UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-9756
RIGGS NATIONAL CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1217953
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1503 Pennsylvania Avenue, N.W., Washington, D.C. 20005
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(Address of principal executive offices) (Zip Code)
(202) 835-4309
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
== ==
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $2.50 par value 28,449,487
----------------------------- ----------
(Title of Class) (Outstanding at April 30, 2001)
RIGGS NATIONAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements-Unaudited
Consolidated Statements of Income
Three months ended March 31, 2001 and 2000 3
Consolidated Statements of Condition
March 31, 2001 and 2000, and December 31, 2000 4
Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 2001 and 2000 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2001 and 2000 6
Notes to the Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Change in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 22
-2-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS-UNAUDITED
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2001 2000
===================================================================================================================================
INTEREST INCOME
Interest and Fees on Loans $ 53,587 $ 59,348
Interest and Dividends on Securities Available for Sale 18,601 20,339
Interest on Time Deposits with Other Banks 5,077 5,589
Interest on Federal Funds Sold and Reverse Repurchase Agreements 4,124 4,805
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 81,389 90,081
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Accounts 509 626
Money Market Deposit Accounts 8,673 9,498
Time Deposits in Domestic Offices 8,932 12,242
Time Deposits in Foreign Offices 8,343 7,899
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 26,457 30,265
-----------------------------------------------------------------------------------------------------------------------------------
Interest on Short-Term Borrowings and Long-Term Debt:
Repurchase Agreements and Other Short-Term Borrowings 6,888 9,165
Long-Term Debt 1,618 1,618
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest on Short-Term Borrowings and Long-Term Debt 8,506 10,783
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 34,963 41,048
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 46,426 49,033
Less: Provision for Loan Losses 115 600
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 46,311 48,433
NONINTEREST INCOME
Trust and Investment Advisory Income 12,664 13,598
Service Charges and Fees 10,337 9,608
Venture Capital Investment Gains, Net (7,886) 7,036
Other Noninterest Income 2,218 1,989
Securities Gains, Net 10,388 310
-----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 27,721 32,541
NONINTEREST EXPENSE
Salaries and Employee Benefits 25,909 24,528
Occupancy, Net 5,235 4,931
Data Processing Services 5,587 5,200
Furniture and Equipment 3,085 3,059
Other Real Estate Owned Expense (Income), Net (150) (37)
Other Noninterest Expense 16,853 16,163
-----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 56,519 53,844
-----------------------------------------------------------------------------------------------------------------------------------
Income before Taxes, Minority Interest and Extraordinary Loss 17,513 27,130
Applicable Income Tax Expense 6,984 9,640
Minority Interest in Income of Subsidiaries, Net of Taxes 4,923 5,938
===================================================================================================================================
Net Income $ 5,606 $ 11,552
EARNINGS PER SHARE- Basic $ 0.20 $ 0.41
Diluted 0.19 0.41
DIVIDENDS DECLARED AND PAID PER SHARE $ 0.05 $ 0.05
-3-
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
=======================================================================================================================
ASSETS
Cash and Due from Banks $ 130,840 $ 167,220 $ 156,075
Federal Funds Sold and Reverse Repurchase Agreements 447,000 287,000 395,000
-----------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 577,840 454,220 551,075
Time Deposits with Other Banks 345,692 362,749 365,901
Securities Available for Sale (at Market Value) 1,199,431 1,231,628 1,239,973
Venture Capital Investments 73,608 64,789 83,734
Loans 2,866,444 3,130,549 2,940,738
Reserve for Loan Losses (34,818) (38,237) (36,197)
-----------------------------------------------------------------------------------------------------------------------
Total Net Loans 2,831,626 3,092,312 2,904,541
Premises and Equipment, Net 197,865 201,264 200,455
Other Assets 183,976 223,707 208,793
=======================================================================================================================
Total Assets $5,410,038 $5,630,669 $5,554,472
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $ 662,284 $ 763,424 $ 676,405
Interest-Bearing Deposits:
Savings and NOW Accounts 344,304 375,288 315,375
Money Market Deposit Accounts 1,686,142 1,507,513 1,694,705
Time Deposits in Domestic Offices 755,903 901,292 785,318
Time Deposits in Foreign Offices 589,102 633,362 604,174
-----------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 3,375,451 3,417,455 3,399,572
-----------------------------------------------------------------------------------------------------------------------
Total Deposits 4,037,735 4,180,879 4,075,977
Repurchase Agreements and Other Short-Term Borrowings 444,758 588,173 582,832
Other Liabilities 119,201 91,997 96,392
Long-Term Debt 66,525 66,525 66,525
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,668,219 4,927,574 4,821,726
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES 350,000 350,000 350,000
=======================================================================================================================
SHAREHOLDERS' EQUITY
Common Stock-$2.50 Par Value
Shares Authorized - 50,000,000 at March 31, 2001 and 2000, and
December 31, 2000
Shares Issued - 31,749,264 at March 31, 2001, 31,616,995 at
March 31, 2000 and 31,701,464 at December 31, 2000 79,373 79,042 79,254
Surplus - Common Stock 162,620 161,450 162,206
Undivided Profits 230,800 220,819 226,616
Accumulated Other Comprehensive Loss (9,617) (36,859) (13,973)
Treasury Stock - 3,300,798 shares at March 31, 2001 and 2000, and
December 31, 2000 (71,357) (71,357) (71,357)
-----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 391,819 353,095 382,746
=======================================================================================================================
Total Liabilities and Shareholders' Equity $5,410,038 $5,630,669 $5,554,472
-4-
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON ACCUMULATED
STOCK OTHER TOTAL
$2.50 UNDIVIDED COMPREHENSIVE TREASURY SHAREHOLDERS'
PAR SURPLUS PROFITS INCOME (LOSS) STOCK EQUITY
===================================================================================================================================
Balance, December 31, 1999 $ 79,039 $161,439 $ 210,682 $ (42,090) $ (71,357) $ 337,713
Comprehensive Income:
Net Income 11,552 11,552
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for Sale, Net
of Reclassification Adjustments 5,472 5,472
Foreign Exchange
Translation Adjustments (241) (241)
------------
Total Other Comprehensive
Income (Loss) 5,231
============
Total Comprehensive Income (Loss) 16,783
Issuance of Common Stock for
Stock Option Plans-1,500 Shares 3 11 14
Cash Dividends -
Common Stock, $.05 per Share (1,415) (1,415)
===================================================================================================================================
Balance, March 31, 2000 $ 79,042 $161,450 $ 220,819 $ (36,859) $ (71,357) $ 353,095
Balance, December 31, 2000 $ 79,254 $162,206 $ 226,616 $ (13,973) $ (71,357) $ 382,746
Comprehensive Income:
Net Income 5,606 5,606
Other Comprehensive Income
(Loss), Net of Tax: (1)
Unrealized Gain (Loss) on
Securities Available for Sale, Net
of Reclassification Adjustments 6,523 6,523
Unrealized Gain (Loss) on Derivatives,
Net of Reclassification Adjustments (1,047) (1,047)
Foreign Exchange
Translation Adjustments (1,120) (1,120)
------------
Total Other Comprehensive
Income (Loss) 4,356
============
Total Comprehensive Income (Loss) 9,962
Issuance of Common Stock for
Stock Option Plans-47,800 Shares 119 414 533
Cash Dividends -
Common Stock, $.05 per Share (1,422) (1,422)
===================================================================================================================================
Balance, March 31, 2001 $ 79,373 $162,620 $ 230,800 $ (9,617) $ (71,357) $ 391,819
(1)- See Notes to the Financial Statements for gross unrealized gains or
losses arising during each period and the tax effect on each item of
comprehensive income.
-5-
RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------
2001 2000
===================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,606 $ 11,552
Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:
Provision for Loan Losses 115 600
Unrealized Gains (Losses) on Venture Capital Investments 13,352 (5,909)
Gains on Sale of Venture Capital Investments (5,466) (1,127)
Depreciation Expense and Amortization of Leasehold Improvements 3,741 3,434
Gains on Sale of Securities Available for Sale (10,388) (310)
Decrease in Other Assets 21,305 1,481
Increase in Other Liabilities 21,762 23,621
-----------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 44,421 21,790
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 50,027 33,342
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease In Time Deposits with Other Banks 20,209 50,779
Principal Collections and Maturities of Securities Available for Sale 477,683 361,455
Proceeds from Sales of Securities Available for Sale 81,342 212,280
Purchases of Securities Available for Sale (498,060) (506,751)
Purchases of Venture Capital Investments (5,862) (19,572)
Proceeds from Sale of Venture Capital Investments 8,102 1,344
Net Decrease in Loans 73,192 67,688
Net Increase in Premises and Equipment (1,151) (1,858)
Other, Net (392) (74)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Investing Activities 155,063 165,291
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in:
Demand, NOW, Savings and Money Market Deposit Accounts 6,245 32,481
Time Deposits (44,487) (26,935)
Repurchase Agreements and Other Short-Term Borrowings (138,074) (244,029)
Proceeds from the Issuance of Common Stock 533 14
Dividend Payments - Common (1,422) (1,415)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (177,205) (239,884)
-----------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes (1,120) (241)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 26,765 (41,492)
Cash and Cash Equivalents at Beginning of Period 551,075 495,712
===================================================================================================================================
Cash and Cash Equivalents at End of Period $ 577,840 $ 454,220
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
NONCASH ACTIVITIES:
Loans Transferred to Other Real Estate Owned $ - $ -
CASH PAID DURING THE YEAR FOR:
Interest Paid (Net of Amount Capitalized) $ 34,592 $ 40,139
Income Tax Payments 13 -
-6-
RIGGS NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION
In our opinion, the accompanying unaudited financial statements contain all
normal recurring adjustments necessary for a fair presentation of the interim
period results in conformity with generally accepted accounting principles
applied on a consistent basis and which require the use of estimates. These
statements should be read in conjunction with the financial statements and
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 2000. Certain reclassifications have been made to prior period
amounts to conform with the current period's presentation. The results of
operations for the first three months of 2001 are not necessarily indicative of
the results to be expected for the full 2001 year.
NOTE 2. EARNINGS PER SHARE
Earnings per share computations are as follows:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
================================================
BASIC DILUTED BASIC DILUTED
EPS EPS EPS EPS
================================================
Net Income Available to Common Shareholders $ 5,606 $ 5,606 $ 11,552 $ 11,552
Weighted-Average Shares Outstanding 28,438,357 28,438,357 28,315,631 28,315,631
Weighted-Average Dilutive Effect
of Stock Option Plans n/a 364,043 n/a 47,188
------------------------------------------------
Adjusted Weighted-Average Shares Outstanding 28,438,357 28,802,400 28,315,631 28,362,819
Basic EPS $ .20 $ .41
Diluted EPS $ .19 $ .41
-7-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
BEFORE - TAX
TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
===================================================================================================================================
THREE MONTHS ENDED MARCH 31, 2001:
Foreign Currency Translation Adjustments $(1,723) $ 603 $(1,120)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 10,111 (3,539) 6,572
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (76) 27 (49)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) 10,035 (3,512) 6,523
-----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gains (Losses) on Derivatives:
Unrealized Holding Gains (Losses) Arising During Period (1,611) 564 (1,047)
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) (1,611) 564 (1,047)
===================================================================================================================================
Other Comprehensive Income (Loss) $ 6,701 $(2,345) $ 4,356
THREE MONTHS ENDED MARCH 31, 2000:
Foreign Currency Translation Adjustments $ (371) $ 130 $ (241)
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising During Period 8,728 (3,055) 5,673
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income (310) 109 (201)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) 8,418 (2,946) 5,472
-----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gains (Losses) on Derivatives:
Unrealized Holding Gains (Losses) Arising During Period - - -
Less: Reclassification Adjustment for (Gains) Losses Realized in Net Income - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) - - -
===================================================================================================================================
Other Comprehensive Income (Loss) $ 8,047 $(2,816) $ 5,231
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
FOREIGN UNREALIZED UNREALIZED ACCUMULATED
CURRENCY GAIN (LOSS) GAIN (LOSS) OTHER
TRANSLATION ON ON COMPREHENSIVE
ADJUSTMENTS SECURITIES DERIVATIVES INCOME (LOSS)
===================================================================================================================================
THREE MONTHS ENDED MARCH 31, 2001:
Balance, December 31, 2000 $ (4,657) $ (9,316) $ - $ (13,973)
Current-Period Change (1,120) 6,523 (1,047) 4,356
===================================================================================================================================
Balance, March 31, 2001 $ (5,777) $ (2,793) $(1,047) $ (9,617)
THREE MONTHS ENDED MARCH 31, 2000:
Balance, December 31, 1999 $ (2,597) $(39,493) $ - $ (42,090)
Current-Period Change (241) 5,472 - 5,231
===================================================================================================================================
Balance, March 31, 2000 $ (2,838) $(34,021) $ - $ (36,859)
-8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4: SEGMENT PROFITABILITY
Our reportable segments are strategic business units that provide diverse
products and services within the financial services industry. We have six
reportable segments: Banking, International Banking, Riggs & Company, Treasury,
Riggs Capital Partners and Other. The Banking segment provides traditional
banking services, such as lending and deposit taking to retail, corporate and
commercial customers. The International Banking segment includes our Washington,
D.C.- based embassy banking business, our London-based banking subsidiary, Riggs
Bank Europe Limited (RBEL), and our Berlin branch (a subsidiary of RBEL). The
International Banking segment also includes the part of our private-client
services division based in London-Riggs & Company International, Limited. Riggs
& Company is our private client services division that provides trust and
investment management services to a broad customer base. The Treasury segment is
responsible for asset and liability management throughout our company. Riggs
Capital Partners represents our venture capital subsidiaries, which invest in
equities in privately-held high-growth companies. "Other" consists of our
unallocated parent-company income and expense, net interest income from
unallocated equity and foreclosed real estate activities.
We evaluate segment performance based on income before taxes and minority
interest. The accounting policies of the segments are substantially the same as
those described in the summary of significant accounting policies disclosed in
our December 31, 2000 Form 10-K. We account for intercompany transactions as if
the transactions were to third parties under market conditions. Overhead and
support expenses are allocated to each operating segment based on number of
employees, service usage and other factors relevant to the expense incurred.
Reconciliations are provided from the segment totals to our consolidated
financial statements. The reconciliations of noninterest income and noninterest
expense offset as these items result from intercompany transactions. For years
in which we have either no provision for loan losses or a reduction to the
reserve for loan losses, an allocation of loan loss is not provided to the
segments. The reconciliation of total average assets represents the elimination
of intercompany transactions.
===================================================================================================================================
THREE MONTHS RIGGS RIGGS
ENDED INTERNATIONAL RIGGS & CAPITAL NATIONAL
MARCH 31, 2001 BANKING BANKING COMPANY TREASURY PARTNERS OTHER RECONCILIATION CORPORATION
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 45,720 $ 13,577 $ 1,305 $ 34,035 $ 106 $ 11,125
Interest Expense 16,080 17,464 3,094 10,855 - 11,369
Funds Transfer Income (Expense) 2,609 12,878 4,957 (24,627) (1,002) 5,185
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 32,249 8,991 3,168 (1,447) (896) 4,941
Provision for Loan Losses 3,444 (3,559) - - - -
Tax Equivalent Adjustment (580) - - - - -
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 35,113 $ 5,432 $ 3,168 $ (1,447) $ (896) $ 4,941 $ - $ 46,311
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income-External
Customers $ 10,349 $ 497 $13,385 $ 1,041 $ (7,886) $ 10,335
Intersegment Noninterest Income 845 1,743 645 - - 670
-----------------------------------------------------------------------------------------------
Total Noninterest Income $ 11,194 $ 2,240 $14,030 $ 1,041 $ (7,886) $ 11,005 $ (3,903) $ 27,721
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,068 $ 348 $ 208 $ 4 $ 7 $ 2,295
Direct Expense 16,293 9,803 9,824 986 4,004 15,582
Overhead and Support 13,347 3,274 2,573 586 112 (19,892)
-----------------------------------------------------------------------------------------------
Total Noninterest Expense $ 30,708 $ 13,425 $12,605 $ 1,576 $ 4,123 $ (2,015)$ (3,903) $ 56,519
-----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Minority Interest $ 15,599 $ (5,753) $ 4,593 $ (1,982) $(12,905) $ 17,961 $ - $ 17,513
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Total Average Assets $2,661,525 $862,114 $95,308 $2,338,276 $ 93,356 $867,851 $(1,551,581) $5,366,849
===================================================================================================================================
-9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
===================================================================================================================================
THREE MONTHS RIGGS RIGGS
ENDED INTERNATIONAL RIGGS & CAPITAL NATIONAL
MARCH 31, 2000 BANKING BANKING COMPANY TREASURY PARTNERS OTHER RECONCILIATION CORPORATION
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Interest Income $ 49,207 $ 16,096 $ 1,454 $ 38,157 $ - $ 11,732
Interest Expense 13,898 19,808 3,085 15,168 - 14,215
Funds Transfer Income (Expense) (4,472) 12,854 4,606 (17,286) (720) 5,018
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss),
Tax-Equivalent 30,837 9,142 2,975 5,703 (720) 2,535
Provision for Loan Losses (300) (300) - - - -
Tax Equivalent Adjustment (824) - - (636) - 21
-----------------------------------------------------------------------------------------------
Net Interest Income (Loss) $ 29,713 $ 8,842 $ 2,975 $ 5,067 $ (720) $ 2,556 $ - $ 48,433
-----------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest Income-External
Customers $ 9,518 $ 1,044 $ 14,035 $ 936 $ 7,036 $ (28)
Intersegment Noninterest Income 887 1,087 88 - - 801
-----------------------------------------------------------------------------------------------
Total Noninterest Income $ 10,405 $ 2,131 $ 14,123 $ 936 $ 7,036 $ 773 $ (2,863) $ 32,541
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Depreciation and Amortization $ 1,892 $ 245 $ 220 $ 4 $ 5 $ 2,205
Direct Expense 16,320 7,278 8,875 1,014 525 18,123
Overhead and Support 12,827 3,154 3,171 406 18 (19,575)
-----------------------------------------------------------------------------------------------
Total Noninterest Expense $ 31,039 $ 10,677 $ 12,266 $ 1,424 $ 548 $ 753 $ (2,863) $ 53,844
-----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and
Minority Interest $ 9,079 $ 296 $ 4,832 $ 4,579 $ 5,768 $ 2,576 $ - $ 27,130
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Total Average Assets $2,813,613 $963,635 $ 99,378 $2,497,173 $ 50,962 $ 939,371 $(1,580,086) $5,784,046
===================================================================================================================================
NOTE 5: ACCOUNTING FOR DERIVATIVES
Adoption of SFAS No. 133
We adopted SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities", as amended by SFAS No.138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133", as of January 1, 2001. The adoption of SFAS No. 133 resulted in a
cumulative charge of $8 thousand, recorded as a component of Other Noninterest
Income, to reflect the fair value of derivatives designated as fair-value hedges
and fair values of related hedged items. In addition, we recorded a cumulative
net of tax charge to Other Comprehensive Income of $751 thousand to recognize at
fair value all derivatives that are designated as cash flow hedges and net
investment hedges.
Derivative Instruments and Hedging
We maintain a risk management strategy that includes the use of derivative
instruments to reduce unplanned earnings and equity fluctuations caused by
interest rate volatility and foreign exchange fluctuation. We attempt to
minimize our sensitivity to rate volatility by altering the repricing or
maturity characteristics of certain assets and liabilities so that income is not
materially impacted by unexpected rate movements.
Use of derivative instruments is a component of our overall risk management
strategy and is utilized in accordance with a formal policy that is monitored by
a committee which has delegated authority over our interest rate risk management
function.
The derivative instruments that we utilize include interest rate swaps, futures
contracts and options contracts that relate to the pricing of specific assets
and liabilities. Interest rate swaps involve the exchange of fixed and variable
rate interest payments between two parties based upon a notional principal
amount and maturity date. Interest rate futures generally involve
exchange-traded contracts to buy or sell U.S. Treasury bonds or notes in the
future at specified prices. Interest rate options represent contracts that allow
the owner the option to either receive cash or purchase, sell or enter into a
financial
-10-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
instrument at a specified price within a specified time period. Certain of these
contracts grant the right to enter into interest rate swaps and cap and floor
agreements with the writer of the option.
We also enter into foreign exchange derivative contracts, including foreign
currency forward contracts, to manage our exchange risk associated with the
translation of foreign currency into U. S. dollars.
We are exposed to credit and market risk as a result of our use of derivative
instruments. If the fair value of the derivative contract is positive, the
counterparty owes us and, hence, a repayment risk exists. If the fair value of
the derivative contract is negative, we owe the counterparty and, therefore,
there is no repayment risk. We minimize repayment risk by entering into
transactions with financially stable counterparties that are specified by our
policy and reviewed periodically by our credit committee. We require that
derivative contracts be governed by an International Swaps and Derivative Master
Agreement and, depending on the nature of the agreement, bilateral collateral
arrangements also may be obtained. When we have multiple derivative transactions
with the counterparty, the net mark-to-market exposure represents the netting of
positive and negative exposures with the same counterparty. The net
mark-to-market exposure with a counterparty is a measure of credit risk when
there is a legally enforceable master netting agreement between us and the
counterparty. We use master netting agreements with the majority of our
counterparties.
Market risk is the adverse effect that a change in interest rates or comparative
currency values has on the fair value of a financial instrument or expected cash
flows. We manage the market risk associated with interest rate and foreign
exchange hedge contracts by establishing formal policy limits concerning the
types and degree of risk that may be undertaken. Our Treasury group monitors
compliance with this policy.
Accounting for Derivatives
All derivatives are recognized on the Statement of Condition at fair value. When
a derivative contract is entered into, we first determine whether or not it
qualifies as a hedge. If it does, we designate the derivative as (1) a hedge of
the fair value of a recognized asset or liability, (2) a hedge of actual or
forecasted cash flows or (3) a hedge of a net investment in a foreign operation.
Changes in the fair value of a derivative that is designated a fair value hedge
and qualifies as a highly effective hedge, along with any gain or loss on the
hedged asset or liability attributable to the hedged risk, are recorded in
current period earnings. The effective portion of changes in fair value of a
derivative that is designated as a cash flow hedge and that qualifies as a
highly effective hedge is recorded in Other Comprehensive Income until such time
as periodic settlements on a variable rate hedged item are recorded in earnings.
The ineffective portion of changes in fair value of cash-flow derivatives is
recorded in current period earnings. Changes in the fair value of a derivative
designated as a foreign currency hedge and that qualifies as a highly effective
hedge, are either recorded in current earnings, Other Comprehensive Income, or
both, depending on whether the transaction is a fair value hedge or a cash flow
hedge. If a derivative is used as a hedge of a net investment in a foreign
operation, changes in its fair value, to the extent effective as a hedge, are
recorded in Other Comprehensive Income.
When entering into hedging transactions, we document the relationships between
hedging instruments and hedged items, as well as the risk management objective
and strategy. This process links all derivatives that are designated fair value,
cash flow or foreign currency hedges to specific assets and liabilities on the
Statement of Condition. We assess, both at inception and on an on-going basis,
the effectiveness of all hedges in offsetting changes in fair values or cash
flows of hedged items.
We discontinue hedge accounting prospectively when (1) the derivative is no
longer effective in offsetting changes in fair values or cash flows of a hedged
item; (2) the derivative matures or is sold, terminated or exercised; or (3) the
derivative is dedesignated as a hedge instrument.
When hedge accounting is discontinued because the derivative no longer qualifies
as an effective fair value hedge, it will continue to be carried on the
Statement of Condition at its fair value and the hedged asset or liability will
no longer be adjusted to reflect changes in fair value. When hedge accounting is
discontinued because it is probable that a forecasted transaction will not
occur, we will continue to carry the derivative on the Statement of Condition at
its fair value and any gains or losses accumulated in Other Comprehensive Income
will be recognized immediately in earnings. In all situations in which hedge
accounting is discontinued, the derivative will be carried at fair value with
changes in fair value recognized in income.
Fair-Value Hedges
We enter into pay fixed, receive floating interest rate swaps to hedge changes
in fair value of fixed rate loans attributable to changes in LIBOR (the
"benchmark rate").
For the quarter ended March 31, 2001, we recognized a net loss of $22 thousand
which represented the ineffective portion of all fair value hedges. This amount
is included in Other Noninterest Income in the Statement of Income.
-11-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Cash-Flow Hedges
We use interest rate swaps to hedge the exposure to variability in expected
future cash outflows on floating rate liabilities attributable to changes in
interest rates. We also use foreign currency forward contracts to hedge the
foreign exchange risk associated with principal and interest payments on loans
denominated in a foreign currency.
For the quarter ended March 31, 2001, there was no impact to Other Noninterest
Income in the Statement of Income for the ineffective portion of all cash flow
hedges.
Gains or losses on derivatives that are reclassified from Accumulated Other
Comprehensive Income to income are included in the line item in the Statement of
Income in which the income or expense related to the hedged item is recorded. As
of March 31, 2001, $409 thousand of deferred net gains on derivative instruments
in Accumulated Other Comprehensive Income is expected to be reclassified as
income during the next twelve months. The maximum term over which we are hedging
our exposure to the variability of cash flows was 51 months at March 31, 2001.
Hedges of Net Investments in Foreign Operations
We use forward exchange contracts to hedge substantially all of our net
investment in a foreign subsidiary. The purpose of this hedge is to protect
against adverse movements in currency exchange rates. As of March 31, 2001, $516
thousand of net gains related to these derivatives are included in Accumulated
Other Comprehensive Income.
Other
At March 31, 2001, we had certain derivative instruments used to manage interest
rate risk that were not designated to specific hedge relationships. The carrying
value of these items is a net liability of $1.1 million and they are marked to
market through current period earnings.
-12-
RIGGS NATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
We recorded net income of $5.6 million, or $.19 per diluted share, for the first
quarter of 2001, compared to $11.6 million, or $.41 per diluted share, in the
first quarter of 2000. The decrease resulted primarily from losses in our
venture capital unit in the first quarter of this year compared to venture
capital gains in the first quarter a year ago. Mitigating these losses were
$10.3 million in investment gains in the first quarter of 2001 due to the sale
of a company in which we have had an equity investment for many years.
Return on average assets was .42% for the three months ended March 31, 2001,
compared to .80% for the same period a year ago. Return on average shareholders'
equity was 5.81% for the three months ended March 31, 2001, compared to 13.72%
for the three months ended March 31, 2000.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis (net interest income plus an
amount equal to the tax savings on tax-exempt interest) totaled $47.0 million in
the first quarter of 2001, a decrease of $3.5 million from the $50.5 million for
the same quarter in 2000. The decrease was primarily due to a reduction in
interest income, which was $9.6 million less than a year ago. Decreases in
interest rates contributed to the decline, but decreases in average balances,
primarily in the loan portfolio, were the primary reason. The decrease in net
interest income was partially offset by a decrease in interest expense of $6.1
million, primarily attributable to decreases in average time deposits and other
short-term borrowings.
NET INTEREST INCOME CHANGES (1)
THREE MONTHS ENDED
MARCH 31, 2001 VS 2000
------------------------------------
(TAX-EQUIVALENT BASIS) DUE TO DUE TO TOTAL
(IN THOUSANDS) RATE VOLUME CHANGE
===================================================================================================================================
Interest Income:
Loans, Including Fees $ (493) $ (5,507) $ (6,000)
Securities Available for Sale (1,232) (1,126) (2,358)
Time Deposits with Other Banks (38) (474) (512)
Federal Funds Sold and Reverse
Repurchase Agreements (86) (595) (681)
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income (1,849) (7,702) (9,551)
Interest Expense:
Interest-Bearing Deposits (657) (3,151) (3,808)
Repurchase Agreements and Other
Short-Term Borrowings 275 (2,552) (2,277)
Long-Term Debt - - -
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense (382) (5,703) (6,085)
===================================================================================================================================
Net Interest Income $ (1,467) $ (1,999) $ (3,466)
(1)- The dollar amount of changes in interest income and interest
expense attributable to changes in rate/volume (change in rate
multiplied by change in volume) has been allocated between rate and
volume variances based on the percentage relationship of such
variances to each other. Income and rates are computed on a
tax-equivalent basis using a Federal income tax rate of 35% and local
tax rates as applicable.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
AVERAGE CONSOLIDATED STATEMENTS OF CONDITION AND RATES
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------------------------------------------------------------
(TAX-EQUIVALENT BASIS) (1) AVERAGE INCOME/ AVERAGE INCOME/
(IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
===================================================================================================================================
ASSETS
Loans, Including Fees (2) $2,908,229 $54,167 7.55% $3,180,822 $ 60,167 7.61%
Securities Available for Sale (3) 1,236,091 18,601 6.10 1,303,723 20,959 6.47
Time Deposits with Other Banks 354,832 5,077 5.80 384,768 5,589 5.84
Federal Funds Sold and Reverse Repurchase Agreements 293,927 4,124 5.69 333,637 4,805 5.79
-----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets and Average Rate Earned 4,793,079 81,969 6.94 5,202,950 91,520 7.07
Reserve for Loan Losses (35,962) (41,518)
Cash and Due from Banks 133,640 144,671
Other Assets 476,092 477,943
===================================================================================================================================
Total Assets $5,366,849 $5,784,046
LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS' EQUITY
Interest-Bearing Deposits $3,304,088 $26,457 3.25% $3,621,803 $ 30,265 3.36%
Repurchase Agreements and Other Short-Term Borrowings 533,666 6,888 5.23 717,586 9,165 5.14
Long-Term Debt 66,525 1,618 9.86 66,525 1,618 9.78
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds and Average Rate Paid 3,904,279 34,963 3.63 4,405,914 41,048 3.45
Demand Deposits 634,874 613,827
Other Liabilities 86,427 75,698
Minority Interest in Preferred Stock of Subsidiaries 350,000 350,000
Shareholders' Equity 391,269 338,607
===================================================================================================================================
Total Liabilities, Minority Interest and
Shareholders' Equity $5,366,849 $5,784,046
===================================================================================================================================
NET INTEREST INCOME AND SPREAD $47,006 3.00% $ 50,472 3.32%
===================================================================================================================================
NET INTEREST MARGIN ON EARNING ASSETS 3.98% 3.90%
(1) - Income and rates are computed on a tax-equivalent basis using a Federal
income tax rate of 35% and local tax rates as applicable.
(2) - Nonperforming loans are included in average balances used to determine
rates.
(3) - The averages and rates for the securities available for sale portfolio are
based on amortized cost.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2001, totaled $27.7
million, a decrease of $4.8 million from the $32.5 million for the same period a
year ago. $7.9 million in venture capital investment losses at Riggs Capital
Partners contributed significantly to the decrease, with smaller decreases in
trust and investment advisory income. Venture capital gains for the first
quarter of 2000 were $7.0 million. The venture capital losses were partially
offset by a $10.3 million investment gain recognized as the result of the sale
of a company in which we had an equity investment for many years.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 2001, was $56.5
million, an increase of $2.7 million from the $53.8 million reported for the
three months ended March 31, 2000. This increase was due principally to the
start-up costs of $1.9 million associated with our international private banking
initiative. Start-up costs of $500 thousand associated with the formation of our
second venture capital subsidiary, Riggs Capital Partners II, LLC, also
contributed to the increase.
FINANCIAL CONDITION
SECURITIES
Securities available for sale totaled $1.20 billion at March 31, 2001, compared
to $1.24 billion at year-end 2000 and $1.23 billion at March 31, 2000. The
activity for the first three months included purchases of securities available
for sale totaling $498.1 million, which were more than offset by maturities and
calls, curtailments and sales of securities available for sale totaling $549.1
million. The weighted-average durations and yields for the portfolio, adjusted
for anticipated prepayments, were approximately 2.9 years and 6.10%,
respectively, at March 31, 2001. At March 31, 2000, the weighted-average
durations and yields were 3.6 years and 5.99%, respectively.
Included in available for sale ("Other") securities at March 31, 2001, was
243,849 shares of Concord EFS Inc., at a fair value of $9.9 million. We
recognized a gain of $10.3 million during the first quarter as a result of that
company's acquisition of STAR Systems, Inc.
MARCH 31, 2001 MARCH 31, 2000 DECEMBER 31, 2000
------------------------------------------------------------------------
AMORTIZED MARKET/ AMORTIZED MARKET/ AMORTIZED MARKET/
AVAILABLE FOR SALE COST BOOK VALUE COST BOOK VALUE COST BOOK VALUE
===================================================================================================================================
(IN THOUSANDS)
U.S. Treasury Securities $ 229,731 $ 227,537 $ 289,117 $ 274,793 $ 313,609 $ 309,117
Government Agencies Securities 409,253 410,573 436,016 431,259 375,388 374,836
Mortgage-Backed Securities 508,327 505,630 512,042 478,783 511,932 502,642
Other Securities 56,423 55,691 46,793 46,793 53,378 53,378
===================================================================================================================================
Total $1,203,734 $1,199,431 $1,283,968 $1,231,628 $1,254,307 $1,239,973
LOANS
At March 31, 2001, loans outstanding totaled $2.87 billion, decreasing from the
March 31, 2000 and December 31, 2000 balances of $3.13 and $2.94 billion,
respectively. The decreases were primarily in commercial and financial,
residential mortgage and foreign loans from both prior periods. The majority of
the decrease in commercial and financial loans from both prior periods was in
syndicated loans. Syndicated loan commitments decreased $191.5 million from
March 31, 2000 and $46.6 million from December 31, 2000, respectively. It is
part of our strategy generally to no longer participate in these types of loans.
These decreases were partially offset by increases in real
estate-commercial/construction loans.
During the second quarter of 2000, we began originating mortgage loans for sale
in the secondary market. At March 31, 2001, residential real estate loans
originated and held for sale totaled $17.0 million. At December 31, 2000, these
loans totaled $15.4 million, while there were no such loans at March 31, 2000.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2001 2000 2000
=======================================================================================================================
Commercial and Financial $ 440,988 $ 621,609 $ 479,443
Real Estate - Commercial/Construction 449,568 428,746 440,900
Residential Mortgage 1,153,648 1,211,855 1,168,243
Loans Available for Sale 17,027 - 15,433
Home Equity 330,340 322,564 335,825
Consumer 66,309 68,917 68,010
Foreign 413,240 483,219 437,825
-----------------------------------------------------------------------------------------------------------------------
Total Loans 2,871,120 3,136,910 2,945,679
Net Deferred Loan Fees,
Premiums and Discounts (4,676) (6,361) (4,941)
=======================================================================================================================
Loans $2,866,444 $3,130,549 $2,940,738
RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are summarized as follows:
THREE MONTHS ENDED
MARCH 31,
------------------------
(IN THOUSANDS) 2001 2000
===================================================================================================================================
Balance, January 1 $ 36,197 $ 41,455
Provision for loan losses 115 600
Loans charged-off 1,728 4,659
Less: Recoveries on charged-off loans 626 915
-----------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs (recoveries) 1,102 3,744
Foreign exchange translation adjustments (392) (74)
===================================================================================================================================
Balance, March 31 $ 34,818 $ 38,237
At March 31, 2001, the reserve for loan losses was $34.8 million, a decrease of
$3.4 million from the March 31, 2000 balance. In the first quarter of 2001, our
domestic reserve needs were reduced by $3.4 million, primarily due to the sale,
at par value, of a $25 million loan previously classified as non-performing.
However, we provided approximately $3.5 million for loan losses primarily
associated with a single loan at our London operations.
ASSET QUALITY
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccrual loans, renegotiated loans and
other real estate owned (net of reserves), totaled $14.4 million at March 31,
2001, a $22.7 million decrease from the year-end 2000 total of $37.2 million and
a $27.7 million decrease from the March 31, 2000 total of $42.1 million. The
decrease in nonperforming assets from both periods was mainly due to the
aforementioned sale of a $25.0 million nonaccrual loan. From year-end 2000, the
decrease was partially offset by the addition of a $3.3 million nonaccrual loan
at our London operation in the first quarter of 2001. From March 31, 2000,
additional decreases were due to charge-offs of $3.7 million on two domestic and
two London based loans. These additional decreases were partially offset by the
addition of two London loans to nonaccrual in the third quarter of 2000.
Balances for these loans totaled $843 thousand at March 31, 2001.
As a result of the sale of the $25.0 million loan, the reserve needs for
domestic loan losses were reduced by approximately $3.4 million, although it was
more than offset by a $3.5 million provision for loan losses associated with the
$3.3 million London loan. The assigned reserve for loan losses for impaired
loans was $4.4 million at March 31, 2001.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
PAST-DUE AND POTENTIAL PROBLEM LOANS
Past-due loans consist of residential real estate loans, commercial and
industrial loans, and consumer loans that are in the process of collection and
that are accruing interest. Past-due loans decreased $2.0 million during the
first three months of 2001 to $9.1 million, while potential problem loans
decreased $6.1 million during the same period. The decrease in potential problem
loans resulted from the removal of two loans previously considered potential
problems at December 31, 2000 at our London operations. One loan in the amount
of $4.0 million was upgraded, while the second, for $4.5 million, was placed on
nonaccrual.
NONPERFORMING ASSETS AND PAST-DUE LOANS
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2001 2000 2000
=======================================================================================================================
NONPERFORMING ASSETS:
Nonaccrual Loans (1) $ 12,535 $ 40,014 $ 35,185
Renegotiated Loans 766 1,212 853
Other Real Estate Owned, Net 1,133 908 1,133
=======================================================================================================================
Total Nonperforming Assets $ 14,434 $ 42,134 $ 37,171
PAST-DUE LOANS (2) $ 9,078 $ 8,487 $ 11,119
POTENTIAL PROBLEM LOANS $ 2,674 $ 1,381 $ 8,728
(1)Loans (other than consumer) that are in default in either principal
or interest for 90 days or more that are not well-secured and in the
process of collection, or that are, in management's opinion, doubtful
as to the collectibility of either interest or principal.
(2)Loans contractually past due 90 days or more in principal or interest that
are well-secured and in the process of collection.
DEPOSITS
Deposits are our primary and most stable source of funds. Deposits totaled $4.04
billion at March 31, 2001, a decrease of $38.2 million from the December 31,
2000 total of $4.08 billion, and a decrease of $143.1 million from the March 31,
2000 deposit total of $4.18 billion. For both periods, deposits decreased in
time deposits in domestic and foreign offices accounts. Balances in savings and
NOW accounts and money market accounts fluctuated. Demand deposits decreased as
balances were swept into money market accounts.
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings decreased $138.1 million from the year-end 2000 balance,
and $143.4 million from the March 31, 2000 balance. The decrease from March 31,
2000 reflects $200 million in advances from the Federal Home Loan Bank of
Atlanta (FHLB), which was called in the second quarter of last year. Short-term
borrowings are an additional source of funds that we have utilized to meet
certain asset/liability and daily cash management objectives and are used to
generate cash and maintain adequate levels of liquidity.
MARCH 31, MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2001 2000 2000
=======================================================================================================================
Repurchase Agreements and Other Short-Term Borrowings $ 444,758 $ 588,173 $ 582,832
Subordinated Debentures due 2009 66,525 66,525 66,525
=======================================================================================================================
Total Short-Term Borrowings and Long-Term Debt $ 511,283 $ 654,698 $ 649,357
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
LIQUIDITY
We seek to maintain sufficient liquidity to meet the needs of depositors,
borrowers and creditors at a reasonable cost and without undue stress on our
operations. Our Asset/Liability Committee actively analyzes and manages
liquidity in coordination with other areas of the organization (see "Sensitivity
to Market Risk"). At March 31, 2001, our liquid assets, on a consolidated basis,
which include cash and due from banks, Government obligations and other
securities, federal funds sold, reverse repurchase agreements and time deposits
at other banks, totaled $2.12 billion (39% of total assets). This compares with
$2.16 billion (39%) at December 31, 2000, and $2.05 billion (36%) at March 31,
2000. At March 31, 2001, $810.7 million of our assets were pledged to secure
deposits and other borrowings. This compares with pledged assets of $971.4
million at December 31, 2000, and $913.2 million at March 31, 2000.
Our liquidity position is maintained by a stable source of funds from our core
deposit relationships. We have other sources of funds, such as short-term
revolving credit lines available from several Federal Home Loan Banks and other
financial institutions. In addition, we have a line of credit available through
our membership in the FHLB. At March 31, 2001, December 31, 2000, and March 31,
2000, short-term credit lines and the FHLB Atlanta line of credit available
totaled approximately $1.33 billion, $1.34 billion, and $1.58 billion,
respectively. At March 31, 2001, December 31, 2000, and March 31, 2000, the
amounts outstanding under these lines were $18.9 million, $17.9 million, and
$218.2 million, respectively.
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
Total shareholders' equity at March 31, 2001, was $391.8 million, an increase of
$9.1 million from year-end 2000 and $38.7 million from a year ago. The increase
from year-end was primarily the result of net income of $5.6 million and a
reduction in unrealized securities losses of $6.5 million, after tax. The
increase from March 31, 2000 was primarily the result of net income of $15.7
million, and a reduction in unrealized securities losses of $31.2 million. For
more information on our securities portfolio, see the discussion under
"Securities" in the Management's Discussion and Analysis of Financial Condition
and Results of Operation in this Form 10-Q.
Book value per common share was $13.77 as of March 31, 2001, compared to $13.48
at year-end 2000 and $12.47 at March 31, 2000. The increases in book value from
March 31st and year-end 2000 were primarily the result of the net income and net
unrealized securities gains described in the preceding paragraph.
Following are our capital ratios and those of our banking subsidiary, Riggs Bank
National Association (Riggs Bank N.A.) at March 31, 2001 and 2000, and December
31, 2000.
MARCH 31, MARCH 31, DECEMBER 31, REQUIRED
2001 2000 2000 MINIMUMS
===================================================================================================================================
RIGGS NATIONAL CORPORATION:
Tier I 16.60% 14.91% 15.92% 4.00%
Combined Tier I and Tier II 26.80 24.46 25.87 8.00
Leverage 9.69 8.74 9.47 4.00
RIGGS BANK N.A.:
Tier I 14.68 13.55 13.99 4.00
Combined Tier I and Tier II 15.86 14.72 15.18 8.00
Leverage 8.70 8.06 8.44 4.00
-18-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SENSITIVITY TO MARKET RISK
We are exposed to various market risks. Some of these risks, such as credit
risk, are discussed in our Annual Report on Form 10-K. We have determined that
interest-rate risk has a material impact on our financial performance, and as
such we have established the Asset/Liability Committee ("ALCO") to manage
interest-rate risk. The role of this committee is to manage the asset/liability
mix of our operations in an effort to provide a stable net interest margin while
maintaining liquidity and capital. This entails the management of our overall
risk in conjunction with the acquisition and deployment of funds based upon
ALCO's view of both current and prospective market and economic conditions.
We manage our interest-rate risk through the use of an income simulation model,
which forecasts the impact on net interest income of a variety of different
interest rate scenarios. A "most likely" interest rate scenario is forecasted
based upon an analysis of current market conditions and expectations. The model
then evaluates the impact on net interest income of rates moving significantly
higher or lower than the "most likely" scenario. The results are compared to
risk tolerance limits set by corporate policy. The model's results as of March
31, 2001 and 2000 are shown in the following tables. Current policy establishes
limits for possible changes in net interest income for 12 and 36 month horizons.
The interest rate scenarios monitored by ALCO are based upon a 100 basis point
(1%) gradual increase or decrease in rates over a 12-month time period and a 300
basis point (3%) gradual increase or decrease in rates over a 36-month time
period.
INTEREST-RATE SENSITIVITY ANALYSIS (1)
MOVEMENTS IN INTEREST RATES FROM MARCH 31, 2001
===================================================================================================================================
SIMULATED IMPACT OVER SIMULATED IMPACT OVER
NEXT TWELVE MONTHS NEXT THIRTY-SIX MONTHS
-----------------------------------------------------------------------------------------------------------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
-----------------------------------------------------------------------------------------------------------------------------------
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (2.2)% 0.1% (1.3)% (2.1)%
Net Interest Income Increase/(Decrease) $ (4,240) $ 158 $ (7,496) $ (12,369)
MOVEMENTS IN INTEREST RATES FROM MARCH 31, 2000
===================================================================================================================================
SIMULATED IMPACT OVER SIMULATED IMPACT OVER
NEXT TWELVE MONTHS NEXT THIRTY-SIX MONTHS
-----------------------------------------------------------------------------------------------------------------------------------
(In Thousands) +100BP -100BP +300BP -300BP
-----------------------------------------------------------------------------------------------------------------------------------
Simulated Impact Compared With a
"Most Likely" Scenario:
Net Interest Income Increase/(Decrease) (0.8)% 4.3% (3.0)% 4.8%
Net Interest Income Increase/(Decrease) $ (1,523) $ 7,782 $ (16,990) $ 27,446
(1) Key Assumptions:
Assumptions with respect to the model's projections of the effect of changes in
interest rates on Net Interest Income include:
1. Target balances for various asset and liability classes, which are solicited
from the management of the various units of the Corporation.
2. Interest rate scenarios which are generated by ALCO for the "most likely"
scenario and are dictated by ALCO's policy for the alternative scenarios.
3. Spread relationships between various interest rate indices, which are
generated by the analysis of historical relationships and ALCO consensus.
4. Assumptions about the effect of embedded options and prepayment speeds:
instruments that are callable are assumed to be called at the first opportunity
if an interest rate scenario makes it advantageous for the owner of the call to
do so. Prepayment assumptions for mortgage products are derived from accepted
industry sources.
5. Reinvestment rates for funds replacing assets or liabilities that are assumed
(through early withdrawal, prepayment, calls, etc.) to run off the balance
sheet, which are generated by the spread relationships.
6. Maturity strategies with respect to assets and liabilities, which are
solicited from the management of the various units of the Corporation.
-19-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED
At March 31, 2001, the forecasted impact of rates rising or falling 100 basis
points versus the "most likely" scenario over a 12-month time period was a
change in net interest income not exceeding 3%. For a 300 basis point movement
in rates versus the "most likely" scenario over a 36-month period, the impact on
net interest income did not exceed 3%. The results of the simulation for March
31, 2001, indicated that we were "liability sensitive" over the 12 month time
horizon. Over the 36-month time horizon, we were "liability sensitive" in a
rising rate environment, and "asset sensitive" in a declining rate environment
due to floors on deposit rates. We were within guidelines for interest rates
moving significantly in either direction.
In managing our interest-rate risk, ALCO uses financial derivative instruments,
such as interest-rate swaps. Financial derivatives are employed to assist in the
management and/or reduction of our interest-rate risk and can effectively alter
the sensitivity of segments of the statement of condition for specified periods
of time. Along with financial derivative instruments, the income simulation
model includes short-term financial instruments, investment securities, loans,
deposits, and other borrowings. Interest-rate risk management strategies are
discussed and approved by ALCO prior to implementation.
We find that the methodologies previously discussed provide a meaningful
representation of our interest-rate and market risk sensitivity, though factors
other than changes in the interest rate environment, such as levels of
non-earning assets, and changes in the composition of earning assets, may affect
net interest income. We believe our current interest-rate sensitivity level is
appropriate, considering our economic outlook and what we believe is a
conservative approach taken in the review and monitoring of our sensitivity
position.
COMMITMENTS AND CONTINGENT LIABILITIES
Outstanding commitments and contingent liabilities at March 31, 2001 and 2000,
and December 31, 2000 are detailed in the tables below, including the notional
amounts of all derivatives whose fair values are included in the consolidated
financial statements. At March 31, 2001, our financial derivative instruments
included five pay fixed, receive floating swaps and three basis swaps with a
total notional amount of $141.5 million. These agreements were contracted in
October 1999, December 1999, January 2000 and July 2000.
We had 24 swaps at Riggs Bank Europe Limited, our London-based banking
subsidiary, with a total notional amount of $81.3 million that entail the
payment of a blended 6.44% fixed rate and the receipt of a floating rate equal
to six-month LIBOR. These swaps have varying maturities extending until 2005 and
are entered into for the purpose of converting fixed rate loans to variable.
As a result of Riggs Capital Partners venture capital investment activity, we
had venture capital commitments of $21.2 million at March 31, 2001 of which $289
thousand were less than one year.
CONTRACTUAL OR NOTIONAL VALUE
------------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
=======================================================================================================================
Commitments to Extend Credit $954,129 $ 928,800 $1,009,025
Venture Capital Commitments 23,076 22,102 22,622
Letters of Credit 133,579 130,896 153,112
Derivative Instruments:
Foreign Exchange Contracts:
Commitments to Purchase $ 28,348 $ 100,138 $ 44,740
Commitments to Sell 239,465 301,350 231,510
Futures - 1,932 -
Interest Rate Agreements
Swaps 222,776 104,689 229,854
Purchased Options - 623 -
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED
Our interest rate agreement activity for the three months ended March 31, 2001,
is as follows:
BALANCE BALANCE
DECEMBER 31, MARCH 31,
2000 ADDITIONS MATURITIES TERMINATIONS 2001
===================================================================================================================================
Interest Rate Agreements:
Receive variable/pay fixed $ 41,500 $ - $ - $ - $ 41,500
Basis swaps 100,000 - - - 100,000
Riggs Bank Europe Limited 88,354 2,847 9,925 - 81,276
===================================================================================================================================
Total $229,854 $ 2,847 $ 9,925 $ - $222,776
This Quarterly Report on Form 10-Q, including the Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the Quantitative
and Qualitative Disclosures About Market Risk, contains forward-looking
statements, including the references to earnings from venture capital,
implementation of our business strategy, hedging activities and our trust and
investment advisory income. A variety of factors could cause our actual results
and experiences to differ materially from those expressed or implied by the
forward-looking statements. These factors include, but are not limited to,
certain risks and uncertainties that may affect the operations, performance,
development, growth projections and results of our business. These factors also
include the growth of the economy, changes in credit quality or interest rates,
changes in value of venture capital investments in the technology and other
sectors, timing of technology enhancements for products and operating systems,
the impact of competitive products, services and pricing, customer business
requirements, Congressional legislation and similar matters.
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RIGGS NATIONAL CORPORATION
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on page 23 are incorporated by
reference or filed herewith in response to this item.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements 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
Date: May 11, 2001 /s/ TIMOTHY C. COUGHLIN
------------ -----------------------
Timothy C. Coughlin
President
Date: May 11, 2001 /s/ STEVEN T. TAMBURO
------------ ---------------------
Steven T. Tamburo
Treasurer
(Chief Financial Officer)
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION PAGES
NO.
===================================================================================================================================
(3.1)Restated Certificate of Incorporation of Riggs National Corporation,
dated April 19, 1999 (Incorporated by reference to the Registrant's
Form 10-Q for the quarter ended June 30, 1999, SEC File No. 09756).
(3.2)By-laws of the Registrant with amendments through April 12, 2000
(Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2000, SEC File No. 09756).
(4.1)Indenture dated June 1, 1989, with respect to $100 million 9.65%
Subordinated Debentures due 2009 (Incorporated by reference to the
Registrant's Form 8-K dated June 20, 1989, SEC File No. 09756.)
(4.2)Indenture dated December 13, 1996, with respect to $150 million,
8.625% Trust Preferred Securities, Series A due 2026 (Incorporated
by reference to the Registrant's S-3 dated February 6, 1997, SEC
File No. 333-21297.)
(4.3)Indenture dated March 12, 1997, with respect to $200 million, 8.875%
Trust Preferred Securities, Series C due 2027 (Incorporated by
reference to the Registrant's S-3 dated May 2, 1997, SEC File No.
333-26447.)
(10.1)Time Sharing Agreement for lease of Gulfstream V by Perpetual
Corporation/Lazy Lane Farms, Inc. and Allbritton Communications
Company 24-29
(10.2)First Amendment dated March 28, 2001 to Amended Joe L. Allbritton
Employment Agreement 30
(10.3)Description of the 2001 General Incentive Plan 31-35
(Exhibits omitted are not required or not applicable.)
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