ITEM 1. BUSINESS
RIGGS NATIONAL CORPORATION
Riggs National Corporation ("the Corporation") is a multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and incorporated in the State of Delaware. The Corporation engages in a variety of banking- related activities, either directly or through subsidiaries. The Corporation currently has banking subsidiaries in Washington, D.C.; Virginia; Maryland; Miami, Florida; London, England; Paris, France; and Nassau, Bahamas. Additionally, the Corporation provides investment advisory services domestically through a subsidiary registered under the Investment Advisers Act of 1940. Subsidiaries of the Corporation located in the Bahamas and France provide trust and corporate services, as well as traditional banking services.
The Corporation provides a wide range of financial services to a broad customer base. These include traditional retail banking, corporate and commercial banking, and trust and investment advisory services. The Corporation's trust group provides fiduciary and administrative services, including financial management and tax planning for individuals, investment and accounting services for corporate and nonprofit organizations, estate planning and trust administration, as well as bond trusteeship for state and local governments and public companies.
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THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.
The Corporation's principal subsidiary is The Riggs National Bank of Washington, D.C. ("Riggs-Washington"), a national banking association founded in 1836 and incorporated under the national banking laws of the United States in 1896. Riggs-Washington had assets of $3.84 billion, deposits of $3.11 billion, and stockholders' equity of $280.7 million at December 31, 1994.
Riggs-Washington operates 33 branches and an investment advisory subsidiary in Washington, D.C., commercial banks in London, England, an Edge Act subsidiary in Miami, Florida, branch offices in London, England and Nassau, Bahamas, and a Bahamian bank and trust company. At December 31, 1994, Riggs-Washington and its subsidiaries had 1,470 full-time equivalent employees.
As a commercial bank, Riggs-Washington provides a wide array of financial services to customers in the Washington metropolitan area, throughout the United States and internationally.
Riggs-Washington's Corporate and Commercial Banking Groups provide services to customers ranging from small regional businesses to major multinational companies. These services include lines of credit, secured and unsecured term loans, letters of credit, credit support facilities, foreign currency transactions and cash management.
Riggs-Washington's Trust and Financial Services Group provides fiduciary and administrative services, including financial management and tax planning for individuals, investment and accounting services for corporate and non-profit organizations, estate planning and trust administration, as well as bond trusteeship for state and local governments and public companies.
Riggs-Washington provides investment advisory services through Riggs Investment Management Corporation ("RIMCO"), a wholly owned subsidiary incorporated under the laws of Delaware and registered under the Investment Advisers Act of 1940.
Riggs-Washington's Retail Banking Group provides a variety of services including checking, NOW, savings and money market accounts, loans and personal lines of credit, certificates of deposit and individual retirement accounts. Additionally, the Retail Banking Group provides 24-hour banking services through a network of Riggs's automated teller machines ("ATMs") and through national and regional ATM networks. 	 Riggs-Washington's International Banking Group furnishes a variety of financial services including issuing letters of credit in connection with trade and other transactions, taking deposits, foreign exchange, private banking and cash management. Customers include embassies and foreign missions in Washington, D.C., foreign governments, central banks, and over 200 correspondent banks around the world. These services are provided through both domestic and international offices.
The Riggs Bank and Trust Company (Bahamas) Limited, in Nassau, provides trust services for international private banking customers. Riggs-Washington operates a branch in the U.S. Embassy in London which services the Embassy, its employees and official visitors. In 1991, Riggs-Washington opened a banking subsidiary under the laws of France. A full service commercial bank, The Riggs National Bank (Europe) S.A. ("Riggs-Europe") has one branch located in the U.S. Embassy in Paris. In addition to serving the Embassy, its employees and official visitors, the Riggs-Europe office also assists the U.S. Government with disbursement activities for the Department of Defense and Department of State for all their facilities in Europe.
In August 1994, the Corporation sold its investment in three foreign investment advisory subsidiaries; Riggs Valmet, Limited and Riggs Valmet Holdings, Limited located in Gibraltar and Riggs Valmet, S.A. located in Geneva, Switzerland. The Corporation sold these subsidiaries as part of its financial restructuring plan, began in the second quarter of 1993, which included, among other strategies, the exiting of certain unprofitable lines of business. See "Management's Discussion and Analysis--Performance Enhancing Strategies-Financial Restructurings" for further details on the sale of these subsidiaries.
RIGGS AP BANK LIMITED
Riggs AP Bank Limited ("Riggs AP"), a merchant bank located in London, England is a wholly owned subsidiary of Riggs-Washington. Riggs AP provides traditional corporate banking services, commercial property financing, investment banking services and trade finance. At December 31, 1994, Riggs AP had total assets of $174.0 million representing 3.9% of the Corporation's total assets and had loans of $94.1 million or 46.0% of the Corporation's total foreign loans and 3.7% of total loans. _____________________________________
THE RIGGS NATIONAL BANK OF VIRGINIA
The Riggs National Bank of Virginia ("Riggs-Virginia") is a nationally chartered full-service commercial bank. At December 31, 1994, Riggs-Virginia had assets of $351.1 million, deposits of $317.2 million and stockholder's equity of $32.4 million. Riggs-Virginia's 17 branches are located in Northern Virginia. At December 31, 1994, Riggs-Virginia had 97 full-time equivalent employees. _____________________________________
THE RIGGS NATIONAL BANK OF MARYLAND
The Riggs National Bank of Maryland ("Riggs-Maryland") is a nationally chartered full-service commercial bank. At December 31, 1994, Riggs-Maryland had assets of $189.8 million, deposits of $175.1 million, and stockholder's equity of $13.4 million. Riggs-Maryland's 10 branches are all located in Montgomery and Prince Georges counties, Maryland. At December 31, 1994, Riggs- Maryland had 53 full-time equivalent employees. _____________________________________
SUPERVISION AND REGULATION
The Corporation and certain of its subsidiaries are subject to the supervision of and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Corporation's national banking subsidiaries and certain of their subsidiaries are subject to the supervision of and regulation by the Office of the Comptroller of the Currency (the "OCC"). Other federal, state and foreign laws govern many aspects of the businesses of the Corporation and its subsidiaries.
Under the BHCA, bank holding companies may not directly or indirectly acquire the ownership or control of five percent or more of the voting shares or substantially all of the assets of any company, including a bank, without the prior approval of the Federal Reserve Board. The BHCA also restricts the types of businesses and activities in which a bank holding company and its subsidiaries may engage. Generally, activities are limited to banking and activities found by the Federal Reserve Board to be so closely related to banking as to be a proper incident thereto. Until recently, the BHCA generally prohibits the Federal Reserve Board from approving an application from a bank holding company to acquire a bank or bank holding companies unless such an acquisition is specifically authorized by statute of the state in which the bank whose shares to be acquired is located. A majority of states have adopted statutes permitting out-of-state bank holding companies to acquire in-state banks and bank holding companies, but usually only if the state in which the acquiring company is located permits reciprocal acquisitions of its banks and bank holding companies. The District of Columbia has authorized banks outside a thirteen-state region to acquire District banks provided they make substantial financial commitments to the District of Columbia.
On September 29, 1994, President Clinton signed the Riegle- Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act"). The Interstate Act amends the BHCA to authorize the Federal Reserve Board to permit bank holding companies to engage in interstate acquisitions one year after the date of enactment, interstate branching through interstate mergers beginning in June 1997 (subject to individual states ability, in certain circumstances, to prohibit such merger activity by enacting legislation prior to June 1997), interstate consolidations of affiliated banks beginning in June 1997, and other de novo interstate branching if authorized by state law. The Corporation is assessing the impact of this legislation on the banking industry and the Corporation.
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."
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), in September 1992, the Federal Deposit Insurance Corporation ("FDIC") issued regulations to implement a risk-based deposit insurance assessment system under which 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." Based on its capital category and supervisory subgroup, each insured institution is assigned an annual FDIC assessment rate, which currently varies between $.23 and $.31 per $100 of deposits. The FDIC announced in February 1995, that in anticipation of the FDIC insurance fund being restored to its statutory required level, which is 1.25% of insured deposits, by mid-year 1995, the FDIC staff has recommended to its Board that deposit insurance premiums for well-capitalized banks be reduced from $.23 to $.04 per $100 of deposits. This recommendation is currently under review by the FDIC Board. Management is studying this recommendation and will report the potential impact to the Corporation of such a change in deposit premiums as more information becomes available.
FDICIA contains numerous other provisions, such as the requirement that the federal banking agencies take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements.
FDICIA required each Federal banking agency, including the OCC, to specify within nine months after the date of enactment of the statute, by regulation, the levels at which an insured institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." In October 1992, each of the federal banking agencies, including the OCC, issued uniform final regulations defining such capital levels.
Under these regulations, the following table details the minimum capital levels for each category:
Beyond the minimum capital levels, well capitalized institutions may not be subject to any order or written directive to meet and maintain a specific capital level.
Each of the bank subsidiaries of the Corporation exceeds current minimum regulatory capital requirements, and qualifies, at a minimum, as "well capitalized." The applicable federal bank regulator for a depository institution may, under certain circumstances, reclassify a "well capitalized" institution as "adequately capitalized" or require an "adequately capitalized" or "undercapitalized" institution to comply with supervisory actions as if it were in the next lower category. Such a reclassification may be made if the regulatory agency determines that the institution is in an unsafe or unsound condition (which could include unsatisfactory examination ratings). A summary of applicable regulatory capital ratios and the minimums required by the OCC under its capital guidelines for Riggs-Washington, Riggs-Virginia and Riggs-Maryland on a historical basis are shown in Note 10, "Reserve Balances, Funds Restrictions, Regulatory Matters and Capital Requirements."
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying 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.
There are legal restrictions on the extent to which the Corporation and its non-bank subsidiaries may borrow or otherwise obtain credit from Riggs-Washington, Riggs- Virginia, and Riggs-Maryland. Subject to certain limited exceptions, a bank subsidiary may not extend credit to the Corporation or to any other affiliate (as defined) in an amount which exceeds 10% of its capital stock and surplus and may not extend credit in the aggregate to such affiliates in an amount which exceeds 20% of its capital stock and surplus. Further, there are legal requirements as to the type, amount and quality of collateral which must secure such extensions of credit by each bank subsidiary to the Corporation or to other affiliates. Finally, extensions of credit and other transactions between a bank subsidiary and the Corporation or other affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to such a bank subsidiary as those prevailing at the time for comparable transactions with non-affiliated companies.
Under Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to their subsidiary banks and to commit resources to support such banks in circumstances where a bank holding company might not do so absent such policy. In addition, any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
ITEM 2.
ITEM 2. PROPERTIES
The Corporation owns properties located in Washington, D.C. which house its executive offices, 12 of its branches and certain operational units of Riggs-Washington. The Corporation also owns an office building and a residential property in London, England, and leases various properties in Washington, D.C.; London, England; Miami, Florida; Northern Virginia; Maryland; and Paris, France.
ITEM 3.
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 certain instances, borrowers have asserted or threatened counterclaims and defenses based on various "lender liability" theories.
In the opinion of management, based on its assessment and consultation with outside counsel, litigation which is currently pending against the Corporation will not have a material impact on the financial condition or future operations of the Corporation as a whole.
The Corporation is contesting in Tax court the disallowance of Brazilian Foreign Tax Credits by the Internal Revenue Service. The net tax benefit of these tax credits have not been recognized for financial reporting purposes, therefore, there will be no adverse impact on earnings if the Internal Revenue Service were to prevail.
ITEM 4.
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 1994.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock of Riggs National Corporation is traded in the Over-the-Counter Market, NASDAQ National Market System. The NASDAQ symbol for the common stock is "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, 1994, there were 3,712 stockholders of record.
Other information required by this item is set forth in Notes 10 and 13 on Pages 49 and 54, respectively, of this Form 10-K.
ITEM 6.
ITEM 6. FINANCIAL REVIEW
SELECTED FINANCIAL DATA
[FN] * A cash dividend of $.15 per common share applicable to the fourth quarter of 1990 was declared on January 22, 1991, and paid on February 15, 1991.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EARNINGS SUMMARY
In 1994, Riggs National Corporation ("the Corporation") achieved its first profitable year since 1989, with total net income of $34.0 million. By comparison, the Corporation had net losses of $94.2 million and $21.1 million in 1993 and 1992. Earnings per common share for 1994 were $.72, compared to losses per common share of $3.65 and $.87 in 1993 and 1992. Results for 1994 reflected the benefits of an $18.5 million pretax increase in net interest income, and reductions of $63.0 million in the provision for loan losses, as well as reductions of $14.9 million in other real estate owned expense. These improvements are the result of an enhanced asset mix and reductions in nonperforming assets, in addition to general improvements in the economic conditions domestically and in the United Kingdom. The financial results for 1993 and 1992 reflect the then-ongoing deterioration of the Corporation's domestic real estate-commercial loan portfolio, combined with foreign corporate and real estate-commercial loans, primarily in the United Kingdom. The deterioration of these portfolios was evident, as the Corporation recorded provisions for loan losses of $69.3 million and $52.1 million in 1993 and 1992, compared to $6.3 million in 1994. The results for 1993 also include the impact of restructuring charges totaling $34.6 million, recorded during the first half of 1993, for the financial restructuring of both domestic and foreign operations and the implementation of a cost- reduction and revenue-enhancing strategy. Key measurements of profitability include the Corporation's net income to average stockholders' equity and the net interest margin. Net income to average stockholders' equity was 12.01% for 1994, compared with negative ratios for 1993 and 1992. The net interest margin for 1994 was 3.89%, the highest margin in over a decade, compared with margins of 3.23% and 3.13% for 1993 and 1992. The favorable increase in the net interest margin reflects the improvement in earnings and asset deployment during 1994.
PERFORMANCE-ENHANCING STRATEGIES
During 1994, the Corporation continued the self-evaluation of its goals and market position. These initiatives included enhancing the retail banking system, strengthening the Corporation's management team and the continued positive impact of 1993's initiatives.
COMMUNITY BANKING STRATEGIES. As the largest commercial bank holding company headquartered in the nation's capital, the Corporation is uniquely positioned in the center of an affluent market that combines significant public- and private-sector customers. The Corporation attained this position by steadily growing and prospering in the Washington, D.C., area for 159 years, and being the only Washington, D.C.-based bank of size to survive the economic and industry travails of the late 1980s and early 1990s. This leaves the Corporation competing with a host of community banks and the "super regionals." In order to differentiate itself from the competition, the Corporation offers its customers a breadth of financial products typical of a regional bank with the personalized service and local decision-making of a community bank. The Corporation believes that this "community bank" strategy allows it to offer a broader product line than its smaller competitors, while its personalized service and local decision-making give the Corporation a distinct advantage over its larger regional competitors. Local decision-making and a commitment to the community are the key to retaining existing customers and building new relationships.
During 1994, the Corporation conducted a detailed analysis of its retail banking system, determining the best use of its location, branch facilities, product lines and personnel. Though this process is ongoing, the Corporation has already sold or consolidated two retail branches. The review of the retail banking system was based on a detailed analysis conducted by internal management, combined with outside experts. The Corporation currently does not anticipate significant branch sales or consolidations, but the Corporation is actively seeking enhancements to existing branches to attract new customers, improve service quality and the overall profitability of its branches, and is also searching for opportunities to establish new retail banking branches in strategic locations.
MANAGEMENT TEAM. In July 1994, the Corporation announced the election of Fred L. Bollerer to the position of president and chief executive officer of Riggs-Washington and as a director of the Corporation. Mr. Bollerer had served as executive vice president of Riggs-Washington in the general banking group since 1993, after holding executive positions in several other large financial institutions over the past 20 years. Mr. Bollerer replaced Paul M. Homan, who voluntarily resigned in May 1994.
In addition to the election of Mr. Bollerer, the Corporation completed a two-year management restructuring process with the appointment of a new chief credit officer and a new chief technology officer, each with extensive banking experience.
DEBT AND EQUITY TRANSACTIONS IN 1994. In February 1994, the Corporation sold $125 million of 8.5% subordinated notes due in February 2006. The notes were sold at par and are not callable for five years. The notes were sold under a shelf registration statement declared effective on January 13, 1994. The net proceeds from the sale totaled $120.7 million and were used in March 1994 to redeem $51.5 million of subordinated notes and $69.2 million of subordinated capital notes, both bearing an interest rate of 5.25% and maturing in 1996. On September 27, 1994, the Corporation repurchased all 764,537 shares of its 7.5% Cumulative Convertible Preferred Stock, Series A, from the Norwich Union Life Insurance Society. The Series A preferred shares were convertible into 2,002,141 shares of common stock.
BANKSTART '93. In January 1993, the Corporation initiated BankStart '93, a comprehensive, corporation-wide project designed to make it more cost-efficient and operationally effective. Each line of business was reexamined in order to identify opportunities to improve efficiencies and reduce costs. The goal of the project was to identify revenue enhancements, productivity advances, expense reductions and product line modifications needed to facilitate the Corporation's return to consistent profitability. A significant portion of the expense reduction came from reduced staffing. When the program began, the authorized number of full-time positions for the Corporation's domestic subsidiaries was 2,060, declining to 1,667 at December 31, 1993. Subsequent to the initiation of BankStart '93, the Corporation identified market opportunities available in its retail and relationship banking network. This strategy necessitated several staff additions, although such additions, when netted against the remaining BankStart '93 and other reductions, resulted in a decrease in the staff complement, which stood at 1,624 positions at year-end 1994. In the first quarter of 1993, the Corporation took a restructuring charge of $13.8 million, representing management's estimate of the cost of implementing BankStart '93. During the first half of 1994, the implementation of BankStart '93 was substantially completed and a $2.1 million recovery was recognized. This recovery was the result of lower-than-anticipated expenses associated with staff reductions. Accrued and unpaid restructuring expenses totaled $908 thousand at year-end 1994, with disbursements expected to be made during the first half of 1995.
FINANCIAL RESTRUCTURINGS. At the end of the second quarter of 1993, the Corporation announced a financial restructuring designed to facilitate its return to profitability. The steps taken included charging off the doubtful portions of all loans, exiting unprofitable lines of business in the United Kingdom, reducing investments in certain foreign subsidiaries and increasing reserves against problem assets in order to facilitate their disposition. These actions led to second-quarter provisions for loan losses of $49.2 million, restructuring charges of $20.8 million, and expenses for other real estate owned of $16.9 million. Of the $49.2 million in provisions for loan losses, $24.7 million related to commercial real estate in the Washington, D.C., area, and $24.5 million related to commercial property loans and corporate loans in the United Kingdom. At December 31, 1994, the restructurings were substantially complete. Accrued and unpaid restructuring expenses totaled $1.1 million at December 31, 1994, with related disbursements expected to be made during the first half of 1995. As a part of the financial restructuring, the Corporation adopted a plan for its London operations (the combination of the London branch of Riggs-Washington and the subsidiary, Riggs AP Bank). This plan addressed the potential risk in the loan and other real estate owned portfolios in its London operations, and was designed to facilitate the disposition of certain troubled assets and to exit unprofitable lines of business. The London operations have been reorganized on a basis consistent with the Corporation's domestic strategy to segregate ongoing banking business from the management of problem assets.
In June 1993, Riggs AP Bank transferred all $152.8 million of its nonperforming and classified loans to Riggs- Washington. These assets were transferred at book value, net of related reserves, and continue to be serviced by Riggs AP Bank. Ongoing business lines are now centered on financing income-producing commercial real estate properties in the United Kingdom, as well as financing international trade transactions, primarily for mid-sized corporations based in the United Kingdom. The Corporation has substantially completed its withdrawal from certain business activities in the United Kingdom, including commercial leasing, corporate finance and trading activity in foreign exchange and money market instruments. In August 1994, the Corporation sold its investment in three foreign investment advisory subsidiaries: Riggs Valmet, Limited and Riggs Valmet Holdings, Limited, located in Gibraltar, and Riggs Valmet, S.A., located in Geneva, Switzerland. The Corporation sold these subsidiaries as part of its financial restructuring plan, which included the exiting of certain unprofitable lines of business. The sale of these subsidiaries was made in the aggregate to one foreign purchaser and resulted in a net pretax loss of $1.6 million during 1994, which included $900 thousand from the write-off of foreign exchange translation adjustments.
REGULATORY MATTERS
On May 14, 1993, the Corporation entered into a Memorandum of Understanding ("MOU") with the Federal Reserve Bank of Richmond ("Federal Reserve"), and Riggs-Washington entered into a Written Agreement with the Office of the Comptroller of the Currency (the "OCC"). The MOU and the Written Agreement were the result of regulatory concern over financial and operational weaknesses and continued losses related primarily to the Corporation's domestic and United Kingdom commercial real estate exposure. Under the original terms of the Written Agreement, Riggs-Washington appointed a committee of its Board of Directors to monitor and coordinate compliance with the requirements of the Written Agreement during 1993 and 1994. On September 15, 1994, the Corporation was notified by the OCC that it had terminated the Written Agreement. Under the terms of the MOU, the Corporation must notify the Federal Reserve in advance of dividend declarations, the issuance and/or redemption of long-term debt and the use of cash assets in certain circumstances. The Corporation is also required to submit plans and reports to the Federal Reserve relating to capital, asset quality, loan-loss reserves and operations, including contingency measures if projected operational results do not occur. In addition, the Audit Committee of the Corporation's Board of Directors has reviewed and submitted a report to the Federal Reserve on the adequacy of data submitted to it and the Board, and the Corporation has appointed a compliance committee of Directors to monitor performance under the MOU. As of year-end 1994, the Corporation was in substantial compliance with the provisions and requirements of the MOU.
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 short-term liquidity. These investments are lower- yielding and are highly interest-rate-sensitive. Funds available for short-term investments generally are a function of daily movements in the Corporation's deposit and loan portfolios, combined with the Corporation's overall interest-rate risk and asset/liability strategy. At December 31, 1994, total money market assets declined by $17.7 million, or 4.4%, when compared with year-end 1993, as the Corporation's shift to higher-yielding, longer-term assets continued, with increases in the total average loans and securities available for sale during the year. The total average of time deposits with other banks and federal funds sold and resale agreements fell from $862.8 million in 1993 to $377.4 million in 1994.
SECURITIES AVAILABLE FOR SALE
Securities available for sale totaled $598.3 million at December 31, 1994, compared with $708.1 million at year-end 1993, though average securities available for sale totaled $582.1 million, an increase of $16.6 million from 1993's average portfolio. Securities available for sale decreased $109.9 million (15.5%) during 1994, as proceeds from maturities and sales during the period, combined with proceeds from maturing securities held-to-maturity and money market investments, were used to fund reductions in deposit balances during the year, and, to a lesser extent, were used to fund originations and purchases of residential mortgage loans. In the first quarter of 1993, in view of management's intention to use certain securities as part of its asset/liability strategy and the possibility that securities could be sold in response to changes in interest rates or for liquidity purposes, $983 million of securities were classified as held for sale. In the second quarter of 1993, $696 million in securities held for sale were sold for a pretax gain of $25.9 million. Proceeds from this sale were used to purchase shorter-duration and variable-rate securities classified as held for sale, in addition to money market assets. In May 1993, Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115), was issued, effective for fiscal years beginning after December 15, 1993. This pronouncement requires, among other items, the determination at the acquisition date of a security whether such security is purchased with the intent and ability to hold to maturity, whether it is purchased with the intent to trade, or whether the security is available for sale. Under prior accounting policy, securities were classified as held for investment if the Corporation had the ability to hold securities to maturity and the intent to hold such securities for the foreseeable future. All other securities were classified as held for sale or trading. The Corporation adopted SFAS No. 115 on December 31, 1993, which entailed a thorough review of the securities portfolio. This review resulted in the net transfer of $168.7 million in securities at December 31, 1993, from the available for sale portfolio to the held-to-maturity ______________________________________
MATURITIES OF SECURITIES AVAILABLE FOR SALE
[FN] * The securities within the category of "Securities Available for Sale - Obligations of States and Political Subdivisions" are on a nonaccrual basis as of December 31, 1994. All contractual payments to date have been received. See "Nonaccrual, Renegotiated and Past Due Loans."
portfolio. All unrealized gains and losses from securities available for sale are excluded from earnings, with unrealized gains and losses recorded, net, in stockholders' equity until realized. After taking into effect the $168.7 million net transfer on December 31, 1993, the new accounting treatment for the securities available for sale portfolio under SFAS No. 115 resulted in a $1.28 million net unrealized gain being recorded in stockholders' equity. In 1994, the impact of a rising interest-rate environment on bond prices and the Corporation's securities available for sale portfolio resulted in decreased valuations during 1994 and the recording of $29.4 million in unrealized losses to stockholders' equity for the year, for a net unrealized loss balance of $28.1 million at year-end 1994. Securities available for sale pledged to secure deposits and certain borrowings amounted to $367.5 million at December 31, 1994, and $372.8 million at December 31, 1993.
SECURITIES HELD-TO-MATURITY
Securities held-to-maturity totaled $443.2 million at December 31, 1994, down $216.9 million, or 32.9%, from the level at December 31, 1993. The average balance in securities held-to-maturity was $470.7 million for 1994, compared with $709.8 million for 1993. At December 31, 1994, securities held-to-maturity had no gross unrealized gains and gross unrealized losses of $8.2 million. At December 31, 1994, this portfolio consisted primarily of U.S. Treasury securities, with 77.4% of the portfolio maturing in one year or less. A portion of the securities held-to-maturity portfolio is pledged to secure certain borrowings and deposits, with total securities pledged of $370.1 million at December 31, 1994, and $271.2 million at year-end 1993. The decrease in the securities held-to-maturity portfolio in 1994 was due to proceeds from maturities being used, along with reductions in money market assets, to fund overall reductions in deposits during the year. As discussed in "Securities Available for Sale," the Corporation has specific policies in place, in compliance with SFAS No. 115, that require the determination at the acquisition date whether a security should be included in the securities held-to-maturity portfolio; a security is included if it was purchased with the intent and the ability to hold the security to maturity, and the Corporation does not anticipate disposing of it for liquidity purposes or for the recognition of unrealized gains and losses. The Corporation has policies that require, on an ongoing basis, that a determination be made whether a security should continue to be in the held-to-maturity portfolio or be transferred to the securities available for sale portfolio. The table below details the securities held-to-maturity portfolio at December 31, 1994, 1993 and 1992: ____________________________________
BOOK VALUE OF SECURITIES HELD-TO-MATURITY
[FN] * Investment Securities for 1992 are presented in the Securities Held-to-Maturity category. See Note 1: "Summary of Significant Accounting Policies."
LOANS
As of December 31, 1994, loans, net of premiums, discounts and deferred fees, were $2.55 billion, an increase of $21.8 million (0.9%) from the year-end 1993 loan balance. This increase was due, in part, to purchases in the first quarter of 1994 of $90 million in residential mortgage loans, which were part of an overall asset/liability strategy started in 1993 to shift certain shorter-term assets to longer-term maturities. Substantially all of the loans purchased during the first quarter of 1994 were newly originated, fixed-rate residential mortgages with original maturities of 15 or 30 years, have an average effective bond equivalent yield of 6.30% and are secured by properties located in various regions throughout the United States. The purchases, combined with local-area originations in 1994, were partially offset by loan curtailments and payoffs, particularly with respect to residential mortgage loans and real estate-commercial/construction loans. _________________________________
YEAR-END LOANS
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Domestic commercial and financial loans were $400.7 million at December 31, 1994, a decrease of $11.3 million, or 2.8%, from $412.0 million at December 31, 1993. This slight decrease was attributable to curtailments and loan maturities that were not aggressively repriced at renewal, offset by new commercial loan originations. Domestic real estate-commercial/construction loans were $323.8 million at December 31, 1994, a decrease of $64.6 million from the level at year-end 1993. This decrease was the result of loan curtailments and payoffs, transfers to other real estate owned and limited new lending by the Corporation in this sector. Domestic real estate-commercial/construction loans were 12.7% of total loans and 7.3% of total assets at year-end 1994, compared with 15.4% and 8.1%, respectively, at year- end 1993. Permanent domestic commercial office buildings represented 26.8% of total real estate-commercial/ construction loans. The remainder of the domestic portfolio comprised residential and commercial development properties, in addition to permanent loans financing churches, warehouses, shopping centers and hotels. The domestic real estate-commercial/construction portfolio is secured by properties concentrated predominantly in the Washington, D.C., metropolitan area.
REAL ESTATE - COMMERCIAL/CONSTRUCTION LOANS - GEOGRAPHIC DISTRIBUTION BY TYPE - DECEMBER 31, 1994
Residential mortgage loans totaled $1.32 billion at December 31, 1994, an increase of $167.8 million (14.6%) from the year-earlier level. This increase is the result of the local-area originations and purchases in the open market during 1994. The purchase and origination activity during 1994 was partially offset by principal curtailments and payoffs, which slowed during 1994 as refinancings abated with the rise in mortgage rates during the year. Residential mortgage loans represented 51.8% of the Corporation's loan portfolio at year-end 1994 and generally provide for a higher credit quality than other loans. The historically lower charge-off levels over the last five years attest to the quality of this portfolio (see the "Reserve for Loan Losses and Summary of Charge-Offs and Recoveries" section). Home equity loans, which are primarily floating-rate loans secured by first or second trusts on single-family residential properties, decreased $13.1 million to $220.9 million at December 31, 1994. This decrease was caused largely by refinancings and the highly competitive nature of this product in the metropolitan Washington, D.C., area. Consumer loans were $75.9 million at year-end 1994, decreasing $6.9 million from $82.8 million at December 31, 1993, as a result of limited originations of installment loans and student loans in the domestic markets. Foreign loans totaled $204.6 million at December 31, 1994, a decrease of $50.8 million from the year-end 1993 total of $255.4 million. Foreign loans in the Corporation's London operations were $148.2 million at December 31, 1994, and constituted 72.4% of total foreign loans. A majority of the decline in the foreign loan portfolio was due to repayments, as the London operations' lending activities have been significantly reduced because of the previously discussed financial restructuring and limited new lending in the foreign sector. At December 31, 1994, 70.4% of Riggs AP Bank's loan portfolio was secured by commercial-leased properties, with the remainder in corporate loans. ____________________________
YEAR-END MATURITIES AND RATE SENSITIVITY
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 current and proposed 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 non-local currencies. In addition, cross-border outstandings include legally enforceable guarantees issued on behalf of non-local third parties and local currency outstandings to the extent they are not funded by local currency borrowings. Cross-border outstandings are then reduced by tangible liquid collateral and any legally enforceable guarantees issued by non-local third parties on behalf of the respective country. At December 31, 1994, the Corporation had no cross- border outstandings exceeding 1% of its total assets to countries experiencing difficulties in repaying their external debt. At December 31, 1994, the United Kingdom was the only country with cross-border outstandings in excess of 1% of the Corporation's total assets that had loans in either a nonperforming or past-due status. The French cross-border outstandings were current as of year-end 1994. Nonaccrual loans in the United Kingdom totaled $10.6 million at December 31, 1994, as compared with $37.7 million at December 31, 1993. There were no past-due loans in the United Kingdom at December 31, 1994, and $4 thousand in past-due loans at year-end 1993. At December 31, 1994, the Corporation had identified approximately $4.3 million in potential problem loans in the United Kingdom and none in France. These loans, which are primarily commercial property and corporate loans, were performing at December 31 and therefore not included as nonaccrual or past due. _______________________________
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
CROSS-BORDER OUTSTANDINGS IN EXCESS OF 1% OF TOTAL ASSETS WITH NONPERFORMING OR PAST-DUE LOANS
CROSS-BORDER OUTSTANDINGS BETWEEN .75% AND 1% OF TOTAL ASSETS
ASSET QUALITY
NONPERFORMING ASSET SUMMARY
Nonperforming assets, which include nonaccrual loans, renegotiated loans, and other real estate owned (net of reserves), totaled $75.7 million at year-end 1994, a $137.6 million (64.5%) decrease from the year-end 1993 total of $213.3 million. This significant decrease in nonperforming assets during 1994 was attributable to sales and paydowns of $100.7 million, nonaccrual and renegotiated loans' returning to accrual status of $36.0 million, and net charge-offs/writedowns of $15.2 million, which were partially offset by exchange rate fluctuations of $1.9 million, combined with net additions in 1994 of $12.4 million. _______________________________
NONPERFORMING ASSETS AND PAST-DUE LOANS
[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.
/2/ Loans for which terms are being 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 Statement of Financial Accounting Standards No. 15. Renegotiated loans do not include $13.6 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.
NONACCRUAL, RENEGOTIATED AND PAST-DUE LOANS
At December 31, 1994, nonaccrual loans, including both domestic and foreign loans, were $27.4 million, or 1.1% of total loans, compared with $130.2 million, or 5.15% of total loans, at December 31, 1993. Loans (other than consumer) are placed on nonaccrual status when, in management's opinion, there is doubt as to the ability to collect either interest or principal, or when interest or principal is 90 days or more past due and the loan is not well-secured and in the process of collection. Consumer loans are generally charged off when they become 120 days past due. The significant decrease in nonaccrual loans during 1994 was due primarily to a decrease in domestic nonaccrual loans from $85.1 million at year-end 1993 to $11.5 million at year-end 1994. This decrease was attributable to sales and repayments of $42.7 million, nonaccrual loans' returning to accrual status of $19.7 million, charge-offs of $4.6 million and transfers of nonaccrual loans to other real estate owned of $21.3 million. These decreases more than offset net additions to nonaccrual loans, and renegotiated loans transferred to nonaccrual status, of $7.3 million and $7.4 million, respectively, during the period. Nonaccrual foreign loans decreased $29.2 million during 1994, to $15.9 million at December 31, 1994. This decrease was the result of sales, repayments, transfers to other real estate owned, charge-offs and other reductions totaling $34.7 million, exceeding net additions and exchange rate fluctuations of $5.5 million during 1994. The majority of foreign nonaccrual loans are real estate-commercial mortgage loans in the United Kingdom ($11.3 million), which declined by 71.0% during 1994 through the effort by the Corporation's London operations and improvements in the United Kingdom economy. Renegotiated loans totaled $555 thousand at December 31, 1994, compared with $30.3 million at year-end 1993. Domestic renegotiated loans ($288 thousand) consisted generally of commercial real estate loans that were renegotiated to provide a reduction or deferral of interest or principal as a result of a deterioration in the financial position of the borrower. Renegotiated loans decreased over $29.7 million in 1994, as payoffs and principal repayments accounted for $2.7 million of the decrease, with $14.9 million attributed to renegotiated loans' (performing in accordance with their renegotiated market terms) returning to accrual status, $2.5 million due to transfers to other real estate owned, $2.2 million attributed to charge-offs, and an additional $7.4 million due to transfers of renegotiated loans to nonaccrual status. 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 increased $2.8 million in 1994, to $6.1 million. At December 31, 1994, the Corporation had identified approximately $26.0 million in potential problem loans that are currently performing but that management believes have certain attributes that may lead to nonaccrual or past-due status in the foreseeable future. These loans consisted of $21.7 million in domestic loans (principally real estate- commercial/construction loans) and $4.3 million of commercial property and corporate loans originated in the United Kingdom. In addition, the Corporation had $8.0 million in other potential problem assets at December 31, 1994. This amount consisted of $10.0 million, par value, of Orange County, California, variable-rate one-year bonds due in July and August 1995, which were purchased from the Corporation's proprietary RIMCO Monument Money Market Fund. These securities are classified in the securities available for sale portfolio at year-end 1994. Due to Orange County's bankruptcy declaration on December 6, 1994, these bonds are on a nonaccrual basis and have been written down to their fair value. Interest on the bonds is current, but due to the uncertainty of the outcome of the bankruptcy proceedings, there is no assurance that future payments will be received. _______________________________
INTEREST INCOME ON NONACCRUAL AND RENEGOTIATED LOANS
NONACCRUAL AND RENEGOTIATED REAL ESTATE-COMMERCIAL/CONSTRUCTION LOANS GEOGRAPHIC DISTRIBUTION BY TYPE DECEMBER 31, 1994
PROVISION AND RESERVE FOR LOAN LOSSES
The provision for loan losses totaled $6.3 million for 1994, compared with a provision of $69.3 million for the prior year and $52.1 million for 1992. Approximately $14.2 million of the provision for 1994 related to domestic loans, offset by negative provisions of $7.9 million related to the foreign loan portfolio. The significantly reduced provision for loan losses in 1994 is indicative of the reductions in nonperforming assets, combined with reduced investments in foreign and domestic real estate-construction and commercial loans, as well as overall improvements in the related real estate and commercial markets in 1994. Domestic real estate- construction and commercial loans accounted for $39.6 million of the 1993 provision total, with the remainder due to loans originated in the United Kingdom. The Corporation's banking subsidiaries maintain reserves for loan losses that are available to absorb potential losses in the current loan portfolio. The reserve for loan losses is increased by loan-loss provisions and recoveries of previously charged-off loans and is reduced by loan charge-offs. The Corporation's reserve for loan losses is based on management's assessment of existing conditions and reflects potential losses determined to be probable and subject to reasonable estimation. The Corporation determines the appropriate balance of the reserve for loan losses based upon an analysis of risk factors affecting the entire loan portfolio and specific reviews of individual loans. The analysis includes the primary source of repayment on individual loans and groups of similar loans, the liquidity and financial condition of the borrowers and guarantors, historical charge-offs/writedowns within loan categories and the general economic conditions and other factors existing at the determination date. On a quarterly basis, the Loan Loss Reserve Committee evaluates the adequacy of the reserve for loan losses. The Board of Directors reviews management's determination of the adequacy of the reserve for loan losses. The loan portfolios are continually monitored by management to identify loans requiring particular attention. Net recoveries for 1994 totaled $3.0 million, a significant improvement from 1993's net charge-offs of $66.4 million. Total net recoveries for 1994 included $1.8 million from foreign loans and $2.0 million from domestic commercial/construction loans. These net recoveries were offset in 1994 by net charge-offs totaling $0.8 million from domestic consumer, home equity, residential mortgage, and commercial and financial loans. Domestic commercial real estate and foreign net recovery totals of $2.0 million and $1.8 million, respectively, for 1994 compare with net charge-offs of $34.5 million and $26.7 million for 1993. The 1993 charge-off levels reflected the deterioration of the domestic and foreign commercial real estate markets and related valuations conducted during the period. The reserve for loan losses was $97.0 million, or 3.81% of total loans, at December 31, 1994, compared with $86.5 million, or 3.42% of total loans, at December 31, 1993. The Corporation's coverage ratio was 347.3% at year-end 1994, up significantly from 53.9% at year-end 1993. Improvement in the coverage ratio was due to the significant reduction in nonperforming loans. The coverage ratio is calculated by dividing the reserve for loan losses by the sum of nonaccrual and renegotiated loans. The Corporation's estimated allocation of its reserve for loan losses is shown on the following page. Reserve for loan loss allocations for certain portfolio categories represent management's assessment of existing conditions and risk factors within these categories. The substantial increase in the qualitative factors allocation during 1994 is attributable to the significant improvement in asset quality during the year.
RESERVE FOR LOAN LOSSES AND SUMMARY OF CHARGE-OFFS AND RECOVERIES
_________________________________
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
DISTRIBUTION OF YEAR-END LOANS
OTHER REAL ESTATE OWNED, NET
Other real estate owned decreased slightly to $47.8 million at December 31, 1994, from $52.8 million at December 31, 1993. The decrease resulted from sales and repayments of $28.7 million and $5.7 million in writedowns being partially offset by net additions and foreign exchange translation adjustments of $29.4 million during the period. Loans are transferred to other real estate owned when acquired, or deemed to be acquired through foreclosure. At December 31, 1994, residential and commercial land composed 69.0% of other real estate owned, with office, industrial, retail, and other types of properties accounting for the remainder of the portfolio. Approximately 86.9% of the other real estate owned properties were located in the Washington, D. C., metropolitan area at year-end 1994, with the remainder located in the eastern section of the United States and in the United Kingdom. _____________________________
OTHER REAL ESTATE OWNED-GEOGRAPHIC DISTRIBUTION BY TYPE-DECEMBER 31, 1994
DEPOSITS
Total deposits at December 31, 1994, were $3.60 billion, compared with $3.77 billion at year-end 1993, a decrease of $171.0 million, or 4.5%. Average domestic deposits were $3.47 billion for 1994, down from $3.74 billion for 1993. Average core deposits (total deposits in domestic offices, excluding negotiable certificates of deposit) were $3.45 billion, down $264.0 million, or 7.1%, from 1993's balance of $3.72 billion. Average foreign deposits decreased $222.9 million, to $257.4 million, as a result of the Corporation's decision in 1993 to phase out the deposit-gathering business within its London operations. The declines experienced in 1994 compare with decreases in 1993 of $663.8 million for total deposits, or 15.0% of total deposits outstanding, with total average domestic deposits decreasing $168.1 million and total average foreign deposits decreasing $251.3 million. The decreases in deposits over the past two years are attributable to the historically low interest-rate environment, resulting in banking customers' seeking higher- yielding investments outside the banking system, such as mutual funds, bonds, insurance products and other similar instruments. During this two-year period, within the metropolitan Washington, D.C., area, several banking institutions have been using aggressive pricing strategies, including offering deposit customers above-market rates on certain products and/or reduced-fee account relationships, to counter the lower interest-rate environment. The Corporation's management believes such strategies have significant negative short- and long-term effects, including the potential of allocating deposit inflows into long-term, fixed-rate earning assets, and thus increasing the Corporation's interest-rate risk and liability-sensitive position as these lower-yielding, shorter-term deposits potentially reprice upwards. (See "Interest-Rate Risk Management" section of this report.) With steadily increasing short-term interest rates experienced in 1994, combined with a weakened equity and bond market during the year, deposit products have slowly returned to favor with customers, especially in the latter half of 1994. This is seen when reviewing the increase in the yield for one-year treasury bills, frequently used as a benchmark for deposit-related products, which increased from a yield of 3.6% in December 1993 to a yield of 7.0% in December 1994. In tandem with these developments, the Corporation initiated several deposit programs targeting banking customers and potential customers with deposit- related products that provide short to intermediate terms, allowing the customers to obtain attractive yields on their investments while also providing flexibility to customers in the current rising interest-rate environment. The early results of these programs were a net increase in deposits of $54.2 million during the fourth quarter of 1994, with additional increases anticipated in 1995. In addition to new deposit products in 1994, the Corporation also conducted a detailed analysis of its retail banking system, determining the best use of its retail banking locations, branch facilities, product lines and personnel. Though this process is ongoing, the Corporation sold one retail branch and consolidated another during 1994. The review of the retail banking system was based on a detailed analysis conducted by internal management, combined with outside experts. The Corporation currently does not anticipate significant
branch sales or consolidations, but the Corporation isactively seeking enhancements to existing retail banking branches to attract new customers and improve service quality and the overall profitability of the branches, and is searching for opportunities to establish new retail banking branches in strategic locations. _______________________________
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS
[FN] * A majority of interest-bearing deposits in foreign offices are denominated in amounts of $100 thousand or more.
SHORT-TERM BORROWINGS
Short-term borrowings, comprising federal funds purchased and repurchase agreements, U.S. Treasury demand notes and other borrowed funds, totaled $293.4 million at December 31, 1994, a decrease of $160.6 million from the prior year-end balance. Average short-term borrowings for 1994 totaled $211.7 million, also down from 1993's average total of $232.6 million. Short-term borrowings are an additional source of funds that the Corporation has established to meet certain asset/liability, as well as daily cash management, objectives. The decreases in short-term borrowings were the result of rising short-term interest rates in 1994, combined with the overall flattening of the yield curve, thus resulting in reduced margins from this source of funds. See Note 8 to the Consolidated Financial Statements for additional information.
LONG-TERM DEBT
Long-term debt totaled $217.6 million at December 31, 1994, up slightly from its balance at December 31, 1993. Long-term debt includes floating-rate subordinated notes maturing in 1996, which totaled $26.1 million at year-end 1994. These subordinated notes had an interest rate of 6.56% at December 31, 1994, an increase of 131 basis points from year-end 1993. Long-term debt also includes subordinated debentures due in 2009, bearing a fixed rate of interest of 9.65% per annum. In February 1994, the Corporation issued $125 million of 8.5% Subordinated Notes, due February 2006. The notes were priced at par and are not callable for five years. The Corporation used the net proceeds from the offering, $120.7 million, to redeem subordinated notes and subordinated capital notes due in 1996. The proceeds were placed in short-term investments prior to the redemption of the floating-rate notes in March 1994. The Corporation's long- term debt is discussed more fully in Note 8 to the Consolidated Financial Statements.
CAPITAL RESOURCES
Total stockholders' equity at December 31, 1994, was $267.7 million, or 6.1% of total assets, down $25.5 million from the year-end 1993 total. The decrease during 1994 was the result of earnings totaling $34.0 million, as well as foreign exchange translation and other activity totaling $1.1 million, which, in the aggregate, were more than offset by $29.4 million of unrealized losses on securities in the Corporation's available for sale portfolio, the repurchase of the Preferred Stock, Series A, totaling $19.1 million and dividends on preferred stock of $12.1 million. In September 1994, the Corporation repurchased all of the 764,537 shares of its 7.5% cumulative convertible preferred stock, Series A, from the Norwich Union Life Insurance Society. This repurchase reduced dividends payable by $358 thousand in 1994 and will reduce dividends payable by $1.4 million annually thereafter. The Series A preferred shares were convertible into 2,002,141 shares of common stock. Under the Federal Reserve Board's risk-based capital guidelines, bank holding companies are required to meet a minimum ratio of qualifying total capital (combined Tier I and Tier II) 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 18.50% and 11.48%, respectively, at December 31, 1994. The Federal Reserve Board has established an additional capital adequacy guideline referred to as the leverage ratio, as amended by the Prompt Corrective Action regulations promulgated under FDICIA, which measures the ratio of Tier I capital to average quarterly assets. The most highly rated bank holding companies are required to maintain a minimum leverage ratio of 3.00%. 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 6.42% at December 31, 1994. The Corporation's policy is to ensure that its bank subsidiaries are capitalized in accordance with regulatory guidelines. The three national bank subsidiaries of the Corporation are subject to minimum capital ratios prescribed by the OCC, which are the same as those for the Federal Reserve Board. The following table summarizes the actual and required capital ratios for the Corporation and each of its banking subsidiaries: -----------------------------------
CAPITAL RATIOS
[FN] * Most bank holding companies and national banks, including the Corporation and the Corporation's national bank subsidiaries, are expected to maintain at least a 4.00% minimum leverage ratio, or higher, if determined appropriate by the Federal Reserve Board. The Federal Reserve Board has not indicated a requirement higher than 4.00% at December 31, 1994.
INTEREST-RATE RISK MANAGEMENT
The Corporation's asset/liability management function is controlled by the Asset/Liability Committee ("ALCO"), which is comprised of representatives who lead the major divisions within the Corporation. The objective of the group is to prudently manage the assets and liabilities of the Corporation to provide both an optimum and stable net interest margin while maintaining adequate levels of liquidity and capital. This approach entails the management of overall risk of the organization, in conjunction with the acquisition and deployment of funds. ALCO monitors and modifies exposure to changes in interest rates based upon its view of current and prospective market and economic conditions. The traditional measurement of an organization's exposure to interest-rate fluctuations, such as interest sensitivity, entails a "static gap" measurement portraying a snapshot of the balance sheet at one point in time. However, this methodology does not adequately measure the Corporation's exposure to interest-rate risk. The balance sheet must be viewed within a dynamic framework in which relationships may vary over time in virtually every segment of the statement of condition. The Corporation manages interest-rate risk through the use of a simulation model allowing for various interest-rate scenarios to be portrayed. The model forecasts the impact on earnings of these rate scenarios over a 36-month time horizon assuming selected changes in the mix of assets and liabilities, spread relationships, and management actions. A "most likely" scenario is forecasted based upon a consensus view of the marketplace. Alternatives, which reflect interest rates moving significantly higher or lower than this view, are also evaluated, with the results compared against risk tolerance limits established by corporate policy. The Corporation's current policy establishes limits for possible fluctuations in net interest income for an ensuing 12-month period under the "most likely" scenario described above. At December 31, 1994, the Corporation maintained a relatively balanced interest-rate risk position. This position would serve to insulate the Corporation against interest rates' moving significantly in either direction. 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, among others. Financial derivatives are employed to assist in the management and/or reduction of interest-rate risk for the Corporation and can effectively alter the interest sensitivity of segments of the statement of condition for specified periods of time. All of these vehicles are considered "off-balance sheet" as they do not impact the actual levels of assets or liabilities of the Corporation. Management finds that all of the methodologies discussed above provide a meaningful representation of the Corporation's interest-rate sensitivity, though factors other than changes in the interest-rate environment, such as levels of nonearning assets, and changes in the composition of earning assets, may impact net interest income. Management believes its current rate sensitivity level is appropriate, considering the Corporation's economic outlook and the conservative approach taken in the review and monitoring of the Corporation's sensitivity position.
NET INTEREST INCOME
Net interest income is derived by subtracting the cost of funds from the income received on earning assets. Earning assets comprise mainly loans and securities, while interest- bearing liabilities are mostly deposits and short-term borrowings. 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 which is presented below to show the comparability of assets with different tax attributes (net interest income plus an amount equal to the tax savings on tax-exempt interest), totaled $156.7 million for 1994, an increase of $17.2 million, or 12.3%, from the $139.5 million earned in 1993. The positive impact on earnings of a $464.5 million decline in average interest-bearing liabilities was partially offset by a $288.2 million decrease in average earning assets. Also having a positive impact on the Corporation's net interest income was a $148.6 million average decrease in nonperforming assets between 1993 and 1994, combined with the continued shift to longer-term, higher-yielding assets from shorter-term investments. Loans were 64.5% of average earning assets during 1994, compared with 50.5% for 1993. The net interest margin (net interest income on a tax-equivalent basis divided by average earning assets) was 3.89% for 1994, an increase of 66 basis points from the 3.23% net interest margin for 1993 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 1994 was 3.34%, a 46-basis-point improvement from 1993's spread of 2.88%. Interest lost on nonaccrual and renegotiated loans totaled $5.0 million for 1994, which negatively impacted the net interest margin by approximately 12 basis points for the year. In 1993, interest lost totaled $14.1 million and negatively impacted the net interest margin in that year by approximately 32 basis points. The Corporation established the goal in 1993 of increasing its loan-to-deposit ratio above 70% in 1994. The Corporation met this goal, and the loan-to-deposit ratio stood at 71% at December 31, 1994. The Corporation believes this strategy also contributed to the overall improvement in net interest income in 1994. -------------------------------
NET INTEREST INCOME CHANGES*
[FN] * The dollar amount of changes in interest income and interest expense attributable to changes in rate/volume (change in rate multiplied by change in volume) has been allocated between rate and volume variances based on the percentage relationship of such variances to each other. Income and rates are computed on a tax-equivalent basis using a Federal income tax rate of 34% and local tax rates as applicable.
THREE-YEAR AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES/1/
[FN] /1/ Income and rates are computed on a tax-equivalent basis using a Federal income tax rate of 34% and local tax rates as applicable. Loan amounts include nonaccrual and renegotiated loans. Average foreign assets, excluding net pool funds provided, details of which can be found on page 74 of this report, were 9.1%, 14.6% and 21.5% of average total assets for the periods presented, respectively. Average foreign liabilities were 14.7%, 18.1% and 23.9% of average total liabilities for the periods presented, respectively. /2/ Securities available for sale are presented net of valuation allowances; if presented gross of valuation allowances, the Corporation's adjusted net interest spread and margin would total 3.32% and 3.87%, respectively, at year-end 1994, with no effect to 1993 or 1992.
NONINTEREST INCOME
Noninterest income for 1994 was $85.5 million, down $27.1 million, or 24.1%, from that for 1993. Excluding securities gains of $226 thousand and $24.1 million for 1994 and 1993, respectively, and $4.7 million of nonrecurring noninterest income related to a mortgage insurance settlement recognized in 1994, noninterest income decreased $8.0 million, or 9.0%. Trust income of $28.6 million was down slightly ($270 thousand, or .9%), as the Corporation discontinued providing stock transfer services for certain corporate trust customers. Total assets under management by the Financial Services Group at December 31, 1994, were approximately $4.1 billion, down from $4.3 billion at year-end 1993. The market value of trust and custodial assets of the Corporation's Financial Services Group decreased $431.0 million, or 5.1%, to $8.0 billion at December 31, 1994, due to the exit from the corporate stock transfer business, combined with reductions in total corporate accounts. International noncredit commissions and fees were $5.4 million, a decrease of $4.1 million, or 42.9%, primarily because of the sale of three foreign investment advisory subsidiaries in the second half of 1994. The gain on settlement of mortgage insurance claims resulted from the settlement of claims stemming from other real estate owned properties in the United Kingdom. Service charges for 1994 of $36.8 million decreased $2.5 million, or 6.4%, primarily because of a decline in deposit balances from a year earlier (see "Deposits" section of this report). Foreign exchange income decreased $530 thousand, or 18.9%, in 1994, due primarily to the previously discussed restructuring of Riggs AP Bank and the exiting of foreign exchange trading-related activities. Other noninterest income of $7.5 million was down $586 thousand, due primarily to income recognized in 1993 from trading future positions. ____________________________
NONINTEREST INCOME
NONINTEREST EXPENSE
Noninterest expense for the year ended December 31, 1994, was $199.0 million, down $67.7 million from $266.8 million for 1993. Noninterest expense for 1993 included restructuring expense of $34.6 million, of which $20.8 million related to Riggs AP Bank. The Riggs AP Bank charge consisted of $1.6 million in severance- related expenses, $11.5 million from the write-off of a foreign currency translation account associated with Riggs-Washington's investment in Riggs AP Bank, and $7.7 million of other restructuring expense. The $20.8 million of restructuring expense related to Riggs AP Bank included $14.2 million of noncash expenses, which included the aforementioned $11.5 million write-off of the foreign currency translation account, the write-off of $2.2 million of fixed assets and a $0.5 million write-off of goodwill. The remaining $6.6 million was accrued to offset expenses related to severance and excess space and equipment leases that will be charged against the accrual when paid. Also included in the $34.6 million in restructuring expense was $13.8 million in expenses related to the implementation of BankStart '93. The restructuring expenses related to BankStart '93 consisted of $7.0 million in consulting fees, $4.0 million in severance-related costs, $1.0 million in occupancy-related costs and $1.8 million in other costs. Implementation of BankStart '93 began in April 1993. During the first half of 1994, the implementation of BankStart '93 was substantially completed and a $2.1 million recovery was recognized. This recovery was the result of lower-than-anticipated expenses associated with staff reductions. Accrued and unpaid restructuring expenses totaled $908 thousand at year-end 1994, with related disbursements expected to be made during the first half of 1995.
Other real estate owned income, net, totaled $1.4 million in 1994, down 110.4% from $13.5 million in net expense in 1993. This decrease is attributed to the overall decrease in additions within this portfolio in 1994, as well as to the general improvement in the real estate markets during the year. Excluding restructuring and other real estate owned expense, noninterest expense for 1994 was down $16.2 million, or 7.4%, from the total of $218.7 million for 1993. Salaries and related benefits were $81.5 million for 1994, a decrease of $6.5 million, as a reduction in salary and wage expense combined with decreases in medical and life insurance premiums, pension expenses and relocation expenses. Net occupancy expense of $23.6 million was down $2.1 million, or 8.3%, due to decreases in net rent expense of $2.0 million, the result of increases in rental income from buildings owned and subleases in 1994. Furniture and equipment expense of $9.2 million decreased $1.9 million, or 17.3%, due to decreases in depreciation and rental expense of $1.2 million, with the balance of the decrease due to reductions in repair expenses. FDIC insurance expense of $9.6 million in 1994 was down $708 thousand from 1993's total, because of reductions in the deposit base during the period. Data processing expense of $16.9 million was up $350 thousand for the year. Other noninterest expense totaled $52.0 million, down $4.9 million, or 8.5%, from the $56.9 million for 1993. Accounting for the decrease was $3.8 million of noncredit-related other losses and $1.1 million in reduced appraisal expenses in 1994. ____________________________
NONINTEREST EXPENSE
INCOME TAXES
The Corporation's provision or benefit for income taxes includes both federal and state income taxes. The Corporation's 1993 provision for income taxes of $5.6 million resulted from management's analysis of the Corporation's ability to realize tax benefits previously booked. The 1994 benefit of $.5 million was primarily the result of the favorable settlement of an outstanding issue with the United Kingdom Inland Revenue. In 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires the Corporation to implement new accounting and disclosure rules for income taxes. The adoption of SFAS No. 109 did not result in a cumulative adjustment since it was not apparent at implementation of SFAS No. 109 that future income or the establishment of certain tax planning strategies would be sufficient to realize deferred tax assets in future periods in excess of the Corporation's carryback potential. Further tax discussion and a reconciliation of the effective tax rate to the 1994 federal statutory rate of 34% can be found in Note 12 to the Consolidated Financial Statements.
FOURTH QUARTER 1994 VS. FOURTH QUARTER 1993
For the fourth quarter of 1994, the Corporation reported net income of $8.0 million, or $.17 per common share, compared with $3.1 million, or $.09 per common share, for the fourth quarter of 1993. Results for the fourth quarter of 1994 reflected no provisions for loan losses, down from the $2.1 million recognized in the fourth quarter of 1993. Nonperforming assets totaled $75.7 million at December 31, 1994, a decrease of $18.8 million in the fourth quarter of 1994 and a decrease of $137.6 million from $213.3 million at December 31, 1993.
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FOURTH QUARTER CONSOLIDATED STATEMENTS OF INCOME
Net interest income on a tax-equivalent basis for the fourth quarter of 1994 was $39.4 million, an increase of $3.3 million, or 9.2%, year to year, reflecting the positive impact of a $158.3 million decrease in average nonperforming assets between the periods and continued improvement in the asset mix. The net interest margin was 3.92% during the fourth quarter of 1994, up 49 basis points from that for the fourth quarter of 1993. Interest lost on nonaccrual loans had the effect of negatively impacting the net interest margin by approximately 7 basis points during the fourth quarter of 1994, compared with 16 basis points for the same period in the prior year. The net interest spread was 3.31% for the quarter ended December 31, 1994, up 31 basis points from that for the same period in the prior year. Net recoveries in the fourth quarter of 1994 totaled $1.4 million, level when compared with $1.5 million in net recoveries for the fourth quarter of 1993. Charge-offs in the fourth quarter of 1994 totaled $2.3 million and were more than offset by $3.7 million in recoveries during the period. The year-earlier charge-offs totaled $9.1 million, offset by $10.6 million in recoveries during the quarter. Noninterest income for the fourth quarter of 1994 was $17.4 million, a decrease of $3.8 million, or 18.1%, when compared with that for the like period in 1993. Trust income of $7.0 million was down $198 thousand, as the Corporation experienced a slight decrease in total trust accounts during the quarter, when compared with the prior period. Service charges of $8.8 million were down $2.8 million, primarily because of reduced investment advisory fees, which decreased $2.5 million, reflecting the sale of several foreign investment advisory subsidiaries in the second half of 1994. Securities gains/losses decreased $1.4 million, the result of losses realized from the Corporation's purchase of $10 million (par value) of Orange County, California, variable-rate, one-year bonds (see Note 2 to the Consolidated Financial Statements). Noninterest expense for the fourth quarter of 1994 totaled $48.1 million, compared with $51.1 million a year earlier, an improvement of $3.0 million, or 5.9%. Salaries and related benefits of $19.5 million were down $1.2 million as a result of reduced staff levels. Net occupancy expense was down $212 thousand, to $5.6 million, in the fourth quarter of 1994 because of decreases in property rent expense, utilities and repairs. Furniture and equipment expense decreased $353 thousand because of reductions in depreciation, maintenance and repairs, and equipment rentals. Other real estate owned income, net of expense, was $249 thousand, a decrease of $1.6 million when compared with 1993's fourth-quarter other real estate owned expense, the result of reduced activity within this portfolio. Other noninterest expense totaled $21.2 million for the fourth quarter of 1994, a slight increase of $400 thousand.
FOURTH QUARTER NET INTEREST INCOME CHANGES*
* The dollar amount of changes in interest income and interest expense attributable to changes in rate/volume (change in rate multiplied by change in volume) has been allocated between rate and volume variances based on the percentage relationship of such variances to each other. Income and rates are computed on a tax-equivalent basis using a Federal tax rate of 34% for 1994 and 1993 and local tax rates.
1993 vs. 1992
The Corporation reported a net loss of $94.2 million, or $3.65 per common share, for 1993, compared with a net loss of $21.1 million, or $.87 per common share, for 1992. The 1993 results included provisions for loan losses of $69.3 million, other real estate owned expenses, net, of $13.5 million, and securities gains, net, of $24.1 million. The 1992 results included provisions for loan losses of $52.1 million, other real estate owned expenses, net, of $15.7 million, securities gains of $34.2 million and the recognition of $5.9 million of nonrecurring interest income related to a tax receivable. Average earning assets during 1993 decreased $299.2 million, or 6.5%, to $4.32 billion. This decline reflected across-the-board reductions in the average balance of each loan category (other than residential mortgage loans) due to weak loan demand in the first half of 1993 and net cash inflows' being used to partially fund reductions in deposits, as discussed below. Average loans were $2.18 billion during 1993, down $387.2 million, or 15.1%, from the average for 1992. Money market assets, which consist of time deposits with other banks and federal funds sold and reverse repurchase agreements, ended 1993 at $405.9 million, down significantly from $1.26 billion a year earlier. These assets averaged $862.8 million and $1.12 billion, respectively, for 1993 and 1992. This reduction was part of an overall asset/liability management strategy to shift certain shorter-term assets to longer-term maturities. Securities available for sale totaled $708.1 million at December 31, 1993, compared with $159.6 million at year-end 1992. In the first quarter of 1993, in view of management's intention to use certain securities as part of its asset/liability management strategy and the possibility that securities could be sold in response to changes in interest rates or for liquidity purposes, $983 million of securities were classified as held for sale. In the second quarter of 1993, $696 million in securities held for sale were sold for a pretax gain of $25.9 million. Proceeds from this sale were used to purchase shorter-duration and variable-rate securities classified as held for sale, in addition to money market assets.
The Corporation adopted SFAS No. 115 on December 31, 1993, which required that management express its intent regarding the securities portfolio based on management's intent for the securities at that time. This review resulted in the net transfer of $168.7 million in securities at December 31, 1993, from the available for sale portfolio to the held-to-maturity portfolio. After taking into account the $168.7 million net transfer on December 31, 1993, the new accounting treatment for the securities available-for-sale portfolio under SFAS No. 115 resulted in a $1.28 million net unrealized gain in stockholders' equity. Securities held-to-maturity totaled $660.1 million at December 31, 1993, down $135.3 million, or 17.0%, from the level at December 31, 1992. The average balance in securities held-to-maturity was $709.8 million for 1993, compared with $686.1 million for 1992. At December 31, 1993, securities held-to-maturity had gross unrealized gains of $729 thousand and gross unrealized losses of $18 thousand. The decrease in this portfolio was due to the transfer in the first quarter of 1993 of $983 million in investment securities to the held-for-sale portfolio, as discussed above. At December 31, 1993, this portfolio consisted primarily of U.S. Treasury securities, with 97.6% of the portfolio maturing in one year or less. As of December 31, 1993, loans, net of unamortized premiums, unearned discounts and unearned fees, were $2.53 billion, an increase of $347.1 million (15.9%) from the year-end 1992 loan balance. This increase was due to the purchase of $435.9 million in residential mortgage loans in the latter half of 1993, which was part of an overall asset/liability management strategy to shift certain shorter-term assets to longer-term maturities. The purchases, combined with local-area originations in 1993, were partially offset by loan curtailments and payoffs, particularly with respect to residential mortgage loans, as the result of the high level of mortgage loans refinanced during 1993 and, to a lesser extent, transfers of loans to other real estate owned. Domestic commercial and financial loans were $412.0 million at December 31, 1993, an increase of $42.1 million, or 11.4%, when compared with $369.9 million at December 31, 1992. This increase was attributable to new commercial loan originations in the fourth quarter of 1993. Domestic real estate- commercial/construction loans were $388.4 million at December 31, 1993, a decrease of $145.2 million from year-end 1992. This decrease was the result of loan curtailments and payoffs, transfers to other real estate owned and limited new lending by the Corporation in this sector. Domestic real estate- commercial/construction loans were 15.4% of total loans and 8.1% of total assets at year-end 1993, compared with 24.4% and 10.5%, respectively, for year-end 1992. Residential mortgage loans totaled $1.15 billion at December 31, 1993, an increase of $620.0 million (117.1%) from the year-earlier level. This increase was the result of the local area originations and purchases in the open market during 1993. The purchase and origination activity during 1993 was partially offset by high levels of principal curtailments and payoffs, the result of increased mortgage loan refinance activity as consumers took advantage of the lowest mortgage loan interest-rate environment since the late 1960s. Home equity loans, which are primarily floating- rate loans secured by first or second trusts on single- family residential properties, decreased $39.5 million to $234.1 million at December 31, 1993. This decrease was caused largely by refinancing resulting from the lower interest-rate environment. Consumer loans were $82.8 million at year-end 1993, decreasing $24.6 million from $107.4 million at December 31, 1992, as a result of limited originations of installment loans and student loans in the domestic markets. Foreign loans totaled $255.4 million at December 31, 1993, a decrease of $116.1 million from the year- end 1992 total of $371.5 million. Foreign loans in the Corporation's London operations were $199.8 million at December 31, 1993, and constituted 78.2% of the Corporation's total foreign loans. Approximately 59.7% of the decline in the foreign loan portfolio was due to repayments, with 4.0% due to exchange rate fluctuation, 9.3% related to transfers to other real estate owned and 27.0% due to charge-offs during the year. Riggs AP Bank's lending activities have been significantly reduced because of the weak economic conditions in the United Kingdom and the previously discussed financial restructuring. Nonperforming assets, which include nonaccrual loans, renegotiated loans, and other real estate owned (net of reserves), totaled $213.3 million at year-end 1993, a $93.3 million (30.4%) decrease from the year- end 1992 total of $306.6 million. This significant decrease in nonperforming assets during 1993 was attributable to sales of $140.0 million, and net charge-offs/writedowns of $90.5 million, combined with exchange rate fluctuations and other reductions of $3.4 million that were partially offset by net additions in 1993 of $140.6 million. Provisions for loan losses totaled $69.3 million for 1993, compared with provisions of $52.1 million for 1992. Net charge-offs were $66.4 million, or 3.04% of average loans, during 1993, compared with $68.4 million, or 2.66% of average loans, during 1992. The reserve for loan losses was $86.5 million, or 3.42% of loans, at December 31, 1993, compared with $84.2 million, or 3.86% of loans, at December 31, 1992. The ratio of loan-loss reserves to nonaccrual and renegotiated loans (coverage ratio) was 53.9% at December 31, 1993, compared with 38.7% a year earlier.
Total deposits at December 31, 1993, were $3.77 billion, compared with $4.44 billion at year-end 1992, a decrease of $663.8 million, or 15.0%. Foreign deposits decreased $350.7 million, to $262.7 million, as a result of the Corporation's decision to phase out the deposit-gathering business in its London operations. Average domestic deposits were $3.74 billion for 1993, down from $3.91 billion for 1992. The reductions in year-end and average domestic deposits were due to reductions in demand for certificates of deposit and other deposit products, the result of the continued lower interest-rate environment. Average core deposits (total deposits in domestic offices, excluding negotiable certificates of deposit) were $3.72 billion, down $175.5 million, or 4.5%, from 1992's $3.89 billion. Stockholders' equity increased to $293.2 million at December 31, 1993, from $245.4 million at December 31, 1992. This increase was due to the issuance of $95.3 million of 10.75% Cumulative Perpetual Preferred Stock- Series B and $37.0 million of common stock in October 1993, partially offset by the $94.2 million loss. Net interest income on a tax-equivalent basis totaled $139.5 million for 1993, down $4.9 million, or 3.4%, from the $144.4 million in 1992. The positive impact on earnings of a $309.1 million decline in average interest-bearing liabilities during 1993, combined with the added benefit of a 139-average-basis- point reduction in the interest rate paid, was partially offset by a $299.2 million decrease in average earning assets and a 117-average-basis-point reduction in the rate earned for 1993. Loans were 50.5% of average earning assets during 1993, compared with 55.6% for 1992. The net interest margin was 3.23% during 1993, an increase of 10 basis points from the 3.13% net interest margin for 1992, 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 1993 was 2.88%, a 22-basis- point improvement from 1992's spread of 2.66%. Interest lost on nonaccrual and renegotiated loans totaled $14.1 million for 1993, which had the effect of impacting the net interest margin by approximately 32 basis points for 1993. In 1992, interest lost totaled $13.2 million and had the effect of impacting the net interest margin in that year by approximately 28 basis points. Noninterest income for 1993 was $112.7 million, down $17.8 million, or 13.6%, from 1992. Excluding securities gains, net, of $24.1 million and $34.2 million for 1993 and 1992, respectively, and $5.9 million of nonrecurring interest income related to a tax receivable recognized in 1992, noninterest income decreased $1.8 million, or 2.0%. Trust income of $28.9 million was up $1.3 million, or 4.8%, as increases in fees on trust and investment services more than offset decreases in corporate custodial accounts. Service charges for 1993 of $39.3 million increased $0.9 million, or 2.4%, primarily because of an increase in advisory fee income. Foreign exchange income decreased $2.2 million, or 43.9%, in 1993, primarily because of the previously discussed restructuring of Riggs AP Bank and the exiting of foreign exchange trading-related activities. Other noninterest income of $8.1 million was down $1.8 million as letter-of-credit fees decreased $1.1 million during 1993. Noninterest expense for 1993 was $266.8 million, compared with $238.4 million for 1992. Noninterest expense for 1993 included restructuring expense of $34.6 million, of which $20.8 million related to Riggs AP Bank. Also included in the $34.6 million in restructuring expense was $13.8 million in expenses related to the implementation of BankStart '93. Other real estate owned expense, net of revenues, was $13.5 million, down 13.9% from $15.7 million incurred in 1992. For the first half of 1992, writedowns and disposition-related losses and expenses from the Corporation's asset-disposition program totaling $35.2 million were charged to the program- related reserves rather than other real estate owned expense. Had these amounts been charged to noninterest expense, other real estate owned expense for 1993 would have decreased $37.4 million from the adjusted 1992 level. This decrease is attributed to the overall decrease in other real estate owned, which totaled $89.4 million at December 31, 1992, and decreased $36.6 million (40.9%) during 1993. The Corporation's provision for income taxes includes both federal and state income taxes. The rise in the provision for income taxes to $5.6 million for 1993 from the benefit of $1.1 million for 1992 was attributable primarily to the Corporation's inability to utilize the tax benefits of the provision for loan losses and other real estate owned. The provision for income taxes for 1993 was more than the amount determined by application of the Federal statutory income tax rate, principally because of tax preference items and the Corporation's inability to carry back the full potential of the net operating losses.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CONDITION
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 1994, 1993 and 1992
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS __________________________________________________________________ (Dollar amounts in thousands, except per share amounts and as indicated)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ____________________________________________________________
The following summary of significant accounting policies of Riggs National Corporation ("the Corporation"), including its principal subsidiaries, The Riggs National Bank of Washington, D.C. ("Riggs- Washington") and Riggs AP Bank Limited ("Riggs AP") and other subsidiaries, The Riggs National Bank of Virginia ("Riggs-Virginia"), and The Riggs National Bank of Maryland ("Riggs-Maryland"), is presented to assist the reader in understanding the financial, statistical and other data presented in this report.
GENERAL ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation are in accordance with generally accepted accounting principles and conform to general practice within the banking industry. For purposes of reporting cash flows, cash equivalents include cash on hand, amounts due from banks and federal funds sold and reverse repurchase agreements. Generally, federal funds are purchased and sold for one-day periods. The consolidated financial statements include the accounts of the Corporation and its subsidiaries, after elimination of all intercompany transactions. Certain reclassifications have been made to the 1993 and 1992 balances to conform with the 1994 classifications.
SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE FOR SALE
Effective December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This pronouncement is effective for fiscal years beginning after December 15, 1993 (with early adoption encouraged), and may not be applied retroactively to prior years' financial statements. SFAS No. 115 requires, among other items, the determination at the acquisition date of a security whether such security is purchased with the intent and ability to hold to maturity, whether it is purchased with the intent to trade, or whether the security is available for sale. Under SFAS No. 115, securities available for sale are carried at fair value, with unrealized gains and losses, net of tax, included as a separate component of stockholders' equity. This is contrary to prior accounting policy, under which the Corporation carried these securities at the lower of cost or market, with any adjustments included in earnings. Management has established policies that require the periodic review of the securities portfolio for proper classification of securities under SFAS No. 115 (see Note 2, "Securities").
LOANS
Loans are carried at the principal amount outstanding, net of unearned discounts, unamortized premiums and deferred fees and costs. Interest on loans and amortization of unearned discounts/premiums and deferred fees and costs are computed by methods that generally result in level rates of return on principal amounts outstanding. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield. The Corporation generally amortizes these amounts in a manner that approximates a level yield over the estimated lives of the loans. The Corporation discontinues the accrual of interest on loans based on delinquency status, an evaluation of the related collateral and the financial strength of the borrower. Generally, loans are placed on nonaccrual status when the loans are contractually in default in either principal or interest for 90 days or more and the loans are not well-secured and in the process of collection. Income recognition on consumer loans is discontinued and the loans are charged off after a delinquency period of 120 days. At that point, any accrued interest that has not actually been collected is reversed. At December 31, 1993, the Corporation implemented a narrower definition of in-substance foreclosure, as required by regulatory agencies. This definition is also consistent with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." This definition is discussed in detail below, and the related loan disclosures have been adjusted to reflect this new definition.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is maintained at a level that, in the opinion of management, is adequate to absorb potential losses in the loan portfolio. The adequacy of the reserve is based on management's review and evaluation of the individual credits in the loan portfolio, historical loss experience by loan type, current and anticipated, economic conditions, and where applicable, the estimated value of the underlying collateral. The provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. A loan is charged off when, in the opinion of management, the loan cannot be fully collected. Recoveries of loans previously charged off are added to the reserve.
IMPLEMENTATION OF INTERAGENCY GUIDANCE ON REPORTING OF IN-SUBSTANCE FORECLOSURES
At December 31, 1993, the Corporation implemented the narrower definition of in-substance foreclosure required by the March 10, 1993, Interagency Policy Statement on Credit Availability and the June 10, 1993, Interagency Guidance on Reporting of In-Substance Foreclosures.
Under previous financial accounting guidelines, a nonaccrual loan was transferred from loans to other real estate owned when foreclosure was probable or the loan was considered in-substance foreclosed, which by definition in the Securities and Exchange Commission's Financial Reporting Release No. 28 meant that the borrower had little or no equity in the property, proceeds for repayment of the loan could be expected to come only from the operation or sale of the collateral, and the debtor had either abandoned control of the collateral or it was doubtful that the debtor would be able to rebuild equity in the collateral or otherwise repay the loan in the foreseeable future. Loans considered in-substance foreclosed must be recorded at the lower of cost or fair value. Under the revised regulatory accounting guidelines, a loan is recognized as an in-substance foreclosure when the Corporation has possession of an asset prior to obtaining legal title. This definition is consistent with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," which will be required for fiscal years beginning after December 15, 1994. This change in treatment impacts only the classification of accounts in the financial statements for 1993 and prior years, and does not result in a change in the accounting policy related to the determination of the assets' carrying values. The impact of this change in definition of in-substance foreclosures on certain categories in the Corporation's financial statements is presented in the following table. The Consolidated Statements of Condition, Income and Cash Flows and the Notes to Consolidated Financial Statements reflect these reclassifications.
ADJUSTMENTS TO IMPLEMENT NEW DEFINITION OF IN-SUBSTANCE FORECLOSURES
OTHER REAL ESTATE OWNED
Other real estate owned is property acquired or deemed to have been acquired through foreclosure. See the "Implementation of Interagency Guidance on Reporting of In-Substance Foreclosures" section, discussed in detail above. Other real estate owned is recorded at the lower of fair value less estimated costs to sell, or cost. Initial writedowns of other real estate owned are charged to the reserve for loan losses. Revenues and expenses incurred in connection with ownership of the properties, and subsequent writedowns and gains and losses upon sale, are included, net, in other real estate owned expense.
PREMISES AND EQUIPMENT
Premises, leasehold improvements and furniture and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of premises, leasehold improvements, and furniture and equipment are computed using the straight-line method. Ranges of useful lives for computing depreciation and amortization are as follows:
Major improvements and alterations to premises and leaseholds are capitalized. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated useful lives of the improvements.
OTHER ASSETS
Included in other assets are intangible assets, such as goodwill, which is the excess of cost over net assets of acquired entities, and core-deposit intangibles. Goodwill is amortized on the straight-line method over 25 years. The Corporation had unamortized goodwill of $5.0 million at December 31, 1994, and amortization expense of $397 thousand, $565 thousand, and $716 thousand for 1994, 1993, and 1992, respectively. Core- deposit intangibles represent the net present value of the future income streams related to deposits acquired through mergers or acquisitions, and are amortized on an accelerated basis over 10 years. The unamortized core-deposit intangibles recorded on the Corporation's books at December 31, 1994, were $18.0 million, and amortization expense of $3.4 million, $3.5 million, and $3.7 million was recorded for 1994, 1993, and 1992, respectively.
INCOME TAXES
Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which mandates the asset and liability method of accounting for income taxes. The Corporation had previously accounted for taxes under the deferral method required by Accounting Principles Board ("APB") Opinion No. 11.
PENSION PLANS
The Corporation maintains a noncontributory defined benefit pension plan for substantially all employees of the Corporation and its subsidiaries. The net periodic pension expense includes a service cost component and an interest cost component, reflecting the expected return on plan assets, and the effect of deferring and amortizing certain actuarial gains and losses, prior service costs and the unrecognized net transition asset over 12 years.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are calculated by dividing net earnings after deduction of preferred stock dividends by the weighted-average number of shares of common stock and common stock equivalents outstanding during each period. Stock options are considered common stock equivalents, unless determined to be anti-dilutive. The weighted-average shares outstanding were 30,230,213 for 1994, 26,208,315 for 1993 and 24,534,063 for 1992. Fully diluted earnings per common share were not presented because outstanding preferred shares, when converted to Common Stock, as well as the assumed exercise of outstanding stock options, were not dilutive.
FOREIGN CURRENCY TRANSLATION
The functional currency amounts of assets and liabilities of foreign entities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated using appropriately weighted-average exchange rates for the period. Functional currency to U.S. dollars translation gains and losses, net of related hedge transactions, are credited or charged directly to the stockholders' equity account, "Foreign Exchange Translation Adjustments."
FOREIGN EXCHANGE INCOME
Foreign currency trading and exchange positions, including spot and forward exchange contracts, are valued monthly, and the resulting profits and losses are recorded in foreign exchange trading income. The amounts of net foreign exchange trading gains included in the accompanying consolidated statements of income under other noninterest income were $2.3 million for 1994, $2.8 million for 1993 and $5.0 million for 1992.
FINANCIAL DERIVATIVES
Gains and losses on futures and forward contracts used to hedge certain interest-sensitive assets and liabilities are deferred and amortized over the life of the hedged transaction as an adjustment to yield. Fees received or paid when entering certain financial derivative transactions are deferred and amortized over the lives of the agreements. Interest-rate agreements are entered into as hedges against fluctuations in the interest rates of specifically identified assets or liabilities. There is no effect on total assets or liabilities of the Corporation. Net receivables or payables under agreements designated as hedges are recorded as adjustments to interest income or interest expense related to the hedged asset or liability.
NEW FINANCIAL ACCOUNTING STANDARDS
In May 1993, SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," was issued, specifying how allowances for credit losses related to impaired loans, as defined in the Statement, should be determined. Upon implementation of the Statement, the Corporation will be required to identify and measure impaired loans in its loan portfolio. For the most part, measurement will be based on the present value of expected future cash flows discounted at the loan's effective interest rate or, for collateral-dependent loans, on the fair value of the collateral. If the valuation of the impaired loan is less than the recorded investment in the loan, the Corporation will recognize an impairment by creating a valuation allowance with a corresponding charge to provision for loan losses or by adjusting an existing valuation allowance for the impaired loan, with the corresponding amount reflected in earnings. This Statement is effective for financial statements for fiscal years beginning after December 15, 1994. In October 1994, SFAS No. 118, "Accounting by Creditors for Impairment of a Loan," was issued, amending SFAS No. 114, issued in May 1993. The new Statement allows for use of existing methods for recognizing interest income on impaired loans; however, SFAS No. 118 does not provide specific guidance on how a creditor should recognize interest income on an impaired loan. SFAS No. 118 also provides additional disclosure guidance for the reporting of impaired loans. Implementation of SFAS No. 118 is required for fiscal years beginning after December 15, 1994. The Corporation implemented SFAS Nos. 114 and 118 on January 1, 1995, and its adoption did not have a material effect on the Corporation's financial position. Also in October 1994, SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," was issued. The new Statement requires certain disclosures about financial derivatives, including the amounts, nature and terms of the instruments. It also requires that a distinction be made between financial instruments held or issued for trading purposes and those held or issued for purposes other than trading. SFAS No. 119 required disclosures are effective for years ending after December 15, 1994. The Corporation has presented such disclosures in Note 9, Commitments and Contingencies.
NOTE 2. SECURITIES _____________________
Effective December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This pronouncement is discussed in detail in Note 1, "Summary of Significant Accounting Policies." Implementation of SFAS No. 115 included a review of the securities portfolio based on management's intent for those securities at that time, which resulted in the net transfer of $168.7 million in securities available for sale to the held-to-maturity portfolio. SFAS No. 115 requires that all unrealized gains and losses from the securities available for sale portfolio be recorded, net of tax effect, in stockholders' equity until realized. This treatment is contrary to previous accounting policy, which required such securities to be carried at lower of cost or market, with any unrealized gains and losses included in earnings. During 1994, the rising interest-rate environment negatively impacted bond prices and the market value of the Corporation's securities available for sale portfolio. At December 31, a $28.1 million unrealized loss on the available for sale portfolio, net of tax effect, was recorded in stockholders' equity. _____________________________
SECURITIES AVAILABLE FOR SALE
A comparison of cost and market value for securities available for sale at year-end follows:
Proceeds from the sale of securities available for sale totaled $193 million during 1994, as compared with $736 million during 1993. During 1994, gross gains from the sale of securities available for sale totaled $1.7 million, with gross losses of $376 thousand during the year, compared with $27.0 million in gross gains and no gross losses for 1993. The weighted-average yield to maturity for securities available for sale at December 31, 1994, as well as maturity information, is provided in the table on the following page. The "Other Securities" category consists of $8.9 million of Federal Reserve Stock and $5.6 million of U.S. Treasury mutual funds at December 31, 1994. The Federal Reserve Stock has no readily available market value quotation and has its year-end book value included as an approximation of its market value in the table above. Securities available for sale pledged to secure deposits and other borrowings amounted to $367.5 million at December 31, 1994, and $372.8 million at December 31, 1993. The "Obligations of States and Political Subdivisions" category includes $10 million (par value) of Orange County, California, variable- rate, one-year bonds due July and August 1995, with an amortized cost balance of $8.8 million at December 31, 1994. Interest on the bonds is current; however, because of the Orange County bankruptcy filing on December 6, 1994, management cannot predict whether or if interest payments will remain current.
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SECURITIES HELD-TO-MATURITY
A comparison of book and market value for the securities held-to-maturity at year-end follows:
During 1994, there were $4.8 million of sales from the held-to-maturity portfolio, the result of increased credit risk experienced with these securities. Gross gains on the sale of these securities were $7 thousand, and there were no gross losses in 1994. The weighted- average yield to maturity for securities held-to- maturity at December 31, 1994, as well as maturity information, is provided in the table below. The "Other Securities" category at year-end 1993 consisted primarily of floating-rate notes and preference shares of United Kingdom companies. Securities held-to-maturity pledged to secure deposits and other borrowings amounted to $370.1 million on December 31, 1994, and $271.2 million at year-end 1993. _____________________________
The maturity distribution of securities at December 31, 1994, follows:
[FN] * Weighted-average yield to maturity at December 31, 1994. The securities within the category of "Securities Available for Sale- Obligations of States and Political Subdivisions" are taxable securities and are on a nonaccrual basis as of December 31, 1994. All contractual payments to date have been received.
NOTE 3. LOANS AND RESERVE FOR LOAN LOSSES _________________________________________________
The following schedule reflects loans by type at year-end:
A summary of nonperforming and renegotiated loans, loans contractually past due 90 days or more and potential problem loans at year-end follows:
At December 31, 1993, the Corporation implemented a narrower definition of in-substance foreclosure, as required by regulatory agencies; see Note 1, "Summary of Significant Accounting Policies." An analysis of the changes in the reserve for loan losses follows:
The level of the reserve for loan losses is based on management's estimates of the amount required to reflect the collection risks in the loan portfolio based on circumstances and conditions known at the time. The adequacy of the reserve for loan losses is based on management's review and evaluation of the individual credits in the loan portfolio, historical loss experience by loan type, current and anticipated economic conditions and, where applicable, the estimated value of the underlying collateral.
NOTE 4. TRANSACTIONS WITH RELATED PARTIES _______________________________________________________
The Corporation and its banking subsidiaries have had and expect to have transactions in the ordinary course of business with many of the Corporation's directors, executive officers, their associates and family members. During 1994, Allbritton Communications Company ("ACC"), a company indirectly wholly owned by Mr. Allbritton (chairman of the board and chief executive officer of the Corporation), paid Riggs-Washington $251 thousand to lease space in two office buildings owned by Riggs-Washington. In early 1992, ACC exercised its option to extend one of the leases through 1996. During 1994, the second lease, which expired in December 1993, was also extended through 1996, pursuant to a three- year renewal option. Riggs-Washington has in the past sold participations in commercial real estate loans to University State Bank ("University"), a Texas bank that is indirectly wholly owned by Mr. Allbritton. The participations sold to University were in loans bearing floating rates of interest. The purchase price of each of the participations was equal to the outstanding principal amount of the portion of the loan purchased. Riggs-Washington receives a servicing fee of 0.25% on each of the loans in which participations were sold to University and, in some transactions, shared a portion of the loan fees with University. No loan participations were sold to University during 1994. On December 31, 1994, there were $14.4 million in loan participations outstanding to University. As of that date, University's total assets were $202.5 million and its total loans outstanding were $100.4 million. In December 1994, the Corporation purchased $10.0 million, par value, of Orange County, California, variable rate one-year bonds due in July and August 1995. The bonds were purchased from the Corporation's proprietary RIMCO Monument Money Market Fund, which is an indirect subsidiary of the Corporation and is affiliated with the Riggs Investment Management Corporation (a subsidiary of Riggs-Washington). Due to Orange County's bankruptcy declaration on December 6, 1994, the bonds were written down to their fair value and are currently on nonaccrual status. Interest on the bonds is current as of December 31, 1994 (see Note 2, "Securities"). The table below reflects information concerning loans by banking subsidiaries of the Corporation to directors and executive officers of the Corporation, their associates and family members, and directors of Riggs-Washington and Riggs AP, their associates and family members. In addition to the amounts set forth in the table, the Corporation's banking subsidiaries had $7.4 million of letters of credit outstanding at December 31, 1994. There were no loans included in the table below that were nonaccrual, past due, restructured or potential problems at December 31, 1994. In the opinion of management, these credit transactions did not, at the time they were entered into, involve more than the normal risk of collectibility or present other unfavorable features. ____________________________________________
NOTE 5. OTHER REAL ESTATE OWNED _______________________________________________________
Other real estate owned at December 31, 1994, and 1993 is summarized as follows:
At December 31, 1993, the Corporation implemented a narrower definition of in-substance foreclosure as required by regulatory agencies. See Note 1, "Summary of Significant Accounting Policies." Total net operating income, including net gains from sales, from other real estate owned totaled $1.4 million for the year ended December 31, 1994, compared with net expenses of $13.5 million and $15.7 million for 1993 and 1992, respectively. Provisions for other real estate owned totaled $3.3 million, $11.3 million and $11.9 million for the same periods. Net gains from sales of other real estate owned totaled $4.7 million for 1994, $2.7 million for 1993 and $.4 million for 1992.
RESERVE FOR OTHER REAL ESTATE OWNED
An analysis of the changes in the reserves for other real estate owned follows:
NOTE 6. PREMISES AND EQUIPMENT _______________________________________________________
Investments in premises and equipment at year-end were as follows:
Depreciation and amortization expense amounted to $12.6 million in 1994, $13.2 million in 1993 and $14.2 million in 1992. The Corporation is committed to the following future minimum lease payments under non-cancelable operating lease agreements covering equipment and premises. These commitments expire intermittently through 2009 in varying amounts. The total minimum lease payments under these commitments at December 31, 1994, are as follows:
Total minimum operating lease payments included in the preceding table have not been reduced by future minimum payments from sublease rental agreements that expire intermittently through 1999. Minimum sublease rental income for 1995 totals approximately $800 thousand. Rental expense for all operating leases (cancelable and non-cancelable), less rental income for owned and leased properties, consisted of the following:
NOTE 7. TIME DEPOSITS, $100 THOUSAND OR MORE ____________________________________________
The following table reflects the year-end balances and maturities for the Corporation's time deposits in domestic offices of $100 thousand or more:
Average time deposits of $100 thousand or more in domestic offices were $284 million in 1994, 10.4% below the $317 million for 1993. Interest expense related to time deposits of $100 thousand or more in domestic offices amounted to $4.7 million in 1994, $5.5 million in 1993 and $10.3 million in 1992. The average rate paid on time deposits of $100 thousand or more for 1994 was 1.65%, 7 basis points below the average rate paid during 1993. A majority of time deposits in foreign offices were in denominations of $100 thousand or more.
NOTE 8. BORROWINGS _______________________________________________________
SHORT-TERM BORROWINGS
Short-term borrowings outstanding at year-end and other related information follow:
[FN] * Average amounts are based on daily balances. Average rates are computed on actual interest expense divided by average amounts outstanding.
Federal funds purchased consist of borrowings from other financial institutions that have maturities ranging from one to 180 days. Repurchase agreements are transactions with customers and brokers secured by either securities or resale agreements, which mature generally within 30 days. U.S. Treasury demand notes consist of treasury tax and loan account funds transferred to interest-bearing demand notes with no fixed maturity, subject to call by the Federal Reserve. Other short-term borrowings are primarily borrowings from other financial institutions. _______________________________________
LONG-TERM DEBT
Long-term debt outstanding at year-end and other related information follow:
FLOATING-RATE SUBORDINATED NOTES DUE 1996
The Floating-Rate Subordinated Notes due 1996 (the "Subordinated Notes") were issued in the Euromarket on September 18, 1984. During 1991, the Corporation purchased, on the open market and at a discount, $8.5 million of the Subordinated Notes, resulting in pretax gains of $2.5 million. In March 1994, the Corporation redeemed the remaining $51.5 million of the Subordinated Notes.
FLOATING-RATE SUBORDINATED CAPITAL NOTES DUE 1996
The Floating-Rate Subordinated Capital Notes due 1996 (the "Subordinated Capital Notes") were originally issued in the Euromarket on December 18, 1985, carry interest at rates determined quarterly by a formula based upon the London Interbank Rate Offering ("LIBOR") and are subject to a minimum rate of 5.25%. Under the indenture related to the Subordinated Capital Notes, the Corporation was required to issue common stock or perpetual preferred stock totaling $95.3 million before the maturity date of the notes. This requirement was fulfilled during 1993. During 1991, the Corporation purchased, on the open market and at a discount, $4.7 million of the Subordinated Capital Notes, resulting in pretax gains of $1.7 million. In March 1994, the Corporation redeemed, at par, $69.2 million of the Subordinated Capital Notes. The net financial statement loss from the 1994 redemption was not material.
FIXED-RATE SUBORDINATED DEBENTURES DUE 2009
On June 6, 1989, the Corporation sold $100 million of 9.65% Subordinated Debentures due June 15, 2009. The debentures may not be redeemed prior to maturity and are unsecured subordinated obligations of the Corporation. In April 1990, the Corporation purchased, on the open market and at a discount, $33.5 million of the Subordinated Debentures, resulting in pretax gains of $7.7 million.
FIXED-RATE SUBORDINATED NOTES DUE 2006
On February 1, 1994, the Corporation sold $125 million of 8.5% Subordinated Notes, due 2006. The notes were priced at par and are not callable for five years. The notes were sold under a shelf registration statement declared effective on January 13, 1994. The Corporation used the net proceeds from the offering, $120.7 million, to redeem Floating-Rate Subordinated Notes and Subordinated Capital Notes due in 1996, as described above.
NOTE 9. COMMITMENTS AND CONTINGENCIES _____________________________________
OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation enters into various transactions that, in accordance with generally accepted accounting principles, are not included on the consolidated statements of condition. These transactions are referred to as "off-balance- sheet" commitments and differ from the Corporation's balance sheet activities in that they do not give rise to funded assets or liabilities. The Corporation offers such products to enable its customers to meet their financing objectives, as well as to manage their interest and currency rate risk. Offering these products provides the Corporation with fee income. The Corporation also enters into derivative transactions to manage its own risks arising from movements in interest and currency rates. Off-balance-sheet activities, for customers and as hedging transactions, involve varying degrees of credit, interest-rate or liquidity risk in excess of amounts recognized on the consolidated statements of condition. The Corporation seeks to minimize its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures, as well as by entering into offsetting or matching positions to hedge interest-rate and currency- rate risk. Outstanding commitments and contingent liabilities that do not appear in the consolidated financial statements at December 31, 1994, and 1993, are as follows:
COMMITMENTS TO EXTEND CREDIT
The Corporation enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Customers use credit commitments to ensure that funds will be available for working capital purposes, for capital expenditures and to ensure access to funds at specified terms and conditions. Substantially all of the Corporation's commitments to extend credit are contingent upon customers' meeting and satisfying other conditions at the time of loan funding. The contractual amount of commitments to extend credit for which the Corporation has received a commitment fee, or which were otherwise legally binding, was $563.3 million at December 31, 1994; approximately 67% of these commitments were scheduled to expire within one year. Since many of the commitments are expected to expire without being drawn upon, the total contractual amounts do not necessarily represent future funding requirements.
CONCENTRATION OF CREDIT RISK
The Corporation regularly assesses the quality of its commercial credit exposures and assigns risk ratings to substantially all extensions of credit in its commercial, real estate and international portfolios. The Corporation seeks to identify as early as possible problems that may result from economic downturns or deteriorating conditions in certain markets or with respect to specific credits. Lending officers have the primary responsibility for monitoring credit quality, identifying problem credits and recommending changes in risk ratings. When signs of credit deterioration are detected, credit or other specialists may become involved to minimize the Corporation's exposure to future credit losses. The Loan Review Department provides an independent assessment of credit ratings, credit quality and the credit management process. This assessment is achieved through regular reviews of loan documentation, collateral, risk ratings and problem loan classifications. Credit risk is reduced by maintaining a loan portfolio that is diverse in terms of type of loan, industry concentration, geographic distribution, and borrower concentration, thus minimizing the adverse impact of any single event or set of occurrences. Geographically, the Corporation's loans are concentrated in the Baltimore-Washington, D.C.-Richmond corridor and the United Kingdom. All categories of loans in the domestic portfolio are predominantly to borrowers located in the Washington metropolitan area. Loans originated by the Corporation's United Kingdom subsidiary represent 46% of foreign loans and are predominantly to borrowers located in the United Kingdom. At December 31, 1994, approximately $435 million, or 17%, of the Corporation's loan portfolio consisted of loans secured by real estate (excluding single- family residential loans), approximately 74% and 25% of which, respectively, were secured by properties located in the Washington, D.C., area and in the United Kingdom. In addition, the Corporation had $47.8 million in other real estate owned at December 31, 1994. These commercial and real estate markets have been experiencing problems, including declining occupancy and rental rates and property values, which have resulted in delinquency and defaults on certain commercial real estate loans in the Corporation's portfolio. Additional provisions and writedowns will depend on future economic conditions in the United States and the United Kingdom, as well as on changes in the local real estate market and the impact of these events on the Corporation's borrowers. Domestic real estate-commercial/construction loans represent the only category of loans in which the Corporation has a concentration of credit risk at year-end 1994. These loans totaled $323.8 million and represented 13% of the total loan portfolio at December 31, 1994. Approximately half of the Corporation's real estate- commercial/construction portfolio is for the development of residential properties. The remainder of the portfolio is for the development of commercial properties, including office buildings, warehouses, shopping centers and hotels. Approximately 60% of the Corporation's loan portfolio is secured by the primary residence of the borrower. At December 31, 1994, residential mortgage loans were $1.32 billion and home equity loans were $220.9 million.
LETTERS OF CREDIT
There are two major types of letters of credit: commercial and standby letters of credit. A commercial letter of credit is normally a short-term instrument used to finance a commercial contract for the shipment of goods from seller to buyer. This type of letter of credit ensures prompt payment to the seller in accordance with its terms. Although the commercial letter of credit is contingent upon the satisfaction of specified conditions, it represents a current exposure if the customer defaults on the underlying transaction. Commercial letters of credit issued by the Corporation totaled $48.0 million at December 31, 1994. A standby letter of credit can be either financial or performance-based. Financial standby letters of credit obligate the Corporation to disburse funds to a third party if the Corporation's customer fails to repay an outstanding loan or debt instrument under the terms of the agreement with the beneficiary. Performance standby letters of credit obligate the Corporation to disburse funds if the customer fails to perform some contractual or nonfinancial obligation under the terms of the agreement with the beneficiary. The Corporation's policies generally require that all standby letter of credit arrangements contain security and debt covenants similar to those contained in
loan agreements. At December 31, 1994, financial standby letters of credit and performance standby letters of credit totaled $24.3 million and $21.5 million, respectively.
FOREIGN CURRENCY CONTRACTS
Capital markets products include commitments to purchase and sell foreign exchange, futures, forward and option contracts. The Corporation utilizes these products to manage its exposure to movements in interest and currency rates, and to generate revenue by assisting customers in managing their own exposure to such rate movements. These products normally include the exchange of securities, foreign currency, or payments based on an agreed upon notional principal balance. The types of risk associated with these products are as follows: credit or performance risk, currency-rate risk, and interest-rate risk. Performance risk relates to the ability of a counterparty to meet its obligations under the contract. Performance risk is limited to the cost of replacing the contract at current rates, and does not include the notional principal balance or other index/instrument used to determine payment streams. Currency-rate risk and interest-rate risk arise from changes in the market value of positions stemming from movements in currency and interest rates. The Corporation limits its exposure to market value changes by entering into offsetting or matching positions. The Corporation establishes and monitors limits of exposure on unmatched positions. Commitments to purchase and sell foreign exchange facilitate the management of currency-rate risk by ensuring that at some future date a customer will have a specific currency at a specified rate. The Corporation enters into these contracts to serve its customers and to hedge its own risk positions associated with its asset and liability management. In addition to entering into offsetting or matching positions to offset foreign currency-rate risk, the Corporation has established limits on the aggregate amount of open positions, forward trading gaps and total volume of contracts outstanding, as well as counterparty and country limits. At December 31, 1994, commitments to purchase and sell foreign exchange were $41.4 million and $144.3 million, respectively. The difference between these positions is effectively hedged through the Corporation's sterling equity investment in Riggs AP.
INTEREST-RATE AGREEMENTS AND CONTRACTS
The Corporation's management believes that financial derivatives, such as interest-rate agreements, can be an important element of prudent balance sheet and interest-rate risk management. Interest-rate agreements, such as interest-rate swap agreements, involve two parties that have agreed to exchange periodic payments calculated with reference to fixed or variable interest rates applied to an agreed upon notional principal amount. Notional amounts are used to determine the amount of payments exchanged and do not represent an obligation to exchange principal balances. Interest-rate swaps are entered into as hedges against fluctuations in the interest rate of specifically identified assets or liabilities and reduce the Corporation's interest-rate risk. The Corporation is exposed to certain levels of credit and market risk when entering interest-rate agreements. Credit risk, or the risk that the counterparty will default on its agreed upon payments, is measured as the cost of replacing, at current market rates, the defaulted agreement. The Corporation minimizes credit risk by adhering to underwriting standards similar to those used in other credit transactions, as well as by obtaining collateral, if deemed appropriate under the specific circumstances. In addition, all the Corporation's interest-rate swap agreements have been transacted with either major investment or commercial banks. Market risk arises from changes in the market values (replacement cost of agreements at current prices) of agreements outstanding, the result of changes in interest rates or security values underlying the interest-rate agreements. Market risk is minimized primarily since the Corporation uses interest-rate swaps to hedge certain assets and liabilities, and thus termination of an agreement would be an infrequent event. Interest-rate option contracts obligate a contract "seller" to make payments to a contract "purchaser" in the event that a designated interest-rate index exceeds a contractual "ceiling" level or falls below a contractual "floor" level, or both, as in a "corridor" transaction. The Corporation has entered into such contracts to obtain a specific hedge of certain assets, liabilities or to offset previously entered derivative positions. The credit and market risk for interest-rate option contracts is similar to that for interest-rate swap agreements as described above. In October 1994, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 119 ("SFAS No. 119"), "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS No. 119 provides guidance for proper disclosure for financial instruments, including interest-rate swaps and option contracts (see Note 1, "Summary of Significant Accounting Policies").
Other than swaps entered into for customers, the Corporation's involvement with off-balance-sheet financial derivative instruments has been for hedging purposes. Such transactions have no effect on the level of total assets or liabilities of the Corporation. Net receivables or payables under agreements designated as hedges are recorded when realized or accrued as adjustments to interest income or interest expense related to the hedged asset or liability. Related fees are deferred and amortized over the lives of the agreements as an adjustment to interest income or interest expense related to the hedged assets or liabilities. Unrealized gains and losses will not be reflected in the accompanying financial statements unless the hedges are terminated. At year-end 1994, the Corporation's financial derivative instruments included a $200 million interest-rate swap agreement, entered into in July 1993, to hedge money market assets against the possibility of declining interest rates. Through the end of 1994, this swap agreement has performed as anticipated. The swap agreement entails the receipt of a fixed rate by the Corporation for the five-year term of 5.38%. The Corporation agreed to pay a floating rate equal to three-month Libor, reset quarterly. The rate earned on the actual money market assets is intended to offset the floating-rate payment and the Corporation is left with the fixed-rate of 5.38%. All payments are netted on a quarterly basis. The interest-rate swap agreement matures in July 1998. At December 31, 1994, total receivables and payables relating to unpaid interest income/expense from the swap agreement totaled $1.9 million and $2.1 million, respectively, with no unamortized fees outstanding. Total interest income recorded in 1994 from this swap transaction was $2.1 million, compared with $187 thousand in interest expense recorded, for a total net affect on net interest income of $1.9 million for 1994. As interest rates began to rise in early 1994, the level of interest-rate risk of the Corporation increased. The market value (replacement cost) of the swap agreement has fluctuated, from an unrealized gain of $0.9 million at year-end 1993, to an unrealized loss of approximately $16.8 million at December 31, 1994. Based on the possibility of further short-term rate increases by the Federal Reserve, in April 1994, the Corporation purchased two $100 million (notional principal balance) corridors to reduce interest-rate risk related to the above-mentioned interest-rate swap agreement. One of the corridors was for a term of two years, and the other for three years. A premium was paid for these agreements, with the cost amortized over the respective lives. Under the original terms, the corridor limits for three-month Libor were set from 5.00% to 6.00%. However, in early November 1994, the rates were adjusted based upon market conditions. Under the terms of the adjustments, the Corporation would receive payments from the counterparty if three-month Libor exceeded a level of approximately 5.60%, and would have to make payments if three-month Libor exceeded 7.00%. The net result was that the floating- rate paid on the swap would be capped at 5.60% unless Libor rose above 7.00%. If rates exceeded 7.00%, the Corporation would effectively reduce the actual floating-rate to be paid by 1.40% as a result of the corridor (7.00%-5.60% = 1.40%). All rates are reset quarterly to coincide with the interest-rate swap reset dates. At December 31, 1994, the Corporation was receiving interest payments based on a three-month Libor rate of 5.69%. These corridor agreements mature in April 1996 and April 1997. In August 1994, the Corporation entered into another corridor transaction in the amount of $200 million (notional). This corridor, executed to hedge the costs of certain short-term borrowings against rising interest rates, also included a termination agreement. A premium was also paid for this corridor, with the cost amortized over the two-year life. Under the agreement, the Corporation receives payments, calculated quarterly on the notional principal amount, by the amount that three-month Libor exceeds 6.00%. Such payments will cease, if three-month Libor would equal or exceed 8.00% on a reset date. As of year-end 1994, the current Libor rate on the agreement was below 6.00% and no payments were received by the Corporation. The terminating corridor agreement matures in August 1996. At December 31, 1994, total receivables and payables relating to unpaid interest income/expense from all the corridor transactions totaled an aggregate $2.1 million and $2.0 million, respectively, with aggregate unamortized fees totaling $1.7 million and aggregate unrealized gains of approximately $2.2 million at year-end 1994. Total aggregate net interest income recorded in 1994 from these corridor transactions was $108 thousand, which was more than offset by the amortization of prepaid costs totaling $1.0 million for 1994.
OTHER COMMITMENTS
During the first quarter of 1991, the Corporation entered into a ten-year outsourcing agreement with Integrated Systems Solutions Corp. ("ISSC"), a subsidiary of IBM, pursuant to which ISSC is managing the operations directly associated with computer and telecommunications functions of the Corporation. Payments for the remaining six years of the contract are approximately $100.7 million. Total expense under this contract for 1994 was $14.4 million, compared with total expenses of $13.9 million and $14.1 million for 1993 and 1992, respectively.
LITIGATION
In the normal course of business, the Corporation is involved in various types of litigation, including litigation with borrowers that are in default under their loan agreements. In certain instances, borrowers have asserted or threatened counterclaims and defenses based on various "lender liability" theories. In the opinion of management, based on its assessment and consultation with outside counsel, litigation that is currently pending against the Corporation will not have a material impact on the financial condition or future operations of the Corporation, as a whole.
NOTE 10. RESERVE BALANCE, FUNDS RESTRICTIONS, REGULATORY MATTERS AND CAPITAL REQUIREMENTS _______________________________________________________
RESERVE BALANCES
Riggs-Washington, Riggs-Virginia and Riggs-Maryland must maintain reserves against deposits and Eurocurrency liabilities in accordance with Regulation D of the Federal Reserve Act. The total average reserve balances amounted to $64.8 million in 1994 and $102.2 million in 1993.
FUNDS RESTRICTIONS
The Federal Reserve Act ("The Act") imposes restrictions upon the amount of loans or advances that banks, such as Riggs-Washington, Riggs-Virginia and Riggs-Maryland, may extend to the Corporation and its non-bank subsidiaries ("affiliates"). Loans by any bank to any one affiliate are limited to 10% of the bank's capital stock and surplus. Further, aggregate loans by any one bank to all of its affiliates may not exceed 20% of its capital stock and surplus. In addition, the Act requires that borrowings by affiliates be secured by designated amounts of collateral. The National Bank Act limits dividends payable by national banks without approval of the Comptroller of the Currency to net profits (as defined) retained in the current and preceding two calendar years. The payment of dividends by the Corporation's national bank subsidiaries may also be affected by other factors, such as requirements for the maintenance of adequate capital. In addition, the Comptroller of the Currency is authorized to determine, under certain circumstances relating to the financial condition of a national bank, whether the payment of dividends would be an unsafe or unsound banking practice and to prohibit payment thereof. Riggs-Washington had combined net losses (as defined) of approximately $49.4 million for 1994 and 1993. Thus, Riggs-Washington's ability to pay dividends to the Corporation in 1995 will depend on whether its earnings exceed such losses. Riggs-Virginia had combined net income (as defined) of approximately $7.8 million for 1994 and 1993, respectively, while Riggs- Maryland had combined net income of $1.3 million for the same period. During 1992, 1993 and 1994, Riggs-Virginia made dividend payments to the Corporation totaling $836 thousand, $1.2 million and $1.8 million, respectively. Riggs-Washington and Riggs-Maryland made no dividend payments to the Corporation in 1992, 1993 or 1994.
REGULATORY MATTERS
On May 14, 1993, the Corporation entered into a Memorandum of Understanding with the Federal Reserve Bank of Richmond ("Reserve Bank") and Riggs-Washington entered into a Written Agreement with the Office of the Comptroller of the Currency (the "OCC"). The Memorandum of Understanding and the Written Agreement were the result of regulatory concern over financial and operational weaknesses and continued losses related primarily to the Corporation's domestic and United Kingdom commercial real estate exposure. Under the terms of the Memorandum of Understanding, the Corporation will notify the Reserve Bank in advance of dividend declarations, the issuance and/or redemption of long-term debt and use of cash assets in certain circumstances. The Corporation is also required to submit plans and reports to the Reserve Bank relating to capital, asset quality, loan-loss reserves and operations, including contingency measures if projected operational results do not occur. In addition, the Audit Committee of the Corporation's Board of Directors will review and submit a report to the Reserve Bank on the adequacy of data submitted to it and the Board, and the Corporation has appointed a compliance committee of Directors to monitor performance under the Memorandum of Understanding. At year-end 1994, the Corporation was in substantial compliance with the provisions and regulations of the Memorandum of Understanding. Under the original terms of the Written Agreement, Riggs-Washington had previously appointed a committee of its Board of Directors to monitor and coordinate compliance with the agreement. Riggs-Washington had satisfactorily complied with the requirements of the Written Agreement during 1993 and 1994, and was informed on September 15, 1994, that the OCC had terminated the Written Agreement.
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines, bank holding companies are required to meet a minimum ratio of qualifying total (combined Tier I and Tier II) capital to risk-weighted assets of 8.00%, at least half of which must be composed of core (Tier I) capital elements. The Corporation's total and core capital ratios were 18.50% and 11.48%, respectively, at December 31, 1994, as compared with 16.81% and 10.76% at December 31, 1993. The Federal Reserve Board has established an additional capital adequacy guideline referred to as the leverage ratio, as amended by the Prompt Corrective Action regulations promulgated by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which measures Tier I capital to quarterly average assets. The most highly rated bank holding companies are required to maintain minimum leverage ratios of 3.00%. Those that are not in the most highly rated category, including the Corporation, are expected to maintain minimum ratios of at least 4.00%, or higher, if determined appropriate by the Federal Reserve Board through its assessment of the Corporation's asset quality, earnings performance, interest-rate risk and liquidity. The Federal Reserve Board has not advised the Corporation of a specific leverage ratio requirement above the 4.00% minimum. The Corporation's leverage ratio was 6.42% at December 31, 1994.
As a result of enactment of FDICIA, the Federal Reserve Board and the other federal bank regulatory agencies have placed a greater emphasis on capital ratios of banking organizations. FDICIA expressly conditions the ability of a banking organization to engage in certain activities on the maintenance of capital levels equal to or in excess of minimum guidelines and imposes restrictions on banking organizations that fail to meet minimum guidelines. In addition, the Federal Reserve Board has shown an increased emphasis on the leverage ratio as a regulatory tool. The Corporation's policy is to ensure that its operating subsidiaries are capitalized within the appropriate regulatory guidelines. During 1993, the Corporation contributed $38 million to Riggs-Washington to ensure that its capitalization would be in excess of the regulatory guidelines. The Corporation did not make any such contribution in 1994 and has no current plans to make any substantial capital contributions to its subsidiary banks. The three national bank subsidiaries of the Corporation are subject to minimum capital ratios prescribed by the Office of the Comptroller of the Currency, which are the same as those of the Federal Reserve Board. In the event that the Corporation, or any of its banking subsidiaries, falls below the minimum capital requirements, regulatory action may be taken. With respect to the banking subsidiaries, the OCC can take action under the "prompt corrective action" provision of FDICIA. Such actions can vary depending on the severity of the capital position, and may include the refiling of a capital plan, restrictions on growth, and other actions the regulators may deem to be appropriate in order to achieve compliance with capital requirements. FDICIA requires each banking agency, including the OCC, to specify levels at which insured institutions would have the classifications "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." Each of the bank subsidiaries of the Corporation exceeds current minimum regulatory capital requirements and qualifies, at a minimum, as "well capitalized" under the FDICIA regulations. In addition, under Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to their subsidiary banks and to commit resources to support such banks. The Corporation's ability to provide financial strength for its subsidiaries will depend on, among other things, its liquidity position and Federal Reserve approval. At December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This pronouncement requires, among other items, the reporting of unrealized gains and losses on securities available for sale, net of tax effect, in stockholders' equity, contrary to previous accounting policy, which reported such unrealized gains and losses in earnings. At December 31, 1994, the Corporation reported net unrealized losses of $28.1 million in stockholders' equity. The year-end net unrealized losses were excluded from Tier I and Tier II capital for regulatory reporting purposes per current regulatory agency guidance. The regulatory agencies had reviewed the current reporting guidelines in relationship to SFAS No. 115, and decided not to amend the applicable regulatory capital rules to include SFAS No. 115-related adjustments in equity. Thus, the capital ratios disclosed at December 31, 1994, and 1993, do not include the $28.1 million in net unrealized losses and $1.3 million in net unrealized gains, respectively, from the securities available for sale portfolio. The following table reflects the actual and required minimum ratios for the Corporation and its national banking subsidiaries:
CAPITAL RATIOS
[FN] * Most bank holding companies and national banks, including the Corporation and the Corporation's national bank subsidiaries, are expected to maintain at least a 4.00% minimum leverage ratio, or higher if determined appropriate by the Corporation's primary regulators. The Corporation's regulators have not indicated a requirement higher than 4.00% at December 31, 1994.
NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS ________________________________________
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:
CASH AND MONEY MARKET ASSETS
For short-term investments that reprice or mature in 90 days or less, the carrying amount is a reasonable estimate of fair value.
SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE FOR SALE
For U.S. Treasury securities, government agencies securities, municipal securities and mortgage-backed securities, fair values are based on quoted market prices or dealer quotes. For "Other Securities," fair value equals quoted market prices, if available. If a quoted market price is not readily available, as is the case for $8.9 million of Federal Reserve Bank stock at December 31, 1994, and 1993, management believes that the asset's carrying value approximates fair value.
LOANS
The fair value of loans is estimated by discounting the expected future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. For short-term loans, defined as those maturing or repricing in 90 days or less, management believes the carrying amount is a reasonable estimate of fair value. Criticized loans are predominantly collateral-dependent; therefore, their carrying value net of related reserves is a reasonable estimate of fair value.
DEPOSIT LIABILITIES
The fair value of demand deposit, savings and NOW accounts, and money market deposit accounts is the amount payable on demand at the reporting date. The fair value of investment and negotiable certificates of deposit, and foreign time deposits with a repricing or maturity date extending beyond 90 days, is estimated using a discounted cash flow at the rates currently offered for deposits of similar remaining maturities. The value attributable to the Corporation's core deposits, representing the relatively low-cost funding afforded by core depositor relationships, has not been considered in the calculation of fair value of deposit liabilities.
SHORT-TERM BORROWINGS
For short-term liabilities, defined as those repricing or maturing in 90 days or less, the carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT
For the Corporation's long-term debt, fair values are based on dealer quotes.
COMMITMENTS TO EXTEND CREDIT, AND STANDBY AND COMMERCIAL LETTERS OF CREDIT
The fair value of loan commitments and letters of credit, both standby and commercial, is assumed to equal the carrying value, which is immaterial. Extensions of credit under these commitments, if exercised, would result in loans priced at market terms.
FOREIGN EXCHANGE CONTRACTS
The fair value of foreign exchange contracts represents the net asset or liability already recorded by the Corporation, since these contracts are revalued on a daily basis.
FINANCIAL DERIVATIVES
The fair value of financial derivatives is equal to the replacement value of the derivative. The replacement value is defined as the amount the Corporation would receive or pay to terminate the agreement at the reporting date, taking into account the current market rate of interest and the current creditworthiness of the derivative counterparties.
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments are as follows:
Changes in interest rates, assumptions or estimation methodologies may have a material effect on these estimated fair values. As a result, the Corporation's ability to actually realize these derived values cannot be assured. Management is concerned that reasonable comparability between financial institutions may not be likely because of the wide range of permitted valuation techniques and numerous estimates that must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values. In addition, the estimated fair values exclude nonfinancial assets, such as premises and equipment, and certain intangibles, such as core deposit premiums and customer relationships. Thus, the aggregate fair values presented do not represent the underlying value of the Corporation.
NOTE 12. INCOME TAXES _____________________
In February 1992, SFAS No. 109, "Accounting for Income Taxes," was issued. SFAS No. 109 establishes financial accounting and reporting standards for the effects of income taxes that result from the Corporation's activities during the current and preceding years. It requires an asset and liability approach in accounting for income taxes versus the deferred method previously used under Accounting Principles Board No. 11 ("APB No. 11"). Under SFAS No. 109, deferred income taxes are recorded using enacted tax laws and rates for the years in which taxes are expected to be paid. In addition, SFAS No. 109 provides for the recognition of deferred tax assets based on tax loss and tax credit carryforwards, to the extent that realization of such assets is more likely than not. Under APB No. 11 deferred tax assets were generally recognized only to the extent realization of such assets was assured beyond a reasonable doubt, which was generally demonstrated by the Corporation's ability to carry back tax losses or tax credits to recover taxes previously paid. The Corporation adopted SFAS No. 109 on January 1, 1993, and the effect of adoption was not material. Income tax provisions for 1992 were determined under APB No. 11 and have not been restated to reflect adoption of SFAS No. 109. Income (loss) before income taxes relating to the operations of domestic offices (onshore) and foreign offices (offshore) was as follows:
The current and deferred portions of the income tax provision (benefit) were as follows:
[FN] * Restated to reflect reclassification of current and deferred taxes based on actual timing differences determined upon filing of tax returns.
RECONCILIATION OF STATUTORY TAX RATES TO EFFECTIVE TAX RATES:
The components of income tax liabilities (assets) that result from temporary differences in the recognition of revenue and expenses for income tax and financial reporting purposes at December 31, 1994 and 1993, follow:
SOURCES OF TEMPORARY DIFFERENCES RESULTING IN DEFERRED TAX LIABILITIES (ASSETS):
At December 31, 1993, and 1994, the Corporation maintained a valuation allowance of approximately $74.7 million and $64.8 million, respectively, to reduce the net deferred tax asset to $4.6 million and $5.5 million, respectively. The net change in the valuation allowance for deferred tax assets during 1994 was a decrease of $9.9 million. The change related to a reduction in unbenefited regular deferred assets of $9.5 million, primarily due to the utilization of net operating loss carryforwards and an increase in the benefit of the alternative tax credit carryforwards of $0.4 million. The deferred tax assets include, among other items, investment tax credit carryforwards for federal income tax purposes of $0.8 million that are available to reduce future federal income tax through 2004, $0.1 million in foreign tax credit carryforwards that are available to reduce future income tax through 1997, and alternative minimum tax credit carryforwards of $5.5 million that are available to reduce future federal regular income taxes over an indefinite period. In addition, the deferred tax assets include the benefit of tax loss carryforwards of $13.9 million, detailed as follows:
NOTE 13. COMMON AND PREFERRED STOCK ___________________________________
The Corporation is authorized to issue 50 million shares of Common Stock, par value $2.50 (the "Common Stock"). At December 31, 1994, the Corporation had 30,244,414 shares issued and outstanding. On October 21, 1993, the Corporation issued 5,000,000 shares of Common Stock, at a price of $7.75 per share, in transactions exempt from the registration requirements of the Securities Act of 1933. The net proceeds from the sale of the Common Stock totaled approximately $37.0 million. Pursuant to a rights offering that commenced on December 12, 1991, and expired on January 23, 1992, the Corporation sold 11,445,000 shares of Common Stock, representing all of the shares offered, at a subscription price of $4.375 per share. Net proceeds from the offering were $49.1 million. The Corporation is authorized to issue 25 million shares of Preferred Stock, the conditions of which will be set at the time of issuance. On October 21, 1993, the Corporation issued 4,000,000 shares of 10.75% Noncumulative Perpetual Preferred Stock, Series B ("Series B Preferred"), in transactions exempt from the registration requirements of the Securities Act of 1933. The Series B Preferred shares have a liquidation preference of $25 per share, no preemptive rights, limited public market and are non-voting (subject to certain limited exceptions). The Series B Preferred is not redeemable prior to October 1, 1998, at which time, at the Corporation's option, the Corporation may redeem in whole or in part the Series B Preferred at prices ranging from $27.25 in October 1998 to $25.00 in October 2008 and thereafter, plus accrued but unpaid dividends. There is no mandatory redemption or sinking fund obligation associated with the Series B Preferred. Dividends are payable on February 1, May 1, August 1 and November 1 of each year and are noncumulative. The proceeds from the Series B Preferred issuance, net of expenses, was $95.3 million. During the second quarter of 1992, the Corporation issued 764,537 shares of 7.5% Cumulative Convertible Preferred Stock, Series A ("Series A Preferred"), to Norwich Union Life Insurance Society, a major insurance company headquartered in Norwich, England. The Series A Preferred was issued in exchange for debt of Riggs AP Bank Ltd., the Corporation's indirectly owned United Kingdom banking subsidiary. The Series A Preferred had no preemptive rights and were non-voting, subject to certain limited exceptions. The Series A Preferred shares had a liquidation preference of $25 per share and were convertible at the holder's option into 2,002,141 shares of common stock, at $9.5465 per share. On September 27, 1994, the Corporation repurchased all 764,537 shares of its 7.5% Cumulative Convertible Preferred Stock, Series A. The purchase price was $19.1 million, which is equal to the original issue price in June 1992.
NOTE 14. BENEFIT PLANS ______________________
PENSION PLANS
RIGGS NATIONAL CORPORATION
Under the Corporation's noncontributory defined benefit pension plan, available to substantially all employees who qualify with respect to age and length of service, benefits are normally based on years of service and the average of the highest base annual salary for a consecutive five-year period prior to retirement.
RECONCILIATION OF FUNDED STATUS AND PREPAID PENSION COST
The Corporation's funding policy is to contribute an amount at least equal to the minimum required contribution under the Employee Retirement Income Security Act. The assets of the Corporation's pension plan consist of an Immediate Participation Guarantee contract with a life insurance company and funds held in trust by the Corporation. The monies held in trust are invested primarily in fixed-income and equity pooled funds.
NET PERIODIC PENSION COST
RIGGS AP BANK
The Riggs AP pension plan provides monthly pension payments upon normal retirement at age 60 or upon later retirement to substantially all employees. The plan has a final-pay benefit formula that takes into account years of service.
RECONCILIATION OF FUNDED STATUS AND PREPAID PENSION COST - RIGGS AP
Riggs AP's annual pension costs are determined based on the Projected Unit Credit Cost Method, with specific amortization schedules for the various categories of plan liabilities. Actuarial assumptions are selected based on guidelines established by the Financial Accounting Standards Board.
NET PERIODIC PENSION COST - RIGGS AP
OTHER BENEFIT PLANS
Effective January 1, 1993, the Corporation adopted a Supplemental Executive Retirement plan to provide supplemental retirement income and preretirement death benefits to certain key employees. The amount of benefits is based on the participant's corporate title, functional responsibility and service as a member of the Board of Directors. Upon the later of a participant's termination of employment or attainment of age 62, the participant will receive the vested portion of the supplemental retirement benefit, payable for the life of the participant, but for no more than 15 years. In October 1993, the Corporation began sponsorship of a defined contribution plan, under Section 401(k) of the Internal Revenue Code, which is available to substantially all employees. Employees' annual contributions may be partially matched, as determined by the Board of Directors. The Corporation did not provide a matching contribution to the Plan in 1993 or 1994.
POSTRETIREMENT BENEFITS
The Corporation provides certain health care and life insurance benefits for retired employees. Three benefit plans are provided: Medical and Hospitalization Insurance, Dental Insurance and Life Insurance. Substantially all active employees may become eligible for benefits if they reach normal retirement age or if they retire earlier with at least ten years' service. Similar benefits for active employees are provided through an insurance company and several health maintenance organizations. The Corporation recognizes the cost of providing those benefits by expensing the annual insurance premiums, which were $6.1 million in 1994, $6.6 million in 1993 and $6.4 million in 1992. In December 1990, the Financial Accounting Standards Board issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Statement requires a significant change in the Corporation's historical practice of accounting for postretirement benefits on a pay-as-you-go (cash) basis by requiring accrual of the expected cost of benefits during the years that the employee renders the necessary service. The Statement is generally effective for fiscal years beginning after December 15, 1992, except that its application to plans outside the United States (such as Riggs AP's plan) was delayed to fiscal years beginning after December 15, 1994. The Corporation implemented SFAS No. 106 on January 1, 1993, resulting in an accumulated transition obligation of $13.0 million, which the
Corporation elected to recognize over a 20-year period. The Corporation incurred approximately $2.4 million in 1994 for postretirement health and life insurance expenses, which included $651 thousand relating to the amortization of the transition obligation.
The net periodic costs for postretirement health and life insurance benefits are as follows:
The funding status of the postretirement plans and the amounts recognized in the Corporation's Statements of Financial Condition at December 31, 1994, and 1993, follow:
The assumed health care cost trend rate ranged from 6% to 11% for 1994 and from 8% to 12% for 1993, gradually decreasing to 6% by the year 2004 and remaining constant thereafter. A discount rate of 7.5% was used in 1994 and 1993 to determine the accumulated postretirement benefit obligation. Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation at December 31, 1994, by $1.5 million, and increase the net periodic postretirement benefit cost for 1994 by $172 thousand.
STOCK OPTION PLANS
On March 10, 1993, the Board of Directors of the Corporation adopted the "1993 Stock Option Plan" (the "1993 Plan"), which was approved at the May 14, 1993, Annual Meeting of Shareholders. The 1993 Plan provides for the issuance of options to purchase shares of Common Stock of the Corporation. Key employees of the Corporation and certain subsidiaries may be granted either incentive or nonqualified stock options. Generally, the exercise price cannot be less than the fair market value of the Common Stock at the date of grant. The aggregate number of shares of Common Stock reserved for issuance upon exercise of options granted under the 1993 Plan is 1,250,000. Unless previously terminated by the Board of Directors, the Plan will terminate on March 10, 2003. A summary of the stock option activity under the 1993 Plan follows:
On May 11, 1994, the shareholders approved the Corporation's 1994 Stock Option Plan (the "1994 Plan"), which was adopted by the Corporation's Board of Directors in February 1994. Under the 1994 Plan, options to purchase up to 1,250,000 shares of Common Stock may be granted to key employees. As of December 31, 1994, no shares had been granted under the 1994 Plan.
NOTE 15. FOREIGN ACTIVITIES ___________________________
Foreign activities are those conducted with customers domiciled outside the United States, regardless of the location of the banking office. Foreign business activity is substantially integrated within the Corporation. As a result, it is not possible to definitively classify the business of most operating activities as entirely domestic or foreign. The Foreign Consolidated Statements of Condition shown below reflect the portion of the Corporation's consolidated statements of condition which can be attributed to transactions with customers who are domiciled outside the United States. _______________________________
FOREIGN CONSOLIDATED STATEMENTS OF CONDITION
[FN] /1/ Pool Funds Provided, Net are amounts contributed by foreign activities to fund domestic activities. /2/ Total foreign deposits in domestic offices totaled $370.5 million, $395.4 million and $480.0 million at December 31, 1994, 1993 and 1992, respectively. /3/ A majority of time deposits are in amounts of $100 thousand or more.
The table to the right reflects changes in the reserve for loan losses on loans to customers domiciled outside the United States. Allocations of the provision for loan losses are based upon actual charge-off experience and additional amounts deemed necessary in relation to risks inherent in the foreign loan portfolio. The table below reflects foreign activity assets by geographical location for the last three years and selected categories of the Consolidated Statements of Income. Loans made to, or deposits placed with, a branch of a foreign bank located outside the foreign bank's home country are considered as loans to, or deposits with, the foreign bank. To measure profitability of foreign activity, the Corporation has established an integral pricing system for units that are users or providers of funds. Noninterest income and expense allocations are based on earning assets and interest-bearing liabilities identified with each geographical area.
FOREIGN RESERVE FOR LOAN LOSSES
________________________________________
[FN] * Total foreign assets at December 31, 1994, 1993 and 1992, exclude net pool funds contributed by foreign activities to fund domestic activities.
NOTE 16. PARENT CORPORATION FINANCIAL STATEMENTS ________________________________________________
STATEMENTS OF INCOME
[FN] * Applicable income taxes are provided for based on parent corporation income only and do not reflect the tax expense or benefit of the subsidiaries' operations.
STATEMENTS OF CONDITION
STATEMENTS OF CASH FLOWS
MANAGEMENT'S REPORT OF FINANCIAL STATEMENTS
TO OUR STOCKHOLDERS:
Management is responsible for the integrity of all financial data included in this Annual Report. The financial statements and related notes are prepared in accordance with generally accepted accounting principles and include certain amounts based on management's best estimates and judgment. Financial information beyond the financial statements is presented in a manner consistent with the Corporation's financial statements. Management maintains a system of accounting internal control that includes an internal audit program. The internal control system provides reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are properly authorized and accounting records are reliable for the timely preparation of financial statements. The foundation of the internal control system is the Corporation's Code of Ethics, which provides a guide to all employees consistent with the highest standards of business conduct. The internal control system is further supported by management's policies and established accounting procedures. The internal control system is monitored and modified continually to improve the system and respond to changes in business environment and operations. The Board of Directors has an Audit Committee composed of five outside and independent directors. The Committee meets periodically with independent public accountants, internal auditors and management to determine the effectiveness of the internal control system and to review the scope and/or results of audits and other related matters. The independent public accountants and internal auditors have direct access to the Corporation's Audit Committee. The consolidated financial statements have been audited by Arthur Andersen LLP, independent public accountants, in accordance with generally accepted auditing standards, whose audit includes a review of the system of internal controls, test of accounting records and other auditing procedures considered necessary to formulate an opinion on the consolidated financial statements. Management recognizes that there are inherent limitations within any system of internal controls, including the Corporation's, which relate to the overall cost of the internal control system and the resulting effectiveness thereof. Management believes that the Corporation's system of internal controls provides reasonable assurance that financial data are recorded properly and in a timely manner for the preparation of reliable financial statements.
/s/Joe L. Allbritton /s/Timothy C. Coughlin /s/John L. Davis Chairman of the President Chief Board and Financial Chief Executive Officer Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO RIGGS NATIONAL CORPORATION:
We have audited the accompanying consolidated statements of condition of RIGGS NATIONAL CORPORATION (a Delaware corporation) and its subsidiaries as of December 31, 1994, and 1993, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of Riggs National Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Riggs AP Bank Limited (an indirect, wholly owned subsidiary), which statements reflect total assets of 10.3%, and total interest income of 20.7%, of the related consolidated totals for 1992. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Riggs AP Bank Limited, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Riggs National Corporation and its subsidiaries as of December 31, 1994, and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Washington, D.C., January 23, 1995
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL RATIOS AND OTHER INFORMATION
QUARTERLY FINANCIAL INFORMATION
* The high and low information listed above represents high and low sales prices as reported on the NASDAQ National Market System.
THREE-YEAR FOREIGN AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
[FN] * Pool Funds Provided, Net, are amounts contributed by foreign activities to fund domestic activities.
[FN] * The dollar amount of changes in interest income and interest expense attributable to changes in rate/volume (change in rate multiplied by change in volume) has been allocated between rate and volume variances based on the percentage relationship of such variances to each other.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item pertaining to directors of the Corporation is included in the Corporation's proxy statement for its 1995 Annual Meeting of Stockholders. The information required by this Item pertaining to executive officers of the Corporation is as follows:
* Executive officers of Riggs National Corporation, including certain executive officers of Riggs-Washington, as of March 15, 1995.
EXPERIENCE OF MANAGEMENT
Joe L. Allbritton has been Chairman of the Board and Chief Executive Officer of the Corporation since 1981. He has served as Chairman of the Board of Riggs- Washington since 1983 and was the Chief Executive Officer of Riggs-Washington from 1982 to June 1993. Mr. Allbritton was the beneficial owner of approximately 33% of the Common Stock of the Corporation as of March 31, 1994. He also serves as Chairman of the Board of, and is the owner of, Perpetual Corporation, Allbritton Communications Company, Westfield News Advertiser, Inc. and University Bancshares, Inc.
Robert L. Sloan was appointed Vice Chairman of the Board in July, 1994. Mr. Sloan has served as a Director of the Corporation since May 1993. Mr. Sloan also is Chief Executive Officer of Sibley Memorial Hospital.
Timothy C. Coughlin has served as President of the Corporation since 1992. He served as President and Chief Operating Officer of Riggs-Washington from 1983 to 1992. He has been a Director of the Corporation since 1988 and a Director of Riggs-Washington since 1983.
Fred L. Bollerer was appointed President and Chief Executive Officer of Riggs-Washington during July 1994 after serving as Executive Vice President in charge of the General Banking Group since October 1993. During 1988 and 1989, Mr. Bollerer was the President and Chief Operating Officer of First American, N.A. of Washington, D.C. From 1989 to 1993, Mr. Bollerer was the Chairman and Chief Executive Officer of First American Metro Corporation.
John L. Davis joined the Corporation in June 1993 and is Chief Financial Officer of the Corporation and Executive Vice President and Chief Financial Officer of Riggs-Washington. Mr. Davis served as Senior Vice President and Controller of First Florida Bank, N.A. from 1990 to 1992 and as Senior Vice President and Chief Financial Officer of First Union National Bank of Georgia from 1987 to 1990.
Randall R. Reeves joined the Corporation in 1991 as Executive Vice President. He has served as Senior Executive Vice President and Chief Credit Officer from 1992 to September 1994, and as Acting Chief Operating Officer of Riggs-Washington from July 1992 to June 1993. Mr. Reeves currently serves as Senior Executive Vice President and Head of Special Assets Group of Riggs-Washington.
Joseph W. Barr joined the Corporation as Executive Vice President in charge of Retail Banking in July 1993. He served as Executive Vice President in charge of Retail Banking at First American Metro Corp. from 1992 to June 1993 and as Executive Vice President in charge of Community Banking at Perpetual Savings Bank, F.S.B. from 1989 to 1992.
Irving R. Beimler joined the Corporation during November 1994 as Executive Vice President and Chief Credit Officer. Mr. Beimler was Executive Vice President and Manager of Credit Administration for Fleet Bank of New York, Albany.
Paul Cushman, III has served as Executive Vice President of Riggs-Washington in charge of the International Banking Group since 1992. He was Senior Vice President of Riggs-Washington from 1989 to 1992 and Vice President of Riggs-Washington from 1987 to 1989.
Henry A. Dudley, Jr. , Executive Vice President, was recently appointed Head of the Riggs' Financial Services Group, which includes the Trust Division, Riggs Investment Management Corporation (RIMCO), and the Domestic Private Banking Division. He previously served as Executive Vice President of the Domestic Private Banking Division, Senior Vice President of Corporate Banking and Vice President of the International Division.
S. Dean Lesiak joined the Corporation in July 1993 as Executive Vice President of Riggs-Washington in charge of Risk Management. He served as Chief Compliance Officer of First Florida Banks, Inc. from 1992 to 1993, as Senior Vice President--Senior Credit Policy Officer of First Florida Banks, Inc. from 1988 to 1991, and as a Senior Loan Review Officer, Society Corporation, Cleveland, Ohio from 1984 to 1989 . Mr. Lesiak also served as a National Bank Examiner at the OCC for over ten years.
James R. Mayo joined the Corporation during October 1994 as Executive Vice President and Chief Technology Officer. He was Service Center Manager of First Union/South Florida Operations, Pompano Beach.
Alfred J. Serafino joined the Corporation in October 1988 as an Executive Vice President in Commercial Banking. He served as President and Chief Executive Officer of Riggs-Maryland, where he remained until February 1991, before he was transferred to the Commercial Real Estate Group, Riggs-Washington. Mr. Serafino served as Regional Executive Officer in charge of the Maryland West Commercial Division at Sovran Bank for 12 years.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in Riggs National Corporation's definitive Proxy Statement to Stockholders, which is incorporated by reference, except for Items 402 (k) and (l) of Regulation S-K.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in Riggs National Corporation's definitive Proxy Statement to Stockholders, which is incorporated by reference, except for Items 402 (k) and (l) of Regulation S-K.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in Note 4 to the Financial Statements of this Form 10-K and in Riggs National Corporation's definitive Proxy Statement to Stockholders, which is incorporated by reference, except for Items 402 (k) and (l) of Regulation S-K.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(b) Reports on Form 8-K
None.
14(c) Exhibits
The exhibits listed on the Index to Exhibits on Pages 72 through 73 hereof are incorporated by reference or filed herewith in response to this item.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RIGGS NATIONAL CORPORATION /s/ JOE L. ALLBRITTON ___________________________ Joe L. Allbritton, Chairman of the Board and Chief Executive Officer March 31, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ TIMOTHY C. COUGHLIN President ________________________ Timothy C. Coughlin
/s/ JOHN L. DAVIS Chief Financial Officer ________________________ (Principal Financial John L. Davis and Accounting Officer)
BARBARA B. ALLBRITTON* Director _______________________ (Barbara B. Allbritton)
ROBERT L. ALLBRITTON* Director _______________________ Robert L. Allbritton
FRED L. BOLLERER* Director _______________________ (Fred L. Bollerer)
CALVIN CAFRITZ* Director _______________________ Calvin Cafritz
CHARLES A. CAMALIER, III* Director __________________________ (Charles A. Camalier)
RONALD E. CUNEO* Director _____________________ (Ronald E. Cuneo)
FLOYD E. DAVIS, III* Director ______________________ (Floyd E. Davis, III)
JACQUELINE C. DUCHANGE* Director ________________________ (Jacqueline C. Duchange)
MICHELA A. ENGLISH* Director _____________________ (Michela A. English)
DR. JAMES E. FITZGERALD* Director _________________________ (Dr. James E. Fitzgerald)
DAVID J.GLADSTONE* Director _____________________ (David J. Gladstone)
LAWRENCE I. HEBERT* Director _____________________ (Lawrence I. Hebert)
MICHAEL J. JACKSON* Director _____________________ (Michael J. Jackson)
LEO J. O'DONOVAN, S.J.* Director ________________________ (Leo J. O'Donovan, S.J.)
STEVEN B. PFEIFFER* Director _____________________ (Steven B. Pfeiffer)
JOHN A. SARGENT* Director __________________ (John A. Sargent)
ROBERT L. SLOAN* Vice Chairman _________________ of the Board (Robert L. Sloan)
JAMES W. SYMINGTON* Director _____________________ (James W. Symington)
JACK VALENTI* Director ______________ (Jack Valenti)
EDDIE N. WILLIAMS* Director ____________________ (Eddie N. Williams)
*By: /s/ MARY B. LeMONT ________________________________ Mary B. LeMont, Attorney-in-fact March 31, 1995
INDEX TO EXHIBITS
Portions of Riggs National Corporation's definitive Proxy Statement to Stockholders, except for Items 402 (k) and (l) of Regulation S-K are incorporated by reference in Parts I and III of this Annual Report.