidation preference of
$1,000, for a total of $150.0 million. These securities have an annual dividend
rate of 8.625%, payable semi-annually, beginning in June 1997. The net proceeds
from the sale enhanced certain capital ratios of the Corporation and will be
available for its general corporate purposes (see Note 11, "Common and Preferred
Stock").
EARNING ASSETS
Money Market Assets
Short-term instruments, such as time deposits with other banks, federal funds
sold and resale agreements, represent alternatives for the Corporation for the
deployment of excess funds. These investments are lower-yielding assets that are
highly interest-rate sensitive. Funds available for short-term investments
generally are a function of daily movements in the Corporation's securities,
loans and deposit portfolios, combined with the Corporation's overall
interest-rate risk and asset/liability strategy. At December 31, 1996, total
money market assets increased by $166.8 million (25.5%) when compared with
year-end 1995. This increase was the result of fund inflows from the deposit and
borrowing portfolios, combined with inflows from the minority interest-trust
preferred securities. The total average of time deposits with other banks and
federal funds sold and resale agreements increased from $462.5 million in 1995
to $549.4 million in 1996.
Securities
The securities portfolio consists of securities held-to-maturity and securities
available for sale that are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (see Note 1, "Summary of Significant
Accounting Polices" and Note 2, "Securities"). The securities portfolio
increased $192.5 million (19.8%) from a balance of $970.0 million at year-end
1995 to a balance of $1.16 billion. The increase in securities from 1995 was
mainly due to funds from increases in the deposit and borrowing portfolios, as
well as inflows from the minority interest-trust preferred securities. Proceeds
received from the sale of securities totaled $745.2 million in 1996. These sales
were the result of a repositioning of the securities portfolio which resulted in
securities gains of $6.0 million, as the Corporation replaced securities from
its government agencies and mortgage-backed
8
securities portfolios with U.S. Treasury securities in the first quarter of
1996. Also included in securities gains for 1996 was a recovery of a prior
year's loss recognized in December 1994 from the Orange County, California
bankruptcy. Final maturities of the remaining Orange County securities, which
were part of the available for sale portfolio, were received at par value in the
second quarter of 1996, resulting in a $1.2 million recovery (see "Asset
Quality--Past-Due And Potential Problem Loans/Assets"). The weighted-average
maturity and yield for securities available for sale adjusted for anticipated
prepayments were approximately 3 years and 6.10%, respectively, at December 31,
1996. The securities portfolio is part of management's asset/liability strategy
and is a function of short and long-term investments by the Corporation relative
to its interest- bearing liabilities outstanding.
At December 31, 1996, the aggregate securities portfolio was comprised
entirely of securities available for sale, which totaled $1.16 billion (see
Table A). In December 1995, the Corporation transferred $446.1 million (book
value) in securities held-to-maturity to the available for sale portfolio. This
transfer was made in accordance with accounting guidance provided by the
Financial Accounting Standards Board, allowing a reassessment of securities
classifications and transfers between portfolios without the prescribed
accounting for transfers under SFAS No. 115 (see Note 1, "Summary of Significant
Accounting Policies"). Securities available for sale were primarily U.S.
Treasury and government agencies securities. Securities available for sale may
be sold in response to changes in interest rates, risk characteristics and other
factors as part of the Corporation's asset/liability strategy (see
"Interest-Rate Risk Management").
Loans
Loans, net of premiums, discounts and deferred fees totaled $2.64 billion at
December 31, 1996, an increase of $65.9 million, or 2.6%, from the prior year
(see Tables B through D). Over the past few years, the quality and overall risk
level of the portfolio has improved as a result of adjustments to its
composition, combined with the Corporation's comprehensive underwriting and
review policies. During the year, the Corporation focused its efforts on new
loan production in the commercial and financial, real
estate-commercial/construction and home equity portfolios. This strategy
coincided with the improvement in the local economy, particularly in the areas
of employment and small- to mid-sized commercial business.
The commercial loan portfolio totaled $443.6 million at year-end 1996, a net
increase of $43.3 million, or 10.8%, over the $400.3 million at year-end 1995.
There were no individual borrowers or industries representing more than a 10%
share of the total loan portfolio.
New residential mortgage loans in 1996 totaled $70.3 million, which was offset
by paydowns and payoffs during the year that resulted in a decrease of less than
5% in the portfolio. Of the $70.3 million residential loans originated in 1996,
$54.3 million (77.2%) were fixed-rate loans, with the remainder being
adjustable-rate loans. The majority of these loans were originated in the
Washington, D.C., metropolitan area. Although this is similar to 1995, it
contrasts to the loans added in 1994 and 1993, which were predominately
purchases of loans originated by others, with properties located throughout the
United States. The combination of these factors has resulted in a residential
loan portfolio that is geographically disbursed, yet has approximately 70% of
the residential portfolio in the Washington, D.C., metropolitan area, with no
other region having larger than a 5% concentration of the total loan portfolio.
The home equity portfolio increased $30.1 million, or 12.0% in 1996, to a
total of $281.9 million, the result of several new products introduced in 1994
and 1995. Originations in 1996 totaled $97.2 million. This growth was partially
offset by payoffs and paydowns during the year.
Activity within the foreign and real estate-commercial/construction portfolios
has had a movement upward in 1996, while the consumer portfolio remained flat.
Over the past two years, the Corporation has experienced selective new lending
in these portfolios, and thus, the Corporation anticipates limited investment
opportunities within these markets in the quarters ahead.
Cross-Border Outstandings
The Corporation extends credit to borrowers domiciled outside of the United
States through several of its banking subsidiaries. These assets may be impacted
by changing economic conditions in their respective countries. Management
routinely reviews these credits and continually monitors the international
economic climate and assesses the impact of these changes on foreign domiciled
borrowers.
Cross-border outstandings include loans, acceptances, interest-bearing
deposits with other banks, investments, accrued interest and other monetary
assets, which are denominated in U.S. dollars or other nonlocal currencies. In
addition, cross-border outstandings include legally enforceable guarantees
issued on behalf of nonlocal third parties and local currency outstandings to
the extent they are not funded by local currency borrowings. Cross-border
outstandings are then reduced by tangible liquid collateral and any legally
enforceable guarantees issued by nonlocal third parties on behalf of the
respective country.
At December 31, 1996, the Corporation had no cross-border outstandings
exceeding 1% of total assets to countries experiencing difficulties in repaying
their external debt.
At December 31, 1996, the United Kingdom was the only country with
cross-border outstandings in excess of 1% of the Corporation's total assets that
had loans in either a
9
nonperforming, past-due or problem loan status. Total loans outstanding to the
United Kingdom totaled $196.3 million, compared with $180.9 million at year-end
1995 (see Tables E and F). Nonaccrual loans in the United Kingdom totaled $287
thousand at December 31, 1996, compared with $1.7 million at December 31, 1995.
There were no past-due loans in the United Kingdom at December 31, 1996, and no
potential problem loans outstanding. In 1995, past-due loans totaled $36
thousand and there were no potential problem loans outstanding.
At December 31, 1996, 1995, and 1994, the Corporation did not have any
cross-border outstandings between 0.75% and 1% of its total assets.
ASSET QUALITY
Nonperforming Asset Summary
Nonperforming assets, which include nonaccrual loans, renegotiated loans, and
other real estate owned (net of reserves), totaled $38.1 million at year-end
1996, a $7.8 million (17.0%) decrease from the year-end 1995 total of $45.9
million (see Tables G and H). This decrease in nonperforming assets during 1996
was attributable to sales and paydowns of $15.3 million, nonaccrual loans
returning to accrual status of $0.5 million, and net charge-offs/writedowns of
$2.9 million, which were partially offset by exchange rate fluctuations of $0.2
million, combined with net additions in 1996 of $10.5 million.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan." Impaired loans are generally defined as
nonaccrual loans, excluding large groups of smaller-balance loans (with similar
collateral characteristics), which are collectively evaluated for impairment.
Specific reserves are required to the extent that the fair value of the impaired
loans is less than the recorded investment. The adoption of SFAS No. 114 was not
material to the Corporation's consolidated financial statements or results from
operations. Impaired loans are further discussed in Note 3, "Loans and Reserve
for Loan Losses."
Nonaccrual And Renegotiated Loans
At December 31, 1996, nonaccrual loans were $9.9 million, or 0.4% of total
loans, compared with $9.3 million, or 0.4% of total loans, at December 31, 1995.
Loans (other than consumer) are placed on nonaccrual status when, in
management's opinion, there is doubt as to the ability to collect either
interest or principal, or when interest or principal is 90 days or more past
due, and the loan is not well-secured and in the process of collection. Consumer
loans are generally charged off when they become 120 days past due. Nonaccrual
loan activity during 1996 included sales and repayments of $6.0 million,
nonaccrual loans returning to accrual status of $0.5 million, charge-offs of
$1.5 million and transfers of nonaccrual loans to other real estate owned of
$1.3 million. These decreases were more than offset by net additions to
nonaccrual loans and an increase in foreign exchange translation adjustments,
totaling $9.7 million and $0.2 million, respectively.
Renegotiated loans totaled $125 thousand at December 31, 1996, compared with
$3.4 million at year-end 1995. Renegotiated loans generally consist of real
estate-commercial/construction loans that are renegotiated to provide a
reduction or deferral of interest or principal as a result of a deterioration in
the financial position of the borrower. Renegotiated loans decreased $3.3
million in 1996, the result of sales and repayments totaling $2.8 million and
charge-offs totaling $0.5 million during the year.
Past-Due And Potential Problem Loans/Assets
Past-due loans consist predominantly of residential real estate and consumer
loans that are well-secured and in the process of collection and on which the
Corporation is accruing interest. Past-due loans decreased $1.6 million in 1996
to $3.8 million.
At December 31, 1996, the Corporation had identified approximately $1.6
million in potential problem loans. These loans are currently performing, but
management believes that they have certain attributes that may lead to
nonaccrual or past-due status in the foreseeable future. These loans primarily
consist of residential mortgage loans totaling $1.2 million at year-end 1996.
The Corporation had no other potential problem assets at December 31, 1996.
The $4.7 million of Orange County, California variable-rate one-year notes (the
"Notes") that had been identified as potential problem assets at December 31,
1995, matured with proceeds received from Orange County in June 1996. The
recovery of $1.2 million was recognized when these notes matured at par, which
was recorded as a securities gain, because the Notes were written down to their
estimated fair value in December 1994, when Orange County declared bankruptcy.
Provision And Reserve For Loan Losses
The provision for loan losses represents a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the reserve for
loan losses at a level adequate to absorb estimated losses inherent in the loan
portfolio. The Corporation determines the appropriate balance of the reserve for
loan losses based upon an analysis of risk factors that includes: primary source
of repayment on individual loans and groups of similar loans, liquidity and
financial condition of the borrowers and guarantors, historical
charge-offs/writedowns within loan categories, general economic conditions and
other factors existing at the determination date. The loan portfolio is
continually monitored by management to identify loans requiring particular
attention. On a quarterly basis, the Loan Loss Reserve Committee evaluates the
adequacy of the reserve for loan losses and the Board of Directors reviews
management's determination of the reserves. The reserve for loan losses is
10
based on management's assessment of existing conditions and reflects potential
losses determined to be probable and subject to reasonable estimation.
The Corporation did not make a provision for loan losses in 1996. In the third
quarter of 1995, based on management's review of the adequacy of the reserve,
risk characteristics within the loan portfolio, current asset quality, lending
levels, economic development and other factors, the reserve for loan losses was
reduced by $55.0 million in the third quarter of 1995. As a result, the
provision for loan losses amounted to a negative $55.0 million for 1995.
Approximately $41.8 million of the reversal in 1995 related to domestic loans
and $13.2 million related to foreign loans.
The reserve for loan losses was $64.5 million, or 2.44% of total loans, at
December 31, 1996, compared with $56.5 million, or 2.20% of total loans, at
December 31, 1995 (see Table I). Net recoveries for 1996 totaled $6.6 million
compared with $14.5 million for 1995. Total net recoveries for 1996 were mostly
attributed to $2.7 million in net recoveries from domestic real
estate-commercial/construction and $5.3 million from foreign loans, compared
with $10.7 million and $2.3 million, respectively, for 1995. The Corporation's
coverage ratio (reserve for loan losses divided by the sum of nonaccrual and
renegotiated loans) was 644.8% at year-end 1996, compared with 444.0% at
year-end 1995. The increase in the coverage ratio was impacted by the aggregate
21.5% decrease in nonaccrual and renegotiated loans and the net recoveries
recorded in 1996.
The estimated allocation of the reserve for loan losses is shown on Table J.
Reserve for loan loss allocations represent management's assessment of existing
conditions and risk factors within these categories.
Other Real Estate Owned, Net
Other real estate owned decreased 15.3% to $28.1 million at December 31, 1996,
from $33.2 million at December 31, 1995. The decrease resulted from sales and
repayments of $6.4 million and $0.9 million in writedowns, partially offset by
net additions of $2.2 million during the period. Loans are transferred to other
real estate owned when collateral securing the loans is acquired, or deemed to
be acquired, through foreclosure.
At December 31, 1996, residential and commercial land composed 86.7% of other
real estate owned, with the remainder of the portfolio consisting of office,
industrial, retail and other types of properties. Except for $0.4 million of
properties located in the United Kingdom, the remaining other real estate owned
properties were located in the Washington, D.C., metropolitan area at year-end
1996 (see Table K).
DEPOSITS
Total deposits at December 31, 1996, were $4.05 billion, compared with $3.89
billion at year-end 1995, an increase of $165.5 million, or 4.3%. In addition to
this growth, the composition of the portfolio significantly changed. The large
variances in the money market accounts, which increased $537.6 million, was
partially offset by the $375.6 million decrease in savings and NOW balances,
primarily attributed to a new program started during the third quarter of 1996.
Deposit balances in certain NOW and noninterest checking accounts are
transferred to the money market classification, thereby reducing the level of
deposit reserves required by the Federal Reserve. Based on certain limitations,
funds are periodically transferred back to the checking accounts to cover checks
presented for payment or other forms of withdrawal. As a result of the program,
the Corporation is expecting to increase net average interest-earning assets by
approximately $50 million, resulting in a benefit of approximately $2 million
pretax to net interest income annually under this program. Since this program
began in the third quarter of this year, the impact to net interest income was
not material for 1996. Total accounts transferred equaled $380.7 million at
December 31, 1996.
Average domestic deposits were $3.43 billion for 1996, up $29.3 million, or
0.9%, from an average of $3.41 billion for 1995. Average core deposits (total
deposits in domestic offices, excluding negotiable certificates of deposit) were
$3.42 billion, an increase of $26.9 million, or 0.8% from 1995's average balance
of $3.40 billion. Average foreign deposits increased $31.5 million, to $371.2
million, primarily the result of increased deposits in the United Kingdom
subsidiary (see Table L).
Since 1994, the Corporation has been conducting a detailed analysis of its
retail banking system, determining the best use of its locations, branch
facilities, product lines and personnel. The Corporation has sold or
consolidated five retail branches as part of this analysis and does not
anticipate any significant future branch sales or consolidations. The
Corporation is actively seeking enhancements to existing branches to attract new
customers and to improve service quality and overall profitability of its
branches. The Corporation is also searching for opportunities to establish new
retail banking branches in strategic locations.
In 1995, the retail banking group formed a marketing team to explore the
current and future prospects of electronic banking for retail banking customers.
Retail banking advertising and product information has been established on a
local, on-line service and completion of the Internet Home Page is expected in
1997. This development group is also analyzing opportunities for home banking
within the Corporation's market and the numerous delivery configurations
available. Management expects to complete this project and to formalize
delivery methodologies for home banking within the next 3 to 6 months.
11
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased and repurchase
agreements, U.S. Treasury demand notes and other borrowed funds. These
short-term obligations are an additional source of funds the Corporation
established to meet certain asset/liability and daily cash management
objectives. Short-term borrowings increased $53.8 million (26.7%) to $255.2
million at December 31, 1996, compared with $201.5 million at year-end 1995.
Average short-term borrowings for 1996 totaled $241.0 million, down from 1995's
average of $248.6 million (see Table L). The decrease in the average balances
during 1996 was primarily due to decreases in treasury, tax and loan balances in
1996, which were a temporary source of funds for the Corporation (see Note 8,
"Borrowings").
LONG-TERM DEBT
Long-term debt totaled $191.5 million and $217.6 million at December 31, 1996
and 1995, respectively. The decrease between years was the result of $26.1
million of floating rate subordinated notes, which matured in September 1996.
Included in long-term debt were subordinated debentures of $66.5 million due in
2009 and subordinated notes of $125.0 million due in 2006. The subordinated
debentures due in 2009 bear a fixed rate of interest of 9.65% per annum, and the
notes due 2006 bear a fixed rate of interest of 8.50% per annum. The
Corporation's long-term debt is discussed more fully in Note 8, "Borrowings."
MINORITY INTEREST IN PREFERRED STOCK OF SUBSIDIARY
On December 13, 1996, Riggs Capital issued 150,000 shares of 8.625% Trust
Preferred Securities, Series A, with a liquidation preference of $1,000 per
share. Riggs Capital, a new trust entity formed in order to issue the preferred
securities, is a wholly-owned subsidiary of the Corporation. Dividends are paid
semi-annually, beginning in June 1997. The Trust Preferred Securities, Series A,
cannot be redeemed until December 31, 2006, and have a maturity of December 31,
2026. Riggs Capital invested all of the proceeds from its common and preferred
stock sales in Junior Subordinated Deferrable Interest Debentures, Series A,
issued by the Corporation on December 13, 1996, at a rate of 8.625%, with
comparable dividend payment dates and maturity as the Trust Preferred
Securities. Interest is cumulative and deferrable on the Junior Subordinated
Deferrable Interest Debentures for a period not to exceed five years and is also
cumulative and deferrable for the same period for the Trust Preferred
Securities. The Trust Preferred Securities are considered Tier I Capital for
regulatory purposes (see Note 1, "Summary of Significant Accounting Policies"
and Note 11, "Common and Preferred Stock").
LIQUIDITY
Interest-rate Risk Management
The Corporation's asset/liability management function is controlled by the
Asset/Liability Committee ("ALCO"), which is comprised of representatives of the
major divisions within the Corporation. The objective of the group is to
prudently manage the assets and liabilities of the Corporation to provide both
an optimum and stable net interest margin while maintaining adequate levels of
liquidity and capital. This approach entails the management of overall risk of
the organization, in conjunction with the acquisition and deployment of funds.
ALCO monitors and modifies exposure to changes in interest rates based upon its
view of current and prospective market and economic conditions. The traditional
measurement of an organization's exposure to interest-rate fluctuations, such as
interest sensitivity, entails a "static gap" measurement, which portrays a
snapshot of the statement of condition at one point in time. However, this
methodology does not adequately measure the Corporation's exposure to
interest-rate risk. The statement of condition must be viewed within a dynamic
framework in which relationships may vary over time in virtually every segment
of the financial statement.
The Corporation manages interest-rate risk through the use of a simulation
model, allowing for various interest-rate scenarios to be portrayed. The model
forecasts the impact on earnings of these rate scenarios over a 36-month time
horizon, assuming selected changes in the mix of assets and liabilities, spread
relationships, and management actions. A "most likely" scenario is forecasted
based upon a consensus view of the marketplace. Alternatives, which reflect
interest rates moving significantly higher or lower than this view, are also
evaluated, with the results compared against risk tolerance limits established
by corporate policy. The Corporation's current policy establishes limits for
possible fluctuations in net interest income for the ensuing 12-month period
under the "most likely" scenario described above. The Corporation maintained a
liability sensitive interest-rate risk position as of December 31, 1996 and
1995. The Corporation was well-insulated against interest rates moving
significantly in either direction. At December 31, 1996, the forecasted impact
of interest rates either steadily rising or falling 300 basis points versus a
"most likely" scenario would reflect a change in net interest income of less
than 3% over an initial 12-month period, and less than 2% over the entire
36-month horizon - well below the established tolerance levels set by the
Corporation.
In managing the Corporation's interest-rate risk, ALCO also utilizes financial
derivatives in the normal course of business. These products might include
interest-rate swaps, caps, collars, floors, futures and options. Financial
derivatives are employed to assist in the management and/or reduction of
interest-rate risk for the Corporation and can effectively alter the interest
sensitivity of segments of the statement of condition for specified periods of
time. All of these vehicles are considered "off-balance-sheet," as they do not
materially impact the actual level of assets or liabilities of the Corporation.
Management finds that all of the methodologies discussed above provide a
meaningful representation of the Corporation's interest-rate sensitivity, though
factors other than changes in the interest-rate environment, such as levels of
nonearning assets and changes in the composition of earning assets, may impact
12
net interest income. Management believes its current rate sensitivity level is
appropriate, considering the Corporation's economic outlook and conservative
approach taken in the review and monitoring of the Corporation's sensitivity
position.
Capital Resources
A fundamental objective of management is to maintain a level of capitalization
that is sufficient to take advantage of favorable investment opportunities and
to promote depositor and investor confidence. In addition, the current economic
and regulatory climate places an increased emphasis on capital strength and the
ability of the Corporation to withstand unfavorable economic and/or business
losses. The Corporation's management monitors its capital levels monthly in
relation to financial forecasts for the year, as well as internal and external
policies. The Corporation continues to maintain a strong capital position, and
is one of the highest capitalized banks in the country.
Total stockholders' equity at December 31, 1996 was $425.8 million, or 8.29%
of total assets, up $49.1 million from year-end 1995. The increase from year-end
1995 was mostly the result of earnings totaling $65.9 million, partially offset
by dividends on preferred stock of $10.8 million and common stock of $4.5
million.
The Federal Reserve Board has issued risk-based capital guidelines for bank
holding companies. The guidelines define a two-tier capital framework. Tier I
Capital consists of common and qualifying preferred shareholders' equity, less
goodwill and other adjustments. Tier II Capital consists of mandatory
convertible, subordinated and other qualifying term debt, preferred stock not
qualifying as Tier I Capital and the reserve for loan losses up to 1.25 percent
of risk-weighted assets. Under these guidelines, one of four risk weightings is
applied to the different on-balance sheet assets. Off-balance-sheet items such
as loan commitments and derivatives, are also applied a risk weighting after
conversion to balance sheet equivalent amounts. Bank holding companies are
required to meet a minimum ratio of qualifying total (combined Tier I and Tier
II) capital to risk-weighted assets of 8.00%, at least half of which must be
composed of core (Tier I) capital elements. The Corporation's total and core
capital ratios were 28.47% and 20.04%, respectively, at December 31, 1996,
compared with 21.62% and 13.57%, respectively, at December 31, 1995.
The Federal Reserve Board has established an additional capital adequacy
guideline, the leverage ratio, as amended by the Prompt Corrective Action
regulations promulgated under FDICIA, which measures the ratio of Tier I Capital
to quarterly average assets. The minimum leverage ratio guideline is three
percent for the most highly rated bank holding companies. Those that are not in
the most highly rated category, including the Corporation, must maintain at
least a minimum ratio of 4.00% or higher, if determined necessary by the Federal
Reserve Board through its assessment of the Corporation's asset quality,
earnings performance, interest-rate risk and liquidity. The Corporation's
leverage ratio was 11.84% at December 31, 1996, compared with a leverage ratio
of 8.03% at the prior year-end.
The Corporation's policy is to ensure that its bank subsidiary is capitalized
in accordance with regulatory guidelines. The Corporation's national bank
subsidiary is subject to minimum capital ratios as prescribed by the Office of
the Comptroller of the Currency ("OCC"), which are the same as those for the
Federal Reserve Board. Table M details the actual and required minimum ratios
for the Corporation and its insured bank subsidiary.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is derived by subtracting the cost of funds from the income
received on earning assets. Earning assets are mainly comprised of loans and
securities, while interest-bearing liabilities are deposits and borrowed funds.
Net interest income is impacted by variations in the volume and mix of these
assets and liabilities, as well as fluctuations in interest rates. Net interest
income on a tax-equivalent basis (net interest income plus an amount equal to
the tax savings on tax-exempt interest), totaled $157.0 million for 1996, an
increase of $2.7 million, or 1.8% from $154.3 million in 1995. The Corporation
experienced a sizable increase during 1996 in average interest-earning assets,
totaling $100.2 million, while the average rate earned decreased 30 basis points
between the years. Average loans remained level during the period as the
majority of the increase in average balances occurred in the money market assets
portfolio, which increased over $86.9 million in 1996. The Corporation also had
a $50.3 million increase in average interest-bearing liabilities that was mostly
due to the increase in average interest-bearing deposits, while the average rate
paid decreased 30 basis points between the years. Thus, the Corporation had a
favorable net increase in average interest-earning assets over interest-bearing
liabilities of $49.9 million (see Tables N and O).
The net interest margin (net interest income on a tax-equivalent basis divided
by average earning assets) was 3.72% for 1996, a decrease of 2 basis points from
the 3.74% net interest margin for 1995 because of the aforementioned changes in
earning assets and interest-bearing liabilities. Net interest spread (the
difference between the average tax-equivalent rate earned and the average rate
incurred on interest-bearing liabilities) for 1996 was 2.97%, unchanged from
1995's spread. Interest lost on nonaccrual and renegotiated loans totaled $977
thousand for 1996, which had the effect of reducing the net interest margin by
approximately 2 basis points for the year. In 1995, interest lost totaled $2.0
million and had the effect of reducing the net interest margin in that year by
approximately 5 basis points(see Table H).
13
Noninterest Income
Noninterest income for 1996 was $96.2 million, up $22.2 million, or 30.0% from
1995's total of $74.0 million. Excluding securities gains of $7.2 million and
$0.5 million for 1996 and 1995, respectively, noninterest income increased $15.5
million, or 21.1%. Trust income of $33.3 million increased $3.4 million, or
11.3% in 1996 due to the increase in market value of trust and custodial assets
from $8.99 billion at year-end 1995 to $9.73 billion at year-end 1996. Service
charges for 1996 increased $1.2 million (3.5%) to $34.9 million and
international fee income increased $0.3 million (44.3%) to $1.1 million. The
increase in service charges for 1996 was primarily due to increases in ATM and
debit card fee income totaling $1.5 million in 1996. In the second quarter of
1996, the Corporation recorded $5.1 million in interest from tax receivables
relating to tax returns from the 1970's and 1980's. Also, in the fourth quarter
of 1996, the Corporation recorded a $3.2 million pre-tax gain from the sale of a
portion of its corporate trust business (see Table P).
Noninterest Expense
Noninterest expense for the year ended December 31, 1996 was $176.9 million, a
decrease of $14.9 million (7.8%) from $191.8 million for 1995. Noninterest
expense for 1995 was impacted by $5.6 million of nonrecurring accruals recorded
in the third quarter of 1995. Excluding these nonrecurring items, noninterest
expense decreased $9.3 million, or 5.0%.
Of the $5.6 million of nonrecurring expenses in 1995, $4.4 million was for
occupancy related expenses and $1.2 million was for reorganization and
severance-related expenses. The reorganization and severance-related expenses
were related to several efficiency initiatives implemented in the third quarter
and completed in the fourth quarter of 1995. The occupancy expenses were the
result of initiatives undertaken, including the new technology center completed
in August 1996, as well as the marketing of office space that is currently
vacant to third parties.
Excluding these nonrecurring items, the decrease in noninterest expense of
$9.3 million was primarily due to decreases in personnel-related expenses of
$4.4 million, occupancy expenses of $1.1 million, and reductions in Federal
Deposit Insurance Corporation ("FDIC") insurance, which decreased $4.3 million
during 1996. Effective June 1995, coinciding with the mandatory 1.25% funding of
the Bank Insurance Fund ("BIF") reserve, insurance rates reduced from a range of
$0.23 to $0.26 per $100 in deposits insured to a range of $0.04 to $0.07 per
$100 in deposits insured. Further, in November 1995, based on the continuing
increase in reserves with BIF, the FDIC announced an additional reduction of
insurance rates to zero percent, however, banks must pay a mandatory minimum
of $2 thousand per year (see Table Q).
Income Taxes
The Corporation's provision for income taxes includes both federal and state
income taxes. The Corporation's 1996 provision for income tax expense of $6.2
million increased from a provision of $0.3 million in 1995. This represents an
effective tax rate of 8.5% for 1996, compared with an effective tax rate of 0.4%
for 1995. The provision for income taxes in 1996 was less than the amount
determined by application of the federal statutory income tax rate, principally
because of the Corporation's reversal of the previously established valuation
allowance. Additionally, in the second quarter of 1996, the Corporation received
a $2.4 million tax refund, the result of amended local tax returns from the
1980s, which reduced 1996's provision for income tax expense.
The Corporation accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes," which primarily requires the use of the asset and liability
method for computing taxes. Under this method, deferred tax assets and
liabilities are recorded from differences between financial statements and
tax-based assets and liabilities. The tax effects of these differences are
recorded using anticipated tax rates in the years these differences will
reverse. Additionally, a valuation allowance is established for deferred tax
assets in the event that these assets may not be fully realized. At December 31,
1996, the Corporation had net deferred tax assets totaling $26.5 million, which
included a valuation allowance of $16.2 million. Further tax discussion and a
reconciliation of the effective tax rate to the 1996 federal statutory rate of
35% can be found in Note 13, "Income Taxes."
FOURTH QUARTER 1996 VS. FOURTH QUARTER 1995
For the fourth quarter of 1996, the Corporation reported net income of $11.2
million, or $0.27 per common share, compared with $13.0 million, or $0.34 per
common share, for the fourth quarter of 1995 (see Table R). Results for the
fourth quarters of 1996 and 1995 reflected no provisions for loan losses.
Nonperforming assets totaled $38.1 million at December 31, 1996, a decrease of
$8.2 million from the third quarter of 1996, and a decrease of $7.8 million from
$45.9 million at December 31, 1995.
Net interest income on a tax-equivalent basis for the fourth quarter of 1996
was $40.3 million, an increase of $2.0 million, or 5.2%, year-to-year,
reflecting the same impact of net increases in average earning assets in 1996.
The net interest margin was 3.74% during the fourth quarter of 1996, up 4 basis
points from the fourth quarter of 1995. The net interest spread was 2.93% for
the quarter ended December 31, 1996, up 3 basis points from that for the same
period in the prior year (see Table S).
14
The reserve for loan losses totaled $64.5 million, an increase of $3.8 million
during the fourth quarter of 1996. This increase was the result of net
recoveries recorded of $2.5 million, compared with net recoveries recorded of
$1.4 million for the fourth quarter of 1995.
Noninterest income for the fourth quarter of 1996 was $23.7 million, an
increase of $4.4 million, or 22.6%, when compared with the like period in 1995.
Trust income of $9.0 million increased $0.6 million between the quarters,
stemming primarily from increased revenue from the Corporation's personal trust
operations. Service charges of $8.9 million for 1996's fourth quarter were up
$0.9 million, primarily due to increases in ATM and debit card fee income. Other
noninterest income increased $3.2 million, the result of the Corporation's sale
of a portion of its corporate trust business in the fourth quarter of 1996.
Noninterest expense for the fourth quarter of 1996 totaled $46.0 million,
compared with $43.8 million a year earlier, an increase of $2.1 million, or
4.9%. Salaries and related benefits of $19.4 million were up $1.1 million, as
benefit-related expenses increased between the periods. Net occupancy expense
was down $1.1 million, to $4.0 million in the fourth quarter of 1996, because of
the previously mentioned occupancy efficiency programs. Other real estate owned
expense was $266 thousand, an increase of $618 thousand when compared with
1995's fourth-quarter net other real estate owned income, the result of fewer
gains from the sale of other real estate owned properties in 1996. Other
noninterest expense totaled $13.5 million for the fourth quarter of 1996, an
increase of $1.8 million related to miscellaneous consulting and office supply
expenditures.
1995 VS. 1994
In 1995, the Corporation achieved record earnings with total net income of $87.8
million. By comparison, the Corporation had net earnings of $34.0 million in
1994. Earnings per common share for 1995 and 1994 were $2.54 and $.72,
respectively. Earnings for 1995 reflected a $55.0 million reduction in the
reserve for loan losses in the third quarter of 1995, as continued improvement
in credit quality resulted in the recording of this reserve reversal. Net income
to average total assets was 1.92% for 1995 and 0.76% for 1994. Net income to
average stockholders' equity was 28.25% for 1995 and 12.01% for 1994. The net
interest margin for 1995 was 3.74%, down from a high of 3.89% in 1994.
At December 31, 1995, total money market assets increased by $266.2 million
(68.6%) when compared with year-end 1994, the result of fund inflows from the
deposit portfolio. The total average of time deposits with other banks and
federal funds sold and resale agreements increased from $377.4 million in 1994
to $462.5 million in 1995.
The aggregate securities portfolio declined $71.4 million (6.9%) from a
balance of $1.04 billion at year-end 1994 to $970.0 million at year-end 1995.
The decrease in securities from 1994 was mainly due to aggregate maturities
during 1995 of $632.7 million, the majority of which were reinvested into
securities during the year. The weighted-average maturity and yield for
securities available for sale adjusted for anticipated prepayments were
approximately 3 years and 6.10%, respectively, at December 31, 1995. At December
31, 1995, the aggregate securities portfolio was comprised entirely of
securities available for sale, which totaled $970.0 million. The increase in
this portfolio and the offsetting decrease in the held-to-maturity portfolio was
primarily the result of transferring $446.1 million (book value) in securities
held-to-maturity to the available for sale portfolio in December 1995.
Securities available for sale were primarily mortgage-backed, U.S. Treasury and
government agencies securities.
Loans, net of premiums, discounts and deferred fees totaled $2.57 billion at
December 31, 1995, an increase of $22.0 million, or 0.9%, from the prior year.
During the year, the Corporation focused its efforts on new loan production in
the commercial and financial, residential mortgage and home equity portfolios.
This strategy coincided with the improvement in the local economy, particularly
in the areas of employment and small- to mid-sized commercial business. The
commercial loan portfolio totaled $400.3 million at year-end 1995, level with
the prior year balance, with originations totaling $213.8 million, or 53.4% of
the 1994 year-end portfolio balance. New residential mortgage loans in 1995
totaled $77.1 million, which was offset by paydowns and payoffs during the year
resulting in a decrease of less than 3% in the portfolio. Of the $77.1 million
residential loans originated in 1995, $53.9 million (70%) were fixed-rate loans,
with the remainder being adjustable-rate loans. The home equity portfolio
increased $30.9 million, or 14% in 1995, the result of several new products
introduced in 1994 and 1995. Originations in 1995 totaled $82.9 million. This
growth was partially offset by payoffs and paydowns during the year. Activity
within the foreign, consumer and real estate-commercial/construction portfolios
has either remained flat or had a movement upward, as the Corporation had
limited new lending in these portfolios.
Nonperforming assets, which include nonaccrual loans, renegotiated loans, and
other real estate owned (net of reserves), totaled $45.9 million at year-end
1995, a $29.8 million (39.3%) decrease from the year-end 1994 total of $75.7
million. This significant decrease in nonperforming assets during 1995 was
attributable to sales and paydowns of $30.0 million, nonaccrual and renegotiated
loans returning to accrual status of $3.7 million, and net
charge-offs/writedowns of $10.4 million, which were partially offset by exchange
rate fluctuations of $111 thousand, combined with net additions in 1995 of $14.2
million. At December 31, 1995, nonaccrual loans were $9.3 million, or 0.4% of
total loans, compared with
15
$27.4 million, or 1.1% of total loans, at December 31, 1994. The $18.1 million
reduction in nonaccrual loans during 1995 was due primarily to sales and
repayments of $17.5 million, nonaccrual loans returning to accrual status of
$3.6 million, charge-offs of $6.8 million and transfers of nonaccrual loans to
other real estate owned of $0.7 million. These decreases were partially offset
by net additions to nonaccrual loans and an increase in foreign exchange
translation adjustments, totaling $10.4 million and $0.1 million, respectively.
Renegotiated loans totaled $3.4 million at December 31, 1995, compared with
$555 thousand at year-end 1994. Renegotiated loans increased $2.9 million in
1995, the result of two residential development loans totaling $3.3 million that
were restructured in the fourth quarter. Other real estate owned decreased 30.5%
to $33.2 million at December 31, 1995, from $47.8 million at December 31, 1994.
The decrease resulted from sales and repayments of $12.3 million and $3.0
million in writedowns offset by net additions of $0.7 million during the period.
Past-due loans consisted predominately of residential real estate and consumer
loans that were well-secured and in the process of collection and on which the
Corporation was accruing interest. Past-due loans totaled $5.5 million at
year-end 1995, a decrease of $662 thousand when compared to year-end 1994. At
December 31, 1995, the Corporation had identified approximately $8.1 million in
potential problem loans. These loans primarily consisted of $5.0 million in real
estate-commercial/construction loans and $2.5 million in residential mortgage
loans. In addition, the Corporation had $4.7 million in other potential problem
assets at December 31, 1995.
In the third quarter of 1995, the reserve for loan losses was reduced by $55.0
million, based on management's review of the adequacy of the reserve, risk
characteristics within the loan portfolio, current asset quality, lending
levels, economic development and other factors. As a result, the provision for
loan losses amounted to a negative $55.0 million for 1995, compared to a
positive provision of $6.3 million for the prior year. Approximately $41.8
million of the reversal in 1995 related to domestic loans and $13.2 million
related to foreign loans. The reserve for loan losses was $56.5 million, or
2.20% of total loans, at December 31, 1995, compared with $97.0 million or 3.81%
of total loans, at December 31, 1994. Net recoveries for 1995 totaled $14.5
million compared with $3.0 million for 1994. The Corporation's coverage ratio
(reserves for loan losses divided by the sum of nonaccrual and renegotiated
loans) was 444.0% at year-end 1995, compared with 347.3% at year-end 1994. The
increase in the coverage ratio was impacted by the 65.9% decrease in nonaccrual
loans, partially offset by the $55.0 million loan loss reserve reversal in 1995.
Total deposits at December 31, 1995, were $3.89 billion, compared with $3.60
billion at year-end 1994, an increase of $282.4 million, or 7.8%. Average
domestic deposits were $3.41 billion for 1995, down $64.2 million, or 1.9%, from
an average of $3.47 billion for 1994. Average core deposits (total deposits in
domestic offices, excluding negotiable certificates of deposit) were $3.40
billion, a decline of $58.4 million, or 1.7% from 1994's average balance of
$3.45 billion. Average foreign deposits increased $82.2 million, to $339.6
million, primarily the result of increased deposits in the Nassau, Bahamas
subsidiary.
Short-term borrowings decreased $92.0 million (31.3%) to $201.5 million at
December 31, 1995, compared with $293.4 million at year-end 1994. Average
short-term borrowings for 1995 totaled $248.6 million, up from 1994's average of
$211.7 million. The increase in the average balance during 1995 was primarily
due to average increases in treasury, tax and loan balances, which were a
temporary source of funds for the Corporation. Long-term debt totaled $217.6
million at December 31, 1995, unchanged from year-end 1994.
Total stockholders' equity at December 31, 1995 was $376.7 million, or 8.0% of
total assets, up $109.0 million from year-end 1994. The increase from year-end
1994 was the result of earnings totaling $87.8 million combined with a change in
net unrealized gains/losses in the securities available for sale portfolio from
a $28.1 million loss at December 31, 1994, to a gain of $3.8 million at year-end
1995. These increases were offset by dividends on preferred stock of $10.8
million.
Net interest income on a tax-equivalent basis totaled $154.3 million for 1995,
a decrease of $2.4 million, or 1.5%, from $156.7 million in 1994. The
Corporation experienced a sizable increase during 1995 in average
interest-earning assets, totaling $90.3 million and an increase of 65 basis
points in the average rate earned. Average loans remained level during the
period as the majority of the increase in average balances occurred in the
securities portfolio, which increased over $63.6 million in 1995. The
Corporation also had a $20.6 million increase in average interest-bearing
liabilities that was mostly due to the increase in average borrowed funds. Thus,
the Corporation had a favorable net increase in average interest-earning assets
over interest-bearing liabilities of $69.7 million. This positive movement,
however, was overshadowed by a 102 basis point increase in the average rate paid
on interest-bearing liabilities between 1995 and the prior year. Generally, the
Corporation's assets will reprice faster than its liabilities. With the seven
consecutive interest rate increases by the Federal Reserve in 1994, the
Corporation initially experienced an increase in its net interest margin. As the
interest rate increases abated in 1995, combined with the upward repricing of
the liabilities portfolio, the net interest margin leveled in the first half of
1995 and then declined in the second half of 1995. The net interest margin was
3.74% for 1995, a decrease of 15 basis points from the 3.89% net interest margin
for 1994 because of the aforementioned changes in earning assets and
interest-bearing liabilities. Net interest spread for 1995 was 2.97%, a 37
basis-point decline from 1994's spread of 3.34%. Interest lost on nonaccrual and
renegotiated loans totaled $2.0 million for 1995, which had the
16
effect of reducing the net interest margin by approximately five basis points
for the year. In 1994, interest lost totaled $5.0 million and had the effect of
reducing the net interest margin in that year by approximately 12 basis points.
Noninterest income for 1995 was $74.0 million, down $11.5 million, or 13.5%
from 1994's total of $85.5 million. Excluding securities gains of $511 thousand
and $226 thousand for 1995 and 1994, respectively, and $4.7 million of
nonrecurring noninterest income related to a mortgage insurance settlement
recognized in 1994, noninterest income decreased $7.1 million, or 8.8%. Trust
income of $29.9 million increased $1.3 million, or 4.7% in 1995 from the
Corporation's personal trust and mutual fund operations. Service charges for
1995 decreased $3.2 million (8.6%) to $33.7 million and international fee income
decreased $4.6 million (85.4%) to $786 thousand. The decrease in service charges
for 1995 was primarily due to decreases in transaction-based deposit accounts
between the periods, while the decrease in international commissions and fees
was attributed to the loss of $5.6 million in fee income from the three foreign
subsidiaries sold in the third quarter of 1994. The gain on settlement of
mortgage insurance resulted from the settlement of claims stemming from other
real estate owned properties in the United Kingdom.
Noninterest expense for the year ended December 31, 1995 was $191.8 million, a
decrease of $7.2 million from $199.0 million for 1994. The decrease in total
noninterest expense, excluding nonrecurring items, was actually larger, the
result of $5.6 million of nonrecurring accruals in the third quarter of 1995 and
a $2.1 million restructuring expense reversal in 1994. Excluding these
nonrecurring items, noninterest expense decreased $14.8 million, or 7.4%. Of the
$5.6 million of nonrecurring expenses in 1995, $4.4 million was for occupancy
related expenses and $1.2 million was for reorganization and severance-related
expenses. Excluding these nonrecurring items, the decrease in noninterest
expense of $14.8 million was primarily due to decreases in FDIC insurance,
legal, furniture and equipment and other noninterest expenses. Deposit
insurance premiums decreased $5.3 million during 1995. Furniture and equipment
expense of $8.0 million decreased $1.3 million, or 13.7%, the result of
decreases in depreciation expense between the periods. Other noninterest
expense totaled $47.7 million, down $4.0 million, or 8.3%, from the $52.0
million for 1994. This decrease was primarily the result of $2.5 million in
other noninterest expenses related to the three foreign subsidiaries sold
in 1994.
The Corporation's provision or benefit for income taxes includes both federal
and state income taxes. The Corporation's 1995 provision for income tax expense
of $0.3 million increased from a benefit of $0.5 million in 1994. This
represents an effective tax rate of 0.4% for 1995, compared with a negative
effective tax rate of 1.6% for 1994. The provision for income taxes in 1995 was
less than the amount determined by application of the federal statutory income
tax rate, principally because of the Corporation's ability to carry forward
previous net operating losses and the reversal of the previously established
valuation allowance.
17
TABLE A: MATURITIES OF SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1996
GROSS GROSS BOOK/
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities:
Due within 1 year $ 85,221 $ 67 $ 13 $ 85,275
Due after 1 year but within 5 years 479,518 1,194 2,475 478,237
Due after 5 years but within 10 years 169,980 213 33 170,160
Government Agencies Securities:
Due within 1 year 399,219 -- 58 399,161
Other Securities:
Due within 1 year 5,400 -- -- 5,400
Due after 10 years 24,270 -- -- 24,270
============================================================================================================
Total Securities Available for Sale $1,163,608 $1,474 $2,579 $1,162,503
TABLE B: YEAR-END LOANS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Domestic:
Commercial and Financial $ 443,557 $ 400,280 $ 400,660 $ 412,006 $ 369,885
Real Estate-Commercial/Construction 352,015 326,965 323,835 388,442 533,685
Residential Mortgage 1,226,110 1,284,193 1,317,169 1,149,363 529,382
Home Equity 281,867 251,798 220,910 234,049 273,586
Consumer 78,617 79,867 75,887 82,819 107,382
- ------------------------------------------------------------------------------------------------------------
Total Domestic 2,382,166 2,343,103 2,338,461 2,266,679 1,813,920
Foreign:
Governments and Official Institutions 17,131 30,849 26,013 28,113 29,319
Banks and Other Financial Institutions 5,457 6,570 11,517 14,999 24,734
Commercial and Industrial 213,236 171,070 146,153 192,770 291,496
Other 15,958 15,761 20,875 19,514 25,948
- ------------------------------------------------------------------------------------------------------------
Total Foreign 251,782 224,250 204,558 255,396 371,497
- ------------------------------------------------------------------------------------------------------------
Total Loans 2,633,948 2,567,353 2,543,019 2,522,075 2,185,417
Unamortized Premium (Unearned
Discount/Net Deferred Fees) 3,886 4,606 6,905 6,058 (4,360)
- ------------------------------------------------------------------------------------------------------------
Total Loans, Net of Unamortized
Premium (Unearned Discount/
Net Deferred Fees) 2,637,834 2,571,959 2,549,924 2,528,133 2,181,057
Reserve for Loan Losses (64,486) (56,546) (97,039) (86,513) (84,155)
============================================================================================================
Total Net Loans $2,573,348 $2,515,413 $2,452,885 $2,441,620 $2,096,902
18
TABLE C: REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1996
GEOGRAPHIC LOCATION
- ------------------------------------------------------------------------------------------------------------
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------
Land Acquisition and
Construction Development $ 25,889 $ 8,579 $ 5,609 $ -- $ -- $ 40,077
Multifamily Residential 19,788 16,393 3,923 -- 6,211 46,315
Commercial:
Office Buildings 58,201 43,124 26,450 -- -- 127,775
Shopping Centers 31,166 11,795 16,375 -- -- 59,336
Hotels 4,488 -- -- -- -- 4,488
Industrial/Warehouse 2,259 11,714 7,522 -- -- 21,495
Churches 21,780 4,479 9,329 -- -- 35,588
Other 4,163 6,063 6,648 -- 67 16,941
- ------------------------------------------------------------------------------------------------------------
Total Commercial 122,057 77,175 66,324 -- 67 265,623
- ------------------------------------------------------------------------------------------------------------
Total Domestic Real Estate-
Commercial/Construction Loans 167,734 102,147 75,856 -- 6,278 352,015
Foreign -- -- -- 122,655 -- 122,655
============================================================================================================
Total Real Estate-
Commercial/Construction Loans $167,734 $102,147 $75,856 $122,655 $6,278 $474,670
TABLE D: YEAR-END MATURITIES AND RATE SENSITIVITY
DECEMBER 31, 1996
LESS THAN OVER
(IN THOUSANDS) 1 YEAR (1) 1-5 YEARS 5 YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------
Maturities:
Commercial and Financial $121,937 $200,306 $ 121,314 $ 443,557
Real Estate-Commercial/Construction 107,062 173,452 71,501 352,015
Residential Mortgage 19,508 86,571 1,120,031 1,226,110
Home Equity 140,392 -- 141,475 281,867
Consumer 45,624 29,856 3,137 78,617
Foreign 223,480 21,500 6,802 251,782
============================================================================================================
Total $658,003 $511,685 $1,464,260 $2,633,948
Rate Sensitivity:
With Fixed Interest Rates $103,341 $295,610 $1,006,313 $1,405,264
With Floating and Adjustable Interest Rates 554,662 216,075 457,947 1,228,684
============================================================================================================
Total $658,003 $511,685 $1,464,260 $2,633,948
[FN]
(1)--INCLUDES DEMAND LOANS, LOANS HAVING NO STATED SCHEDULE OF REPAYMENTS OR
MATURITY, AND OVERDRAFTS.
19
TABLE E: CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
GOVERNMENTS BANKS AND COMMERCIAL
AND OFFICIAL OTHER FINANCIAL AND
(IN THOUSANDS) INSTITUTIONS INSTITUTIONS INDUSTRIAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996
UNITED KINGDOM $ 419 $ 727 $167,701 $27,480 $196,327
============================================================================================================
As of December 31, 1995
United Kingdom 242 22,090 133,336 25,199 180,867
- ------------------------------------------------------------------------------------------------------------
As of December 31, 1994
United Kingdom 257 57,715 84,725 6,704 149,401
France 36,105 25,011 3 -- 61,119
TABLE F: CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
WITH NONPERFORMING OR PAST-DUE LOANS
TOTAL
NONACCRUAL RENEGOTIATED NONPERFORMING PAST-DUE
(IN THOUSANDS) LOANS LOANS LOANS LOANS
- ------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996
UNITED KINGDOM $ 287 $-- $ 287 $--
============================================================================================================
As of December 31, 1995
United Kingdom 1,714 -- 1,714 36
- ------------------------------------------------------------------------------------------------------------
As of December 31, 1994
United Kingdom 10,634 267 10,901 --
France -- -- -- --
20
TABLE G: NONPERFORMING ASSETS AND PAST-DUE LOANS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS:
Nonaccrual Loans:(1)
Domestic $ 9,133 $ 7,542 $ 11,518 $ 85,075 $ 152,812
Foreign 743 1,784 15,865 45,099 52,613
- ------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 9,876 9,326 27,383 130,174 205,425
Renegotiated Loans:(2)
Domestic 125 3,410 288 29,465 11,806
Foreign -- -- 267 834 --
- ------------------------------------------------------------------------------------------------------------
Total Renegotiated Loans 125 3,410 555 30,299 11,806
Other Real Estate Owned, Net:
Domestic 27,722 32,627 44,068 45,049 62,810
Foreign 399 570 3,695 7,754 26,579
- ------------------------------------------------------------------------------------------------------------
Total Other Real Estate Owned, Net 28,121 33,197 47,763 52,803 89,389
============================================================================================================
Total Nonperforming Assets, Net $ 38,122 $ 45,933 $ 75,701 $ 213,276 $ 306,620
PAST-DUE LOANS:(3)
Domestic $ 3,849 $ 5,423 $ 6,091 $ 3,315 $ 1,369
Foreign -- 36 30 4 55
============================================================================================================
Total Past-Due Loans $ 3,849 $ 5,459 $ 6,121 $ 3,319 $ 1,424
Total Loans, Net of Unamortized Premium
(Unearned Discount/Net Deferred Fees) $2,637,834 $2,571,959 $2,549,924 $2,528,133 $2,181,057
Ratio of Nonaccrual Loans to Total Loans .37% .36% 1.07% 5.15% 9.42%
Ratio of Nonperforming Assets to Total Loans
and Other Real Estate Owned, Net 1.43% 1.76% 2.91% 8.26% 13.50%
[FN]
(1)--LOANS (OTHER THAN CONSUMER) THAT ARE CONTRACTUALLY PAST DUE 90 DAYS OR
MORE IN EITHER PRINCIPAL OR INTEREST THAT ARE NOT WELL-SECURED AND IN THE
PROCESS OF COLLECTION, OR THAT ARE, IN MANAGEMENT'S OPINION, DOUBTFUL AS TO THE
COLLECTIBILITY OF EITHER INTEREST OR PRINCIPAL.
(2)-- LOANS FOR WHICH TERMS HAVE BEEN RENEGOTIATED TO PROVIDE A REDUCTION
OF INTEREST OR PRINCIPAL AS A RESULT OF A DETERIORATION IN THE FINANCIAL
POSITION OF THE BORROWER IN ACCORDANCE WITH SFAS NO. 15. RENEGOTIATED LOANS DO
NOT INCLUDE $10.6 MILLION IN LOANS RENEGOTIATED AT MARKET TERMS THAT HAVE
PERFORMED IN ACCORDANCE WITH THEIR RESPECTIVE RENEGOTIATED TERMS. THESE
PERFORMING, MARKET-RATE LOANS ARE NO LONGER INCLUDED IN NONPERFORMING ASSET
TOTALS.
(3)--LOANS CONTRACTUALLY PAST DUE 90 DAYS OR MORE IN PRINCIPAL OR INTEREST
THAT ARE WELL-SECURED AND IN THE PROCESS OF COLLECTION.
21
TABLE H: INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Interest Income at Original Terms:
Nonaccrual Loans--
Domestic $ 972 $ 1,230 $ 3,571 $ 10,639 $ 15,155
Foreign 228 1,156 2,476 5,601 3,325
Renegotiated Loans 68 54 444 1,845 296
============================================================================================================
Total $ 1,268 $ 2,440 $ 6,491 $ 18,085 $ 18,776
Actual Interest Income Recognized:
Nonaccrual Loans--
Domestic $ 254 $ 214 $ 458 $ 1,506 $ 5,345
Foreign 37 186 1,075 2,128 116
Renegotiated Loans -- -- -- 346 94
============================================================================================================
Total $ 291 $ 400 $ 1,533 $ 3,980 $ 5,555
TABLE I: RESERVE FOR LOAN LOSSES AND SUMMARY OF CHARGE-OFFS (RECOVERIES)
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Balance, January 1 $ 56,546 $ 97,039 $ 86,513 $ 84,155 $103,674
Provision for Loan Losses -- (55,000) 6,300 69,290 52,067
Loans Charged Off:
Commercial and Financial 764 243 593 4,703 3,192
Real Estate-Commercial/Construction 1,061 697 6,800 41,170 31,528
Residential Mortgage 11 -- 409 96 215
Home Equity 67 438 98 201 453
Consumer 1,513 906 1,511 1,864 2,745
Foreign 260 6,106 3,219 31,400 35,575
- ------------------------------------------------------------------------------------------------------------
Total Loans Charged Off 3,676 8,390 12,630 79,434 73,708
- ------------------------------------------------------------------------------------------------------------
Recoveries on Charged-Off Loans:
Commercial and Financial 397 2,084 695 527 616
Real Estate-Commercial/Construction 3,802 11,408 8,847 6,699 3,172
Residential Mortgage -- 84 136 145 15
Home Equity 27 114 4 -- --
Consumer 512 838 942 938 1,231
Foreign 5,513 8,400 5,034 4,712 279
- ------------------------------------------------------------------------------------------------------------
Total Recoveries on Charged-Off Loans 10,251 22,928 15,658 13,021 5,313
- ------------------------------------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) (6,575) (14,538) (3,028) 66,413 68,395
Foreign Exchange Translation Adjustments 1,365 (31) 1,198 (519) (3,191)
============================================================================================================
Balance, December 31 $ 64,486 $ 56,546 $ 97,039 $ 86,513 $ 84,155
Ratio of Net Charge-Offs (Recoveries) to
Average Loans (.26)% (.57)% (.12)% 3.04 % 2.66 %
Ratio of Reserve for Loan Losses to
Total Loans 2.44 % 2.20 % 3.81 % 3.42 % 3.86 %
22
TABLE J: RESERVE FOR LOAN LOSSES ALLOCATION AND LOAN DISTRIBUTION
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Commercial and Financial $ 6,838 $ 9,334 $11,658 $ 8,836 $ 7,775
Real Estate-Residential and
Commercial/Construction 8,191 9,543 11,988 29,544 41,699
Home Equity and Consumer 4,236 2,717 6,178 2,905 3,658
Foreign 4,752 5,030 11,981 19,651 25,266
Based on Qualitative Factors 40,469 29,922 55,234 25,577 5,757
============================================================================================================
Balance, December 31 $64,486 $56,546 $97,039 $86,513 $84,155
DISTRIBUTION OF YEAR-END LOANS
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Commercial and Financial 16.8% 15.6% 15.8% 16.3% 17.0%
Real Estate-Residential and
Commercial/Construction 59.9 62.9 64.5 61.0 48.6
Home Equity and Consumer 13.7 12.8 11.7 12.6 17.4
Foreign 9.6 8.7 8.0 10.1 17.0
============================================================================================================
Balance, December 31 100.0% 100.0% 100.0% 100.0% 100.0%
TABLE K: OTHER REAL ESTATE OWNED, NET
GEOGRAPHIC DISTRIBUTION BY TYPE
DECEMBER 31, 1996
GEOGRAPHIC LOCATION
- ------------------------------------------------------------------------------------------------------------
DISTRICT OF UNITED
(IN THOUSANDS) COLUMBIA VIRGINIA MARYLAND KINGDOM TOTAL
- ------------------------------------------------------------------------------------------------------------
Land $-- $18,129 $6,239 $-- $24,368
Single-Family Residential -- 619 829 -- 1,448
Office Buildings/Retail -- 18 1,673 399 2,090
Industrial/Warehouse 215 -- -- -- 215
============================================================================================================
Total Other Real Estate Owned, Net $215 $18,766 $8,741 $399 $28,121
23
TABLE L: AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) BALANCES RATES BALANCES RATES BALANCES RATES
- ------------------------------------------------------------------------------------------------------------
Deposits in Domestic Offices:
Noninterest-Bearing Demand Deposits $ 802,265 $ 807,295 $ 786,153
Savings and NOW Accounts 633,119 2.16% 811,344 2.34% 903,756 2.15%
Money Market Deposits 1,164,669 3.27 940,501 3.43 1,029,548 2.59
Other Core Deposits 822,541 4.63 836,530 5.11 734,592 3.35
- ------------------------------------------------------------------------------------------------------------
Total Average Core Deposits 3,422,594 3,395,670 3,454,049
Negotiable Certificates of Deposit 12,218 5.21 9,819 5.88 15,669 3.83
- ------------------------------------------------------------------------------------------------------------
Total Average Deposits in
Domestic Offices 3,434,812 3,405,489 3,469,718
Deposits in Foreign Offices:(1)
Noninterest-Bearing Demand Deposits 10,250 9,468 11,496
Interest-Bearing Bank Deposits 54,383 6.41 48,903 7.40 47,039 9.85
Interest-Bearing Non-Bank Deposits 306,528 5.21 281,253 5.62 198,844 3.83
- ------------------------------------------------------------------------------------------------------------
Total Average Deposits in
Foreign Offices 371,161 339,624 257,379
============================================================================================================
Total Average Deposits $3,805,973 $3,745,113 $3,727,097
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements $ 212,206 4.73% $ 174,923 5.98% $ 150,678 4.56%
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 28,747 4.41 73,694 5.70 61,058 3.71
============================================================================================================
Total Average Short-Term Borrowings $ 240,953 $ 248,617 $ 211,736
[FN]
(1)--THE MAJORITY OF INTEREST-BEARING DEPOSITS IN FOREIGN OFFICES ARE
DENOMINATED IN AMOUNTS OF $100 THOUSAND OR MORE.
TABLE M: CAPITAL RATIOS
DECEMBER 31,
-------------------- REQUIRED
1996 1995 MINIMUMS
- ------------------------------------------------------------------------------------------------------------
Riggs National Corporation
Tier I 20.04% 13.57% 4.00%
Combined Tier I and Tier II 28.47 21.62 8.00
Leverage(1) 11.84 8.03 4.00
Riggs Bank N.A.(2)
Tier I 18.66 n/a 4.00
Combined Tier I and Tier II 19.92 n/a 8.00
Leverage (1) 10.96 n/a 4.00
[FN]
(1)-- MOST BANK HOLDING COMPANIES AND NATIONAL BANKS, INCLUDING THE
CORPORATION AND THE CORPORATION'S NATIONAL BANK SUBSIDIARY, ARE EXPECTED TO
MAINTAIN AT LEAST A 4.00% MINIMUM LEVERAGE RATIO, OR HIGHER, IF DETERMINED
APPROPRIATE BY THE FEDERAL RESERVE BOARD. THE FEDERAL RESERVE HAS NOT INDICATED
A REQUIREMENT HIGHER THAN 4.00% AT DECEMBER 31, 1996.
(2)-- ON MARCH 28, 1996, THE CORPORATION MERGED THE RIGGS NATIONAL BANK
OF VIRGINIA AND THE RIGGS NATIONAL BANK OF MARYLAND INTO THE RIGGS NATIONAL
BANK OF WASHINGTON, D.C., AND RENAMED THE COMBINED NATIONAL BANK RIGGS
BANK NATIONAL ASSOCIATION ("RIGGS BANK N.A."). RIGGS BANK N.A. IS A WHOLLY-
OWNED SUBSIDIARY OF RIGGS NATIONAL CORPORATION.
24
TABLE N: THREE-YEAR AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES (1)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(IN THOUSANDS) BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- ------------------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial-Taxable $ 359,303$ 30,483 8.48%$ 364,638$ 30,101 8.26%$ 381,721$ 24,734 6.48%
Commercial-Tax-Exempt 29,180 2,748 9.42 33,601 3,797 11.30 61,233 6,547 10.69
Real Estate-
Commercial/Construction 327,594 28,953 8.84 325,987 31,375 9.62 353,006 30,575 8.66
Residential Mortgage 1,258,669 89,674 7.12 1,310,249 93,179 7.11 1,303,327 92,164 7.07
Home Equity 273,860 22,555 8.24 237,438 21,457 9.04 225,117 17,037 7.57
Consumer 76,006 9,285 12.22 75,484 9,076 12.02 75,663 8,957 11.84
Foreign 232,800 18,689 8.03 195,757 16,694 8.53 201,457 16,884 8.38
- ------------------------------------------------------------------------------------------------------------
Total Loans, Including Fees 2,557,412 202,387 7.91 2,543,154 205,679 8.09 2,601,524 196,898 7.57
Securities Available
for Sale(2) 1,115,466 65,739 5.89 634,198 38,750 6.11 582,076 31,119 5.35
Securities Held-to-Maturity -- -- -- 482,164 29,461 6.10 470,690 23,437 4.98
Time Deposits with Other Banks 208,108 10,288 4.94 219,967 13,819 6.28 189,425 9,786 5.17
Federal Funds Sold and
Reverse Repurchase Agreements 341,279 18,487 5.42 242,534 14,389 5.93 187,955 8,139 4.33
- ------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS AND
AVERAGE RATE EARNED 4,222,265 296,901 7.03 4,122,017 302,098 7.33 4,031,670 269,379 6.68
Less: Reserve for Loan Losses 59,556 87,894 92,258
Cash and Due from Banks 192,024 203,327 219,609
Premises and Equipment, Net 160,354 151,372 156,525
Other Assets 201,282 184,329 185,031
============================================================================================================
TOTAL ASSETS $4,716,369 $4,573,151 $4,500,577
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits:
Savings and NOW Accounts $ 645,258$ 13,944 2.16% $ 822,666$ 19,293 2.35% $ 908,582$ 19,512 2.15%
Money Market
Deposit Accounts 1,173,179 38,363 3.27 949,501 32,518 3.42 1,042,664 26,947 2.58
Time Deposits in Domestic
Offices 834,759 38,738 4.64 846,356 43,353 5.12 750,258 25,816 3.44
Time Deposits
in Foreign Offices 340,262 18,931 5.56 309,832 18,822 6.07 227,943 11,282 4.95
- ------------------------------------------------------------------------------------------------------------
Total Interest-
Bearing Deposits 2,993,458 109,976 3.67 2,928,355 113,986 3.89 2,929,447 83,557 2.85
Short-Term Borrowings:
Federal Funds Purchased and
Repurchase Agreements 212,206 10,036 4.73 174,923 10,456 5.98 150,678 6,871 4.56
U.S. Treasury Demand Notes and
Other Short-Term Borrowings 28,747 1,267 4.41 73,694 4,203 5.70 61,058 2,268 3.71
Long-Term Debt 210,494 18,612 8.84 217,625 19,176 8.81 232,790 20,027 8.60
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING FUNDS
AND AVERAGE RATE INCURRED 3,444,905 139,891 4.06 3,394,597 147,821 4.36 3,373,973 112,723 3.34
Demand Deposits 812,515 816,758 797,650
Other Liabilities 51,095 50,952 45,699
Minority Interest in Preferred
Stock of Subsidiary 7,787 -- --
Stockholders' Equity 400,067 310,844 283,255
============================================================================================================
TOTAL LIABILITIES,
MINORITY INTEREST AND
STOCKHOLDERS' EQUITY $4,716,369 $4,573,151 $4,500,577
NET INTEREST INCOME AND SPREAD $157,010 2.97% $154,277 2.97% $156,656 3.34%
============================================================================================================
NET INTEREST MARGIN ON
EARNING ASSETS 3.72% 3.74% 3.89%
[FN]
(1)--INCOME AND RATES ARE COMPUTED ON A TAX-EQUIVALENT BASIS USING A
FEDERAL INCOME TAX RATE OF 35% FOR 1996 AND 1995, AND 34% FOR 1994, IN ADDITION
TO LOCAL TAX RATES AS APPLICABLE. LOAN AMOUNTS INCLUDE NONACCRUAL AND
RENEGOTIATED LOANS. AVERAGE FOREIGN ASSETS, EXCLUDING NET POOL FUNDS PROVIDED,
DETAILS OF WHICH CAN BE FOUND ON PAGE 66 OF THIS REPORT, WERE 9.0%, 8.4% AND
9.1% OF AVERAGE TOTAL ASSETS FOR THE PERIODS PRESENTED, RESPECTIVELY. AVERAGE
FOREIGN LIABILITIES WERE 20.0%, 17.6% AND 14.7% OF AVERAGE TOTAL LIABILITIES FOR
THE PERIODS PRESENTED, RESPECTIVELY.
(2)--THE AVERAGES AND RATES FOR THE SECURITIES AVAILABLE FOR SALE PORTFOLIO
ARE BASED ON AMORTIZED COST.
25
TABLE O: NET INTEREST INCOME CHANGES (1)
1996 VERSUS 1995 1995 VERSUS 1994
- ------------------------------------------------------------------------------------------------------------
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE RATE VOLUME CHANGE
- ------------------------------------------------------------------------------------------------------------
Interest Income:
Loans, Including Fees $ (5,029) $ 1,737 $ (3,292) $15,285 $(6,504) $ 8,781
Securities Available for Sale (1,421) 28,410 26,989 4,681 2,950 7,631
Securities Held-to-Maturity -- (29,461) (29,461) 5,435 589 6,024
Time Deposits with Other Banks (2,817) (714) (3,531) 2,305 1,728 4,033
Federal Funds Sold and Reverse
Repurchase Agreements (1,334) 5,432 4,098 3,502 2,748 6,250
- ------------------------------------------------------------------------------------------------------------
Total Interest Income (10,601) 5,404 (5,197) 31,208 1,511 32,719
Interest Expense:
Savings and NOW Accounts (1,453) (3,896) (5,349) 1,702 (1,921) (219)
Money Market Deposit Accounts (1,484) 7,329 5,845 8,154 (2,583) 5,571
Time Deposits in Domestic Offices (4,026) (589) (4,615) 13,897 3,640 17,537
Time Deposits in Foreign Offices (1,647) 1,756 109 2,921 4,619 7,540
Federal Funds Purchased and
Repurchase Agreements (2,417) 1,997 (420) 2,362 1,223 3,585
U.S. Treasury Demand Notes and
Other Borrowings (796) (2,140) (2,936) 1,397