##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q (Mark One)
    
    x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2005o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ________ to ________
 Commission File Number 0-9756 RIGGS NATIONAL CORPORATION  Delaware
    
    52-1217953(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.
 1503 Pennsylvania Avenue, N.W., Washington, D.C. 20005  (202) 835-4309  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 o. Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes x.    No o . Indicate the number of shares outstanding of each of the issuers
classes ofcommon stock, as of the latest practicable date. Common Stock, $2.50 par value
    
    32,857,010(Title of Class)
    
    (Outstanding at April 30, 2005)
 Transitional Small Business
Format Yes o.    No x.




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RIGGS NATIONAL CORPORATION TABLE OF CONTENTS PAGE NO.PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Statements of Operations (Unaudited)Three months ended March 31, 2005 and 2004
    
    
    3Consolidated Statements of Condition (Unaudited)March 31, 2005 and 2004 and December 31, 2004
    
    
    4Consolidated Statements of Changes in Shareholders Equity (Unaudited)Three months ended March 31, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows (Unaudited)Three months ended March 31, 2005 and 2004
    
    
    6Notes to the Consolidated Financial Statements (Unaudited)
    
    
    7-24Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25-37Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    38-39Item 4.
    
    Controls and Procedures
    
    
    39-41PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 2.
    
    Unregistered Sales of Equity
Securities and Use of Proceeds
    
    
    41Item 3.
    
    Defaults Upon Senior Securities
    
    
    41Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    41Item 5.
    
    Other Information
    
    
    41Item 6.
    
    Exhibits
    
    
    41Signatures
    
    
    42
 Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to Riggs and the
Company refer to Riggs National Corporation and its consolidated subsidiaries. 2




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PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS-UNAUDITED RIGGS NATIONAL CORPORATION
    
    THREE MONTHS ENDEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
    
    MARCH 31,(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
    
    2005
    
    
    2004INTEREST INCOMEInterest and Fees on Loans
    
    $
    39,663
    
    
    $
    39,014Interest and Dividends on Securities Held to Maturity
    
    
    1,145
    
    
    
    1,550Interest and Dividends on Securities Available for Sale
    
    
    14,683
    
    
    
    16,237Interest on Time Deposits with Other Banks
    
    
    611
    
    
    
    1,114Interest on Federal Funds Sold and Reverse Repurchase Agreements
    
    
    3,447
    
    
    
    232Total Interest Income
    
    
    59,549
    
    
    
    58,147INTEREST EXPENSEInterest on Deposits:Savings and NOW Accounts
    
    
    107
    
    
    
    116Money Market Deposit Accounts
    
    
    1,744
    
    
    
    2,370Time Deposits in Domestic Offices
    
    
    10,776
    
    
    
    2,490Time Deposits in Foreign Offices
    
    
    24
    
    
    
    569Total Interest on Deposits
    
    
    12,651
    
    
    
    5,545Interest on Short-Term Borrowings and Long-Term Debt:Repurchase Agreements and Other Short-Term Borrowings
    
    
    3,603
    
    
    
    2,228FHLB Borrowings and Other Long-Term Debt
    
    
    11,367
    
    
    
    10,005Total Interest on Short-Term Borrowings and Long-Term Debt
    
    
    14,970
    
    
    
    12,233Total Interest Expense
    
    
    27,621
    
    
    
    17,778Net Interest Income
    
    
    31,928
    
    
    
    40,369Provision for Loan Losses
    
    
    500
    
    
    
    Net Interest Income after Provision for Loan Losses
    
    
    31,428
    
    
    
    40,369NONINTEREST INCOMETrust and Investment Advisory Income
    
    
    8,045
    
    
    
    9,499Service Charges and Fees
    
    
    10,801
    
    
    
    12,936Venture Capital Investment Losses, Net
    
    
    (4,340
    )
    
    
    (168
    )Other Net Noninterest Income
    
    
    6,851
    
    
    
    2,753Securities Gains, Net
    
    
    565
    
    
    
    227Total Noninterest Income
    
    
    21,922
    
    
    
    25,247NONINTEREST EXPENSESalaries and Employee Benefits
    
    
    32,085
    
    
    
    31,093Occupancy, Net
    
    
    6,276
    
    
    
    5,542Data Processing Services
    
    
    1,967
    
    
    
    1,659Furniture, Equipment and Software
    
    
    3,485
    
    
    
    3,667Fines and Settlements
    
    
    7,025
    
    
    
    Legal Fees
    
    
    9,498
    
    
    
    691Consultants and Outsourcing
    
    
    9,842
    
    
    
    2,233Other Noninterest Expense
    
    
    21,003
    
    
    
    14,567Total Noninterest Expense
    
    
    91,181
    
    
    
    59,452Income (Loss) before Taxes and Minority Interest
    
    
    (37,831
    )
    
    
    6,164Applicable Income Tax Expense (Benefit)
    
    
    (9,382
    )
    
    
    1,680Minority Interest in Income of Subsidiaries, Net of Taxes
    
    
    1,099
    
    
    
    743Income (Loss) from Continuing Operations
    
    $
    (29,548
    )
    
    $
    3,741Income from Discontinued Operations
(including net gain on disposal of
$418 thousand in 2005 and $0 in 2004)
    
    
    1,093
    
    
    
    121Applicable Income Tax Expense (Benefit)
    
    
    201
    
    
    
    (53
    )Net Income from Discontinued Operations
    
    
    892
    
    
    
    174Net Income (Loss)
    
    $
    (28,656
    )
    
    $
    3,915EARNINGS
(LOSS) PER SHARE-CONTINUING OPERATIONS
     Basic
    
    $
    (0.92
    )
    
    $
    0.13Diluted
    
    
    (0.92
    )
    
    
    0.13EARNINGS
PER SHARE-DISCONTINUED
OPERATIONS               Basic
    
    $
    0.03
    
    
    $
    0.01Diluted
    
    
    0.03
    
    
    
    0.01EARNINGS (LOSS) PER SHARE-                                                            Basic
    
    $
    (0.89
    )
    
    $
    0.14Diluted
    
    
    (0.89
    )
    
    
    0.13DIVIDENDS DECLARED AND PAID PER SHARE
    
    $
    
    
    
    $
    0.05
 The Accompanying Notes Are An Integral Part Of These Statements 3




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RIGGS NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION(UNAUDITED)
    
    MARCH 31,
    
    
    DECEMBER 31,
    
    
    MARCH 31,(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
    
    2005
    
    
    2004
    
    
    2004ASSETSCash and Due from Banks
    
    $
    134,726
    
    
    $
    147,561
    
    
    $
    160,274Federal Funds Sold and Reverse Repurchase Agreements
    
    
    725,000
    
    
    
    450,000
    
    
    
    136,000Total Cash and Cash Equivalents
    
    
    859,726
    
    
    
    597,561
    
    
    
    296,274Time Deposits with Other Banks
    
    
    69,521
    
    
    
    65,391
    
    
    
    234,573Securities Held to Maturity (Fair Value of $56,699
at March 31, 2005,
$50,850 at December 31, 2004, and $52,015
at March 31, 2004)
    
    
    49,845
    
    
    
    49,853
    
    
    
    49,879Securities Available for Sale (at Market Value)
    
    
    1,638,588
    
    
    
    1,695,787
    
    
    
    1,932,389Venture Capital Investments
    
    
    33,582
    
    
    
    39,239
    
    
    
    43,278Loans
    
    
    2,889,442
    
    
    
    3,001,331
    
    
    
    3,198,622Reserve for Loan Losses
    
    
    (24,674
    )
    
    
    (24,717
    )
    
    
    (27,783
    )Total Net Loans
    
    
    2,864,768
    
    
    
    2,976,614
    
    
    
    3,170,839Premises and Equipment, Net
    
    
    169,325
    
    
    
    174,690
    
    
    
    226,569Assets Held for Sale
    
    
    12,828
    
    
    
    196,642
    
    
    
    Other Assets
    
    
    257,583
    
    
    
    212,886
    
    
    
    178,314Total Assets
    
    $
    5,955,766
    
    
    $
    6,008,663
    
    
    $
    6,132,115LIABILITIESDeposits:Noninterest-Bearing Demand Deposits
    
    $
    698,340
    
    
    $
    475,380
    
    
    $
    986,092Interest-Bearing Deposits:Savings and NOW Accounts
    
    
    250,202
    
    
    
    252,719
    
    
    
    276,586Money Market Deposit Accounts
    
    
    1,592,728
    
    
    
    1,650,385
    
    
    
    2,099,890Time Deposits in Domestic Offices
    
    
    1,477,841
    
    
    
    1,409,157
    
    
    
    504,165Time Deposits in Foreign Offices
    
    
    
    
    
    
    10,015
    
    
    
    281,139Total Interest-Bearing Deposits
    
    
    3,320,771
    
    
    
    3,322,276
    
    
    
    3,161,780Total Deposits
    
    
    4,019,111
    
    
    
    3,797,656
    
    
    
    4,147,872Short-Term Borrowings
    
    
    465,591
    
    
    
    498,304
    
    
    
    592,451Liabilities Held for Sale
    
    
    
    
    
    
    70,704
    
    
    
    Other Liabilities
    
    
    114,637
    
    
    
    112,832
    
    
    
    133,207Long-Term Borrowings
    
    
    986,693
    
    
    
    1,138,693
    
    
    
    796,693Total Liabilities
    
    
    5,586,032
    
    
    
    5,618,189
    
    
    
    5,670,223GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIORSUBORDINATED DEFERRABLE INTEREST DEBENTURES
    
    
    72,634
    
    
    
    72,634
    
    
    
    72,634
 COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYCommon Stock-$2.50 Par Value
    
    
    3/31/2005
    
    
    
    12/31/2004
    
    
    
    3/31/2004Authorized Shares
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    50,000,000Issued Shares
    
    
    36,191,981
    
    
    
    35,017,721
    
    
    
    32,295,505Outstanding Shares
    
    
    32,850,460
    
    
    
    31,675,800
    
    
    
    28,953,184Treasury Shares
    
    
    3,341,521
    
    
    
    3,341,921
    
    
    
    3,342,321
    
    
    
    90,480
    
    
    
    87,544
    
    
    
    80,739Additional Paid in Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,057
    
    
    
    214,718
    
    
    
    175,506Retained Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,290
    
    
    
    98,946
    
    
    
    202,605Accumulated Other Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,742
    )
    
    
    (11,375
    )
    
    
    2,410Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,985
    )
    
    
    (71,993
    )
    
    
    (72,002
    )Total Shareholders Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297,100
    
    
    
    317,840
    
    
    
    389,258Total Liabilities and Shareholders Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,955,766
    
    
    $
    6,008,663
    
    
    $
    6,132,115
 The Accompanying Notes Are An Integral Part Of These Statements 4




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RIGGS NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 COMMON
    
    
    
    
    
    
    
    
    
    
    ACCUMULATEDSTOCK
    
    
    ADDITIONAL
    
    
    
    
    
    
    OTHER
    
    
    
    
    
    
    TOTAL$2.50
    
    
    PAID IN
    
    
    RETAINED
    
    
    COMPREHENSIVE
    
    
    TREASURY
    
    
    SHAREHOLDERSPAR
    
    
    CAPITAL
    
    
    EARNINGS
    
    
    INCOME (LOSS)
    
    
    STOCK
    
    
    EQUITYBalance, December 31, 2003
    
    $
    79,996
    
    
    $
    174,396
    
    
    $
    200,131
    
    
    $
    (9,380
    )
    
    $
    (71,623
    )
    
    $
    373,520Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    3,915
    
    
    
    
    
    
    
    
    
    
    
    3,915Other Comprehensive Income, Net of Tax:Unrealized Gain on
Securities Available for Sale, Net
of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,065
    
    
    
    
    
    
    
    11,065Unrealized Gain on Derivatives,
Net of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301
    
    
    
    
    
    
    
    301Foreign Exchange Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    424
    
    
    
    
    
    
    
    424Total Other Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,790Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,705Issuance of Common Stock for
Stock Option and Award Plans-297,245 Shares
    
    
    743
    
    
    
    1,646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,389Repurchase of
Trust Preferred Securities, Net
    
    
    
    
    
    
    (536
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (536
    )Common Stock Repurchase-24,199 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (379
    )
    
    
    (379
    )Cash Dividends 
Common Stock, $.05 per Share
    
    
    
    
    
    
    
    
    
    
    (1,441
    )
    
    
    
    
    
    
    
    
    
    
    (1,441
    )Balance, March 31, 2004
    
    $
    80,739
    
    
    $
    175,506
    
    
    $
    202,605
    
    
    $
    2,410
    
    
    $
    (72,002
    )
    
    $
    389,258Balance, December 31, 2004
    
    $
    87,544
    
    
    $
    214,718
    
    
    $
    98,946
    
    
    $
    (11,375
    )
    
    $
    (71,993
    )
    
    $
    317,840Comprehensive Income:Net Loss
    
    
    
    
    
    
    
    
    
    
    (28,656
    )
    
    
    
    
    
    
    
    
    
    
    (28,656
    )Other Comprehensive Loss, Net of Tax:Unrealized Loss on
Securities Available for Sale, Net
of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,802
    )
    
    
    
    
    
    
    (9,802
    )Unrealized Gain on Derivatives,
Net of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    68Foreign Exchange Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (633
    )
    
    
    
    
    
    
    (633
    )Total Other Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,367
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,023
    )Issuance of Common Stock for
Stock Option and Award Plans-1,174,260 Shares
    
    
    2,936
    
    
    
    15,339
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    18,283Balance, March 31, 2005
    
    $
    90,480
    
    
    $
    230,057
    
    
    $
    70,290
    
    
    $
    (21,742
    )
    
    $
    (71,985
    )
    
    $
    297,100
 The Accompanying Notes Are An Integral Part Of These Statements 5




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RIGGS NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS) THREE MONTHS ENDEDMARCH 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (Loss)
    
    $
    (28,656
    )
    
    $
    3,915Adjustments to Reconcile Net Income to Cash(Used In) Provided By Operating Activities:Provision for Loan Losses
    
    
    500
    
    
    
    Gain on Sale of Premises
    
    
    (5,237
    )
    
    
    Gain on Sale of International Business Portfolio
    
    
    (418
    )
    
    
    (Gains) Losses on Venture Capital Investments
    
    
    4,340
    
    
    
    168Depreciation Expense and Amortization
    
    
    6,246
    
    
    
    6,009Net Gains on Sales of Securities Available for Sale
    
    
    (565
    )
    
    
    (227
    )(Increase) Decrease in Other Assets
    
    
    (39,646
    )
    
    
    27Increase (Decrease) in Other Liabilities
    
    
    1,805
    
    
    
    52,199Total Adjustments
    
    
    (32,975
    )
    
    
    58,176Net Cash (Used In) Provided By Operating Activities
    
    
    (61,631
    )
    
    
    62,091CASH FLOWS FROM INVESTING ACTIVITIES:Net (Increase) Decrease in Time Deposits with Other Banks
    
    
    (4,130
    )
    
    
    52,504Proceeds from Maturities of Securities Available for Sale
    
    
    3,861,629
    
    
    
    845,148Proceeds from Sales of Securities Available for Sale
    
    
    127,586
    
    
    
    330,789Purchases of Securities Available for Sale
    
    
    (3,946,285
    )
    
    
    (1,142,308
    )Proceeds on Sale of Office Building
    
    
    13,799
    
    
    
    Proceeds on Sale of International Business Portfolio
    
    
    104,947
    
    
    
    Purchases of Venture Capital Investments
    
    
    (551
    )
    
    
    (813
    )Proceeds from Sale of Venture Capital Investments
    
    
    1,868
    
    
    
    723Net Decrease in Loans
    
    
    111,346
    
    
    
    26,246Net Additions to Other Assets Owned
    
    
    
    
    
    
    (80
    )Net (Increase) in Premises and Equipment
    
    
    (881
    )
    
    
    (6,055
    )Other, Net
    
    
    73
    
    
    
    48Net Cash Provided By Investing Activities
    
    
    269,401
    
    
    
    106,202CASH FLOWS FROM FINANCING ACTIVITIES:Net Increase in Non-Time Deposits
    
    
    162,786
    
    
    
    15,633Net Increase (Decrease) in Time Deposits
    
    
    58,669
    
    
    
    (153,993
    )Maturities and Payments of Short-Term Borrowings
    
    
    (333,978
    )
    
    
    (524,121
    )Additional Short-Term Borrowings
    
    
    199,264
    
    
    
    435,191Maturities and Payments of Long-Term Borrowings
    
    
    (125,000
    )
    
    
    Additional Long-Term Borrowings
    
    
    75,000
    
    
    
    50,000Proceeds from the Issuance of Common Stock
    
    
    18,287
    
    
    
    748Dividend Payments
    
    
    
    
    
    
    (1,441
    )Repurchase of Common Stock
    
    
    
    
    
    
    (379
    )Repurchase of Guaranteed Preferred Beneficial Interests
in Junior Subordinated Deferrable Interest Debentures
    
    
    
    
    
    
    (20,056
    )Net Cash (Used In) Provided By Financing Activities
    
    
    55,028
    
    
    
    (198,418
    )Effect of Exchange Rate Changes
    
    
    (633
    )
    
    
    424Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    262,165
    
    
    
    (29,701
    )Cash and Cash Equivalents at Beginning of Period
    
    
    597,561
    
    
    
    325,975Cash and Cash Equivalents at End of Period
    
    $
    859,726
    
    
    $
    296,274SUPPLEMENTAL DISCLOSURES:Trade Dated Securities Purchases
    
    $
    
    
    
    $
    10,003Interest Paid
    
    
    17,528
    
    
    
    11,341
 The Accompanying Notes Are An Integral Part Of These Statements 6




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RIGGS NATIONAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(TABLES IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1.       BASIS OF PRESENTATION The interim consolidated financial statements presented in this Quarterly Report on Form 10-Q
are in conformity with U.S. generally accepted accounting principles and follow general practice
within the banking industry. These principles have been applied on a consistent basis and include
all normal recurring adjustments necessary to fairly present the Companys results of operations,
financial condition and cash flows. The preparation of financial statements requires the use of
estimates and assumptions that affect the amounts reported. Actual results could differ from those
estimates and the results of operations for the three months ended March 31, 2005 are not
necessarily indicative of the results to be expected for all of 2005. For comparability, certain
prior period amounts have been reclassified to conform with the current period presentation. These
reclassifications include those resulting from the discontinuation by the Company of operations of
several of its business subsidiaries and divisions as discussed below. The financial statements
contained herein should be read in conjunction with the audited financial statements and
accompanying notes in the Companys Annual Report on Form 10-K for the year ended December 31,
2004. NOTE 2.       CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management of the Company has prepared the consolidated financial statements included in this
Form 10-Q in conformity with U.S. generally accepted accounting principles applied on a consistent
basis and which follow general practice within the banking industry. Accordingly, management of the
Company is required to make certain estimates, judgments and assumptions that it believes to be
reasonable based upon the information available. These estimates, judgments and assumptions affect
the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of net interest income, the provision for loan losses, noninterest income and
noninterest expense during the periods presented. Based on its consideration of accounting policies
that involve the most complex and subjective estimates and assumptions, as well as its analysis of
whether and to what extent such estimates and assumptions will have a material impact on the
Companys financial condition or results of operations, management has identified the following
critical accounting policies. Due to uncertainty inherent in these matters, actual results of
future operations could differ from the estimates, judgments and assumptions used in applying these
critical accounting policies. Reserve for Loan Losses
The reserve for loan losses is maintained at a level deemed the best estimate adequate to absorb
probable losses in the loan portfolio. The determination of the reserve for loan losses is based
upon an on-going, analytical review of the loan portfolio. This analysis requires application of
judgment, evaluation of economic uncertainties and assessment of changing business conditions.
Because of these and other factors, adjustments to the reserve for loan losses that would impact
future operating results may be required. The analytical review of the loan portfolio performed to determine the adequacy of the reserve for
loan losses includes a review of large balance loans for impairment, an analysis of historical loss
experience by loan type, and, for groups of loans with similar characteristics, an evaluation of
current economic conditions and other factors considered pertinent to the analysis. Impaired loans
are defined as specifically reviewed loans for which it is probable that Riggs will be unable to
collect all amounts due in accordance with the loan agreement. Impaired loans are generally
commercial and financial loans and commercial real estate loans and are usually on non-accrual
status. Each impaired loan with an outstanding balance equal to or greater than $250 thousand has a
specific, identified loan loss reserve associated with it or has been written down to its estimated
net realizable value. Impaired loans do not include groups of smaller balance homogeneous loans
with similar collateral characteristics, such as residential mortgage and home equity loans. Loss
reserves for these types of loans are established on an aggregate basis using historical loss
experience, peer comparisons, or other relevant measures. Balances related to impaired loans are
excluded when applying historical loss ratios to determine loan loss reserves. The specific reserves for impaired loans are included in the reserve for loan losses. Impaired
loans are valued based upon the fair value of the related collateral if the loans are collateral
dependent. For all other impaired loans, the specific reserves are based on the present values of
expected cash flows discounted at each loans initial effective interest rate. Provisions to the reserve for loan losses are charged against, or credited to, earnings in amounts
necessary to maintain an adequate reserve for loan losses. Commercial loans are charged-off when it
is determined that they cannot be fully recovered and non-commercial loans are generally
charged-off at the time of loan foreclosure. Recoveries of loans previously charged-off are
credited to the reserve for loan losses. The Company maintains its reserve for loan losses in accordance with a policy approved by the Board
of Directors. The Company has an established methodology for analyzing its reserve for loan losses
that includes an internal loan classification policy. The Company periodically reviews its 7




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED methodology to ascertain that it produces accurate assessments of probable loan losses.
Domestic and foreign loans are subjected to similar review procedures. While the Company believes its credit monitoring procedures are adequate, credit losses are,
however, inherent to the business, and it is possible there may be unidentified losses in the loan
portfolio at March 31, 2005 that may become apparent at a later date pursuant to additional
internal analysis or pursuant to comment following regulatory examination. The establishment of
loan loss reserves for problem credits that are currently unidentified or unanticipated would
negatively impact future earnings. A charge, if any is needed, would generally be recorded in the
segment in which the loan is recorded. Venture Capital Investments
Venture capital investments, which include both direct investments and investments in venture
capital funds, are accounted for at fair value with gains and losses included in noninterest income
in the Consolidated Statements of Operations. At March 31, 2005, the Company valued its venture capital portfolio at $33.6 million. This
valuation was arrived at considering a variety of factors including,
but not limited to: market prices, where available, and discounted, if necessary, to reflect trading history, lock-up
provisions, lack of market liquidity and other factors; cost, if there is no readily determinable
market price and there has not been a material event, such as a follow-on round of financing or
strategic sale; a value higher than cost if indicated by additional financing which fulfills
certain requirements; and analysis and commentary from a funds Investment Manager/General Partner. The Company, at present, does not intend to sell or liquidate the venture capital portfolio. The
valuation of venture capital investments is subject to uncertainty in that it does not represent a
negotiated value between the Company, as seller, and an independent and willing buyer that has the
necessary knowledge and financial ability to complete the purchase. Additionally, if the Company
attempted to sell its venture capital portfolio, particularly if it deemed it necessary to
liquidate the investments within a short period of time, the actual proceeds from the sale could be
significantly lower than the carrying value. Any loss on the disposition of these investments would
be recognized at the date of disposition in the Riggs Capital Partners segment. The market for the
type of venture capital investments held has, since 2000, been impacted by a slowing domestic
equity market in which the values of publicly traded companies declined and, because of these
market conditions, a decline in the number of initial public offerings and acquisitions of private
companies by publicly traded firms. Although these and other factors have been assessed in
determining the values, because of the subjectivity in determining values, it is possible that the
Company would experience a material loss if it chose to liquidate its venture capital portfolio,
particularly if it attempted to do so quickly. The loss, if any, would be recorded in the Riggs
Capital Partners segment. The gradual improvement in these sectors has begun to afford the Company
better liquidation opportunities and it continues to actively manage the portfolio to maximize
current valuations. In April 2005, PNC
Equity Management Corp. signed a letter of intent with a potential buyer to sell the Companys venture
capital investment portfolio. Riggs is not obligated to sell these investments. The transaction is
subject to the closing of the Companys merger with The PNC
Financial Services Group, Inc. (PNC). In accordance with the Companys venture
capital accounting policy as described above, the Company used the terms of
the proposed transaction in determining the March 31, 2005 fair value of its venture capital
investment portfolio. As of March 31, 2005, the Company estimated the fair value of its venture
capital investments to be $33.6 million, which is reflected in the Consolidated Statements of
Condition. After taking into consideration the estimated fair value of venture capital investments
as of March 31, 2005, the Company recorded a $4.3 million
net reduction in carrying value on these investments for the
three months ended March 31, 2005. Income Taxes and Deferred Tax Assets
The Company records a provision for income taxes based upon the amount of current taxes payable (or
refundable) and the change in net deferred tax assets or liabilities during the year. Deferred tax
assets and liabilities are recognized for the effects of differing carrying values of assets and
liabilities for tax and financial statement reporting purposes that will reverse in future periods.
When substantial uncertainty exists concerning the recoverability of a deferred tax asset, the
carrying value of the asset is reduced by a valuation allowance. Establishing a valuation allowance
causes an increase in income tax expenses and requires significant judgment. Uncertainty related to the utilization of deferred tax amounts generated by domestic subsidiaries,
including foreign branches of domestic subsidiaries, resulted in a
maintenance of the valuation
allowance of $17.3 million and $9.0 million as of March 31, 2005 and 2004, respectively. Realized and unrealized losses in venture capital and other operations have resulted in the
maintenance of $11.5 million of deferred tax assets as of March 31, 2005. This includes an increase
in deferred tax assets of $1.7 million during the quarter ended
March 31, 2005. These assets can be
utilized to reduce taxes payable on future capital gains but must be utilized within five years of
the year in which the loss is realized for tax return purposes. As of
March 31, 2005, a valuation allowance of $1.8 million was
recorded against the deferred tax assets because it is not more likely
than not that such assets will be recovered within the required time period. This includes an
increase of $1.3 million during the quarter ended March 31, 2005. The Company believes that the
unreserved deferred tax asset balance of $9.7 million at March 31, 2005, which includes a deferred
tax asset related to 8




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED realized losses of $2.1 million, will be realized through generation of future net capital
gains within its venture capital operations or the implementation of alterative business strategies
that generate net capital gains. Management has identified several alterative business strategies
that could produce sufficient capital gains to allow the deferred tax asset balance to be realized,
including the sale of office buildings located in Washington, D.C. If sufficient net capital gains within the Companys venture capital operations are not realized in
a timely manner, or if business conditions or other factors make it impossible, impractical or
imprudent to implement alterative strategies, an additional valuation allowance, resulting in a
charge against income for that portion of the deferred tax asset that will not be utilized, will be
recorded in the Riggs Capital Partners segment. Gain and Loss Contingencies
The Company evaluates gain and loss contingencies in accordance with SFAS No. 5 (Accounting for
Contingencies) and, when necessary, FASB Interpretation No. 14 (Reasonable Estimation of the Amount
of a Loss, an interpretation of FASB Statement No. 5). Gain contingencies are not recognized in the financial statements until the gain is realized, but
the Company does evaluate the need to disclose such contingent gains in the notes to the financial
statements. Loss contingencies are categorized as remote, reasonably possible, or probable of
occurring. Contingent losses for which chances of occurrence are remote are neither recognized nor
disclosed in the financial statements. Reasonably possible loss contingencies are not recorded in the
financial statements but, if material, are disclosed in the notes to the financial statements. Loss
contingencies that are likely to occur are deemed probable of occurring. Probable loss
contingencies that are material are recorded as liabilities in the financial statements at the
estimated amount of the loss if such loss can be reasonably estimated. If no reasonable estimate of
the loss can be made, but a range of possible losses can be reasonably ascertained, the minimum
estimated loss will be accrued and the Company describes the accrual in its disclosure of the remaining loss
contingency. The determination that a contingency is remote, reasonably probable, or probable of occurring is
made by the Company based upon known and pertinent knowledge that is deemed reliable. Additional
information, or interpretations of knowledge previously deemed reliable, could become known at a
future date which may cause the Company to reassess its evaluation of the contingency occurring. For a discussion of the more significant risk factors that impact Riggs, or could impact Riggs, see
Item 7A of the Companys 2004 Annual Report on Form 10-K. Valuation of Assets and Liabilities Held for Sale
Assets and liabilities that are held for sale are valued at the lower of cost or market value.
Market values have been determined by a variety of methodologies which the Company deems
appropriate to arrive at an estimated fair value. The valuation of assets and liabilities held for
sale do not, however, represent a binding offer to purchase these assets and liabilities from a
willing and capable buyer. Actual proceeds from a sale, therefore, may be less than the carrying
values. NOTE 3:       PENDING MERGER On July 16, 2004, Riggs entered into an agreement to merge Riggs into PNC, an $83 billion financial services company based in Pittsburgh,
Pennsylvania. On February 10, 2005, Riggs and PNC amended and restated the Agreement and Plan of
Merger. Under the terms of the Merger Agreement, Riggs National Corporation will merge into PNC and
immediately thereafter substantially all the assets and liabilities of Riggs Bank will be acquired
by PNC Bank, National Association. The Amended and Restated Agreement and Plan of Merger, which, except for the change in the
consideration to be paid for Riggs shares is substantially similar to the original agreement,
values each share of Riggs common stock at approximately $20.00 based on PNCs closing NYSE stock
price of $54.58 on February 7, 2005. Riggs shareholders will be entitled to receive the merger
consideration in shares of PNCs common stock or in cash, subject to proration. The aggregate
consideration is composed of a fixed number of approximately 6.4 million shares of PNC common stock
and $286 million in cash in exchange for all 31.8 million Riggs common shares outstanding, subject
to adjustment. The actual value of the merger consideration to be paid upon closing will depend on
the average stock price of PNCs common stock for the five trading days prior to the merger and the
cash and stock components on a per Riggs share basis will be determined at that time based on the
average PNC common stock price so that each share of Riggs receives consideration representing
approximately equal value based on that average price. Riggs stock options will be cashed out prior
to closing if not exercised. Total consideration paid by PNC is expected to be approximately $654
million based upon PNCs stock value and the number of Riggs shares outstanding at the time of the
amended merger announcement. The transaction is expected
to close on or about May 13, 2005. On April 26, 2005 the
Board of Governors of the Federal Reserve System approved the
acquisition of Riggs by PNC. On April 25, 2005 the Office of the
Comptroller of the Currency approved the acquisition of
substantially all assets and liabilities of Riggs Bank by PNC Bank,
National Association. On May 6, 2005, Riggs shareholders
approved the acquisition of Riggs by PNC. The merger remains subject to customary
closing conditions, including the receipt of exemptions from the Department of Labor and the SEC to mitigate the potential business
impact of Riggs Banks plea agreement with the Department of Justice. 9




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The exemption sought from the
Department of Labor would allow PNC to retain qualified professional asset manager status and the
exemption sought from the Securities and Exchange Commission would allow PNC to continue to advise
registered mutual funds under Section 9 of the Investment Company Act of 1940, notwithstanding
Riggs Banks plea agreement with the Department of Justice. NOTE 4.       INTERNATIONAL EXIT ACTIVITIES During 2004, Riggs determined it would exit or sell all of its International Banking
businesses, including its London and Channel Islands banking subsidiaries and its embassy banking
operations. All embassy banking operations, and operations conducted at the Companys Edge Act
subsidiary in Miami, were terminated during 2004. In February 2005, the Company finalized the sale of its Channel Islands operations and certain
London operations to Bank Leumi of Israel at a net 2005 gain of approximately $0.4 million. Sale
costs related to this transaction incurred in 2004 totaled $971 thousand. Included in the sale were
credit, investment and deposit portfolios. In March 2005, Riggs sold a London office building it
owned at a pre-tax gain of $5.2 million over its adjusted carrying value. The gain on the sale of
the office building is included in Other Noninterest Income in continuing operations on the
Consolidated Statements of Operations. The net gain on the sale to Bank Leumi is included in
discontinued operations on the Consolidated Statements of Operations. Income and expense related to
the assets and liabilities held for sale at December 31, 2004 prior to the actual sale comprise the
remainder of discontinued operations activity for the quarter. A summary of the discontinued
operations activity for the first quarter 2005 and 2004 follows. DISCONTINUED
    
    
    DISCONTINUEDOPERATIONS
    
    
    OPERATIONS1 QTR 2005
    
    
    1 QTR 2004(IN THOUSANDS)Interest Income
    
    $
    881
    
    
    $
    1,270Interest Expense
    
    
    350
    
    
    
    550Net Interest Income
    
    
    531
    
    
    
    720Noninterest Income
    
    
    2,730
    
    
    
    286Noninterest Expense
    
    
    2,168
    
    
    
    885Income before Taxes
    
    
    1,093
    
    
    
    121Income Tax Expense (Benefit)
    
    
    201
    
    
    
    (53
    )Net Income
    
    $
    892
    
    
    $
    174
 As of March 31, 2005, there are no assets or liabilities related to the Companys exit from
International Operations that are classified as held for sale. As of December 31, 2004, certain
components of international operations were classified as held for sale. The Company determined
that these components were carried at lower of cost or market value in accordance with FASB
Statement No. 144, Accounting for Impairment and Disposal of Long-Lived Assets (FAS 144). The
results of operations of components of the businesses classified as held for sale or those that
have ceased operations are reported in discontinued operations at March 31, 2005 and December 31,
2004 and the components that are classified as held and used are reported in continuing operations
on the Consolidated Statements of Operations for the same period. The assets and liabilities classified as held for sale as of December 31, 2004 related to
international exit activities (with the exception of certain works of art associated with domestic
operations), and were included in the International segment. Assets held for sale totaled $196.6
million and were comprised primarily of loans in the amount of $163.4 million. Liabilities held for
sale totaled $70.7 million and were comprised primarily of interest-bearing deposits in the amount
of $69.9 million. In connection with the exit of the Companys international operations, the Company incurred the
following exit costs in the first quarter of 2005. For the year ended December 31, 2004 the Company
incurred exit costs in the amount of $24.8 million. These costs are detailed in Note 3 of Notes to
Consolidated Financial Statements in the Companys Form 10-K for the year ended December 31, 2004.
Exit costs were included in the International segment. Continuing
    
    
    Discontinued
    
    
    Total Exit(IN THOUSANDS)
    
    Operations
    
    
    Operations
    
    
    CostsWrite-off of Contractual Obligations
    
    $
    1,608
    
    
    $
    
    
    
    $
    1,608Lease Termination Costs
    
    
    1,031
    
    
    
    
    
    
    
    1,031Total
    
    $
    2,639
    
    
    $
    
    
    
    $
    2,639
 10




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Activity related to
international exit costs for the first quarter of 2005 follows: One-Time
    
    
    Write-off of
    
    
    LeaseTermination
    
    
    Contractual
    
    
    Termination(IN THOUSANDS)
    
    Benefits
    
    
    Obligations
    
    
    CostsBalance as of December 31, 2004
    
    $
    6,578
    
    
    $
    
    
    
    $
    Amounts accrued
    
    
    
    
    
    
    1,608
    
    
    
    1,031Amounts paid
    
    
    (2,875
    )
    
    
    (1,608
    )
    
    
    (1,031
    )Balance as of March 31, 2005
    
    $
    3,703
    
    
    $
    
    
    
    $
    
 As discussed in Note 13 of this Form 10-Q, the consulting actuary for the Companys U.K.
pension plan had estimated the future additional cost to the Company to satisfy its obligations
under the plan to be approximately $9.9 million. This $9.9 million was contributed to the plan in
December 2004, and is recorded as a prepaid pension asset as of December 31, 2004 and March 31, 2005. This $9.9 million will be charged to expense as annuity contracts are purchased to settle pension
liabilities. As
discussed in Note 1 of Notes to Consolidated Financial Statements in
the Company's Form 10K for the year ended December 31, 2004, the Company enters into foreign exchange
derivative contracts to manage its exchange risk associated with the translation of foreign
currency into U.S. dollars. As of March 31, 2005, the foreign exchange translation adjustment
associated with foreign subsidiaries totaled $4.4 million pre-tax and was recorded as a reduction
in shareholders equity. At the time foreign subsidiaries are officially closed and associated
foreign exchange derivative contracts have been settled, amounts recorded as adjustments to equity
will be charged. NOTE 5.     EARNINGS (LOSS) PER SHARE Earnings (loss) per share from continuing operations are as follows: THREE MONTHS ENDED
    
    
    THREE MONTHS ENDEDMARCH 31, 2005
    
    
    MARCH 31, 2004BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSIncome (Loss) from Continuing Operations
    
    $
    (29,548
    )
    
    $
    (29,548
    )
    
    $
    3,741
    
    
    $
    3,741Weighted-Average Shares Outstanding
    
    
    32,240,189
    
    
    
    32,240,189
    
    
    
    28,845,364
    
    
    
    28,845,364Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    1,055,821Adjusted Weighted-Average Shares Outstanding
    
    
    32,240,189
    
    
    
    32,240,189
    
    
    
    28,845,364
    
    
    
    29,901,185Earnings (Loss) Per Share-Continuing Operations
    
    $
    (0.92
    )
    
    $
    (0.92
    )
    
    $
    0.13
    
    
    $
    0.13
 Earnings per share from discontinued operations are as follows: THREE MONTHS ENDED
    
    
    THREE MONTHS ENDEDMARCH 31, 2005
    
    
    MARCH 31, 2004BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSNet Income from Discontinued Operations
    
    $
    892
    
    
    $
    892
    
    
    $
    174
    
    
    $
    174Weighted-Average Shares Outstanding
    
    
    32,240,189
    
    
    
    32,240,189
    
    
    
    28,845,364
    
    
    
    28,845,364Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    617,766
    
    
    
    n/a
    
    
    
    1,055,821Adjusted Weighted-Average Shares Outstanding
    
    
    32,240,189
    
    
    
    32,857,955
    
    
    
    28,845,364
    
    
    
    29,901,185Income Per Share-Discontinued Operations
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.01
 11




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Earnings (loss) per share are as follows: THREE MONTHS ENDED
    
    
    THREE MONTHS ENDEDMARCH 31, 2005
    
    
    MARCH 31, 2004BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSNet Income (Loss) Available to Common Shareholders
    
    $
    (28,656
    )
    
    $
    (28,656
    )
    
    $
    3,915
    
    
    $
    3,915Weighted-Average Shares Outstanding
    
    
    32,240,189
    
    
    
    32,240,189
    
    
    
    28,845,364
    
    
    
    28,845,364Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    1,055,821Adjusted Weighted-Average Shares Outstanding
    
    
    32,240,189
    
    
    
    32,240,189
    
    
    
    28,845,364
    
    
    
    29,901,185Earnings (Loss) Per Share
    
    $
    (0.89
    )
    
    $
    (0.89
    )
    
    $
    0.14
    
    
    $
    0.13
 All stock options were excluded from the calculation of diluted earnings per share (continuing
operations and net income (loss)) at March 31, 2005 because the effect would be anti-dilutive in
periods for which there is a loss. As of March 31, 2004, approximately 2.4 million stock
options were excluded from the calculation of diluted earnings per share because the effect would
have been anti-dilutive. The weighted average exercise price for these options was $14.45 per share
and $13.40 per share at the end of March 31, 2005 and 2004,
respectively. Stock-Based Employee Compensation Plans
At March 31, 2005, the Company had five stock-option plans which are described more fully in Note
15 of Notes to Consolidated Financial Statements in its 2004 Annual Report on Form 10-K. The
Company accounts for these plans under the recognition and measurement principles of APB Opinion
No. 25 (Accounting for Stock Issued to Employees), SFAS No. 148 (Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123) and related
interpretations. There is no stock-based compensation expense for these plans reflected in the
Consolidated Statements of Operations as all options granted under these plans had an exercise
price equal to the market value of the underlying common stock on the date of grant. The Company
has also awarded time vested and performance based restricted shares. Expense related to
time-vested and performance-based stock awards are reflected in the Consolidated Statements of
Operations. The following table illustrates the effect on net income (loss) and earnings (loss) per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 (Accounting for
Stock-Based Compensation) to stock-based employee compensation. EARNINGS PER SHARE (PRO FORMA) THREE MONTHSENDED MARCH 31(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
    
    2005
    
    
    2004Net income (loss), available to common shareholders, as reported
    
    
    ($28,656
    )
    
    $
    3,915Add: Stock-based employee compensation expense included in reported
net income, net of related tax effects
    
    
    113
    
    
    
    331Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    (775
    )
    
    
    (900
    )Pro forma net income (loss)
    
    
    ($29,318
    )
    
    $
    3,346Earnings (Loss) per share:Basic-as reported
    
    
    ($0.89
    )
    
    $
    0.14Basic-pro forma
    
    
    ($0.91
    )
    
    $
    0.12Diluted-as reported
    
    
    ($0.89
    )
    
    $
    0.13Diluted-pro forma
    
    
    ($0.91
    )
    
    $
    0.11
 All stock options were
excluded from the calculation of pro forma diluted earnings per share (for net income (loss)) at March 31, 2005 because the
effect would be anti-dilutive in periods for which there is a loss. Upon a change of control, as defined in the 2002 Long-Term Incentive Plan, all
options become fully vested. There were 2,002,648 stock options outstanding at March 31, 2005 with an exercise price range of $12.00 to $30.25 and
a weighted average exercise price of $15.80. In the first quarter of 2005, 53,403 stock options expired unexercised and 1,130,779 options were
exercised with a weighted average price of $14.60 and $14.09, respectively. 12




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 6.     OTHER COMPREHENSIVE INCOME (LOSS) BEFORE -
    
    
    TAXTAX
    
    
    (EXPENSE)
    
    
    NET-OF-TAXAMOUNT
    
    
    BENEFIT
    
    
    AMOUNTTHREE MONTHS ENDED MARCH 31, 2004:Foreign Currency Translation Adjustments
    
    $
    652
    
    
    $
    (228
    )
    
    $
    424Unrealized Gains on Securities:Unrealized Holding Gains Arising During Period
    
    
    17,121
    
    
    
    (5,909
    )
    
    
    11,212Reclassification Adjustment for Gains Realized in Net Income
    
    
    (227
    )
    
    
    80
    
    
    
    (147
    )Net Unrealized Loss on Securities
    
    
    16,894
    
    
    
    (5,829
    )
    
    
    11,065Unrealized Gains on Derivatives:Unrealized Holding Gains Arising During Period
    
    
    463
    
    
    
    (162
    )
    
    
    301Reclassification Adjustment for Gains Realized in Net Income
    
    
    
    
    
    
    
    
    
    
    Net Unrealized Gains on Derivatives
    
    
    463
    
    
    
    (162
    )
    
    
    301Other Comprehensive Loss
    
    $
    18,009
    
    
    $
    (6,219
    )
    
    $
    11,790THREE MONTHS ENDED MARCH 31, 2005:Foreign Currency Translation Adjustments
    
    $
    (974
    )
    
    $
    341
    
    
    $
    (633
    )Unrealized Losses on Securities:Unrealized Holding Losses Arising During Period
    
    
    (14,635
    )
    
    
    5,200
    
    
    
    (9,435
    )Reclassification Adjustment for Gains Realized in Net Income
    
    
    (565
    )
    
    
    198
    
    
    
    (367
    )Net Unrealized Losses on Securities
    
    
    (15,200
    )
    
    
    5,398
    
    
    
    (9,802
    )Unrealized Gains on Derivatives:Unrealized Holding Gains Arising During Period
    
    
    105
    
    
    
    (37
    )
    
    
    68Reclassification Adjustment for Gains Realized in Net Income
    
    
    
    
    
    
    
    
    
    
    Net Unrealized Gains on Derivatives
    
    
    105
    
    
    
    (37
    )
    
    
    68Other Comprehensive Loss
    
    $
    (16,069
    )
    
    $
    5,702
    
    
    $
    (10,367
    )
 Tax (expense) benefit reflects a blended tax rate of 35% for the gain (loss) recorded in the U.S. and 30% for the gain (loss) recorded in the U.K. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES UNREALIZEDGAIN (LOSS)
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    ACCUMULATEDON FOREIGN
    
    
    GAIN (LOSS)
    
    
    GAIN (LOSS)
    
    
    OTHERCURRENCY
    
    
    ON
    
    
    ON
    
    
    COMPREHENSIVETRANSLATIONS
    
    
    SECURITIES
    
    
    DERIVATIVES
    
    
    INCOME (LOSS)THREE MONTHS ENDED MARCH 31, 2004:Balance, December 31, 2003
    
    $
    (2,687
    )
    
    $
    (5,203
    )
    
    $
    (1,490
    )
    
    $
    (9,380
    )Period Change
    
    
    424
    
    
    
    11,065
    
    
    
    301
    
    
    
    11,790Balance, March 31, 2004
    
    $
    (2,263
    )
    
    $
    5,862
    
    
    $
    (1,189
    )
    
    $
    2,410THREE MONTHS ENDED MARCH 31, 2005:Balance, December 31, 2004
    
    $
    (2,396
    )
    
    $
    (8,925
    )
    
    $
    (54
    )
    
    $
    (11,375
    )Period Change
    
    
    (633
    )
    
    
    (9,802
    )
    
    
    68
    
    
    
    (10,367
    )Balance, March 31, 2005
    
    $
    (3,029
    )
    
    $
    (18,727
    )
    
    $
    14
    
    
    $
    (21,742
    )
 13




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 7:       SEGMENT INFORMATION The Companys reportable segments are strategic business units that provide diverse products
and services within the financial services industry. Riggs has five reportable segments: Banking,
International Banking, Treasury, Riggs Capital Partners (venture capital) and Other. The Company
accounts for and evaluates its segments on a functional basis, rather than a legal entity basis.
Accordingly, revenue and expenses from a single legal entity may impact multiple segments. Except for the utilization of funds transfer pricing and cost allocation methodologies, the
accounting policies for the segments are substantially the same as those described in Note 1 of
Notes to Consolidated Financial Statements in the Companys 2004 Annual Report on Form 10-K. Riggs
accounts for intercompany transactions as if the transactions were to third parties under market
conditions. Overhead and support expenses, which include depreciation expense, are allocated to
each operating segment based on number of employees, service usage and other factors relevant to
the expense incurred. Some depreciable assets are not allocated. Geographic financial information
is provided in Note 16 of Notes to Consolidated Financial Statements in the Companys 2004 Annual
Report on Form 10-K. Revenue and expense allocation formulas and funds transfer pricing methodologies may change. If
necessary, prior periods are restated to reflect material changes in the components of the
segments. Prior periods are not restated, however, to reflect changes in revenue and cost
allocations or funds transfer pricing methodologies. In addition, revenues and expenses which are
unusual or noncontrollable may be reflected in the Other segment, which is consistent with internal
financial reporting, if management believes such presentation most accurately represents the
remaining operating segments performance. Prior periods have been adjusted to reflect discontinued
operations as a result of the Companys 2004 decision to sell or exit its international operations. Reconciliations are provided from the segment totals to the consolidated financial statements. The
reconciliation of total average assets represents the elimination of intercompany transactions. Following are brief descriptions of the segments: Banking
The Banking Segment provides both community and wholesale banking services. Community banking
includes traditional branch banking operations, private banking to high net worth individuals,
small business banking, trust and broker-dealer services, mortgage and consumer lending, and
merchant card services. Wholesale banking provides banking services for middle market and
commercial real estate customers, not-for-profit organizations and government contractors.
Wholesale banking also provides cash management services, investment management services (through
Riggs Investment Advisors) and acts as trustee (through its Multi-Employer Property Trust unit, or
MEPT) to a commingled real estate fund. The Banking Segment operations at March 31, 2005 are primarily conducted through 51 branch offices
and 137 ATMs in and around Washington, D.C. International Banking
The International Banking Segment includes the Washington-based embassy banking business, the
London banking subsidiary, Riggs Bank Europe Ltd. (RBEL), and an Edge Act chartered subsidiary in
Miami. Among the services provided are letters of credit, foreign exchange, taking of deposits,
private banking and cash management. The International Banking segment also includes an
international private-client services division, which has offices in London and in Jersey (Channel
Islands), and Riggs Bank & Trust Company (Channel Islands), which provides credit, treasury and
investment management services to affluent international clients. The Edge Act chartered subsidiary in Miami and the Washington-based embassy banking business
terminated operations in 2004. And, as previously noted, in February 2005, Riggs sold its Channel
Islands operations and is winding down most of its London operations. Treasury
The Treasury Segment is responsible for asset and liability management throughout the Company,
including management of the securities portfolio, foreign exchange activities, wholesale funding,
overall management of interest rate risk and facilitation of the funds transfer pricing component
for segment reporting. 14




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Riggs Capital Partners
Riggs Capital Partners represents the Companys venture capital operations, which specialize in equity investments in privately-held
companies. Other
The Other Segment consists of unallocated parent company income and expense, net interest income from unallocated equity, long-term debt,
trust preferred securities, foreclosed real estate activities and other revenue or expenses not attributable to one of the other segments. THREE MONTHS
    
    
    
    
    
    
    
    
    
    
    
    
    
    RIGGS
    
    
    
    
    
    
    
    
    
    
    RIGGSENDED
    
    
    
    
    
    INTERNATIONAL
    
    
    
    
    
    
    CAPITAL
    
    
    
    
    
    
    
    
    
    
    NATIONALMARCH 31, 2005
    
    BANKING
    
    
    BANKING
    
    
    TREASURY
    
    
    PARTNERS
    
    
    OTHER
    
    
    RECONCILIATION
    
    
    CORPORATIONNET INTEREST INCOMEInterest Income
    
    $
    40,809
    
    
    $
    1,820
    
    
    $
    21,893
    
    
    $
    1
    
    
    $
    6,954
    
    
    $
    (11,928
    )
    
    $
    59,549Interest Expense
    
    
    5,381
    
    
    
    917
    
    
    
    20,117
    
    
    
    
    
    
    
    13,134
    
    
    
    (11,928
    )
    
    
    27,621Funds Transfer Income (Expense)
    
    
    (3,307
    )
    
    
    52
    
    
    
    81
    
    
    
    
    
    
    
    3,174
    
    
    
    
    
    
    
    Net Interest Income (Loss)
    
    
    32,121
    
    
    
    955
    
    
    
    1,857
    
    
    
    1
    
    
    
    (3,006
    )
    
    
    
    
    
    
    31,928Provision for Loan Losses
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500
    )Net Interest Income (Loss) after Provision
    
    $
    31,621
    
    
    $
    955
    
    
    $
    1,857
    
    
    $
    1
    
    
    $
    (3,006
    )
    
    $
    
    
    
    $
    31,428NONINTEREST INCOMENoninterest Income-External
Customers
    
    $
    18,597
    
    
    $
    5,494
    
    
    $
    (1,066
    )
    
    $
    (4,340
    )
    
    $
    3,237
    
    
    
    
    
    
    $
    21,922Intersegment Noninterest Income
    
    
    668
    
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    542
    
    
    
    (1,949
    )
    
    
    Total Noninterest Income
    
    $
    19,265
    
    
    $
    6,233
    
    
    $
    (1,066
    )
    
    $
    (4,340
    )
    
    $
    3,779
    
    
    $
    (1,949
    )
    
    $
    21,922NONINTEREST EXPENSEDirect Depreciation and Amortization
    
    $
    1,349
    
    
    $
    61
    
    
    $
    2
    
    
    $
    3
    
    
    $
    2,716
    
    
    
    
    
    
    $
    4,131Direct Expense
    
    
    23,524
    
    
    
    7,285
    
    
    
    881
    
    
    
    148
    
    
    
    57,161
    
    
    
    (1,949
    )
    
    
    87,050Overhead and Support
    
    
    31,794
    
    
    
    1,591
    
    
    
    1,145
    
    
    
    
    
    
    
    (34,530
    )
    
    
    
    
    
    
    Total Noninterest Expense
    
    $
    56,667
    
    
    $
    8,937
    
    
    $
    2,028
    
    
    $
    151
    
    
    $
    25,347
    
    
    $
    (1,949
    )
    
    $
    91,181Income (Loss) Before Taxes and
Minority Interest
    
    $
    (5,781
    )
    
    $
    (1,749
    )
    
    $
    (1,237
    )
    
    $
    (4,490
    )
    
    $
    (24,574
    )
    
    $
    
    
    
    $
    (37,831
    )Taxes
    
    $
    (3,163
    )
    
    $
    (2,243
    )
    
    $
    (439
    )
    
    $
    (494
    )
    
    $
    (3,043
    )
    
    
    
    
    
    $
    (9,382
    )Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    1,086
    
    
    
    
    
    
    
    1,099Income (Loss) from Continuing Operations
    
    $
    (2,618
    )
    
    $
    494
    
    
    $
    (798
    )
    
    $
    (4,009
    )
    
    $
    (22,617
    )
    
    $
    
    
    
    $
    (29,548
    )Income from Discontinued Operations, net of taxes
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    892Net Income (Loss)
    
    $
    (2,618
    )
    
    $
    1,386
    
    
    $
    (798
    )
    
    $
    (4,009
    )
    
    $
    (22,617
    )
    
    $
    
    
    
    $
    (28,656
    )Total Average Assets
    
    $
    3,542,179
    
    
    $
    258,189
    
    
    $
    2,842,145
    
    
    $
    41,569
    
    
    $
    626,263
    
    
    $
    (1,421,255
    )
    
    $
    5,889,090
 15




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED THREE MONTHS
    
    
    
    
    
    
    
    
    
    
    
    
    
    RIGGS
    
    
    
    
    
    
    
    
    
    
    RIGGSENDED
    
    
    
    
    
    INTERNATIONAL
    
    
    
    
    
    
    CAPITAL
    
    
    
    
    
    
    
    
    
    
    NATIONALMARCH 31, 2004
    
    BANKING
    
    
    BANKING
    
    
    TREASURY
    
    
    PARTNERS
    
    
    OTHER
    
    
    RECONCILIATION
    
    
    CORPORATIONNET INTEREST INCOMEInterest Income
    
    $
    36,403
    
    
    $
    4,480
    
    
    $
    17,502
    
    
    $
    1
    
    
    $
    5,335
    
    
    $
    (5,574
    )
    
    $
    58,147Interest Expense
    
    
    3,003
    
    
    
    3,503
    
    
    
    6,496
    
    
    
    
    
    
    
    10,350
    
    
    
    (5,574
    )
    
    
    17,778Funds Transfer Income (Expense)
    
    
    2,899
    
    
    
    7,431
    
    
    
    (10,617
    )
    
    
    
    
    
    
    287
    
    
    
    
    
    
    
    Net Interest Income (Loss)
    
    
    36,299
    
    
    
    8,408
    
    
    
    389
    
    
    
    1
    
    
    
    (4,728
    )
    
    
    
    
    
    
    40,369Provision for Loan Losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Interest Income (Loss) after Provision
    
    $
    36,299
    
    
    $
    8,408
    
    
    $
    389
    
    
    $
    1
    
    
    $
    (4,728
    )
    
    $
    
    
    
    $
    40,369NONINTEREST INCOMENoninterest Income-External
Customers
    
    $
    21,651
    
    
    $
    1,300
    
    
    $
    1,359
    
    
    $
    (168
    )
    
    $
    1,105
    
    
    
    
    
    
    $
    25,247Intersegment Noninterest Income
    
    
    626
    
    
    
    1,686
    
    
    
    
    
    
    
    
    
    
    
    477
    
    
    
    (2,789
    )
    
    
    Total Noninterest Income
    
    $
    22,277
    
    
    $
    2,986
    
    
    $
    1,359
    
    
    $
    (168
    )
    
    $
    1,582
    
    
    $
    (2,789
    )
    
    $
    25,247NONINTEREST EXPENSEDirect Depreciation and Amortization
    
    $
    1,147
    
    
    $
    273
    
    
    $
    1
    
    
    $
    3
    
    
    $
    2,795
    
    
    
    
    
    
    $
    4,219Direct Expense
    
    
    22,658
    
    
    
    7,655
    
    
    
    1,104
    
    
    
    154
    
    
    
    26,451
    
    
    
    (2,789
    )
    
    
    55,233Overhead and Support
    
    
    19,565
    
    
    
    4,000
    
    
    
    476
    
    
    
    
    
    
    
    (24,041
    )
    
    
    
    
    
    
    Total Noninterest Expense
    
    $
    43,370
    
    
    $
    11,928
    
    
    $
    1,581
    
    
    $
    157
    
    
    $
    5,205
    
    
    $
    (2,789
    )
    
    $
    59,452Income (Loss) Before Taxes and
Minority Interest
    
    $
    15,206
    
    
    $
    (534
    )
    
    $
    167
    
    
    $
    (324
    )
    
    $
    (8,351
    )
    
    $
    
    
    
    $
    6,164Taxes
    
    $
    5,321
    
    
    $
    590
    
    
    $
    59
    
    
    $
    
    
    
    $
    (4,290
    )
    
    $
    
    
    
    $
    1,680Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    746
    
    
    
    
    
    
    
    743Income (Loss) from Continuing Operations
    
    $
    9,885
    
    
    $
    (1,124
    )
    
    $
    108
    
    
    $
    (321
    )
    
    $
    (4,807
    )
    
    $
    
    
    
    $
    3,741Income (Loss) from Discontinued Operations, net of taxes
    
    
    
    
    
    
    174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174Net Income (Loss)
    
    $
    9,885
    
    
    $
    (950
    )
    
    $
    108
    
    
    $
    (321
    )
    
    $
    (4,807
    )
    
    $
    
    
    
    $
    3,915Total Average Assets
    
    $
    3,656,410
    
    
    $
    648,995
    
    
    $
    2,411,997
    
    
    $
    45,501
    
    
    $
    683,326
    
    
    $
    (1,252,106
    )
    
    $
    6,194,123
 NOTE 8:       ACCOUNTING FOR DERIVATIVES See Note 1 to the
Consolidated Financial Statements included in the Companys 2004 Annual Report on
Form 10-K for a summary of accounting policies related to derivatives. Riggs hedges cash flow risks using interest rate swaps and forward foreign currency exchange
contracts (cash flow hedges). Interest rate swaps are used to hedge exposure to variability in
expected future cash flows on floating rate assets and liabilities attributable to changes in
interest rates. At March 31, 2005, the Company was a party to two such interest rate swaps with a
total notional value of $15.8 million, compared to seven interest rate swaps with a total notional
value of $47.2 million at March 31, 2004. Foreign currency forward contracts are used to hedge the
foreign currency exchange risk associated with principal and interest payments on loans denominated
in a foreign currency. Riggs was not a party to any of these contracts at the end of the first
quarter of 2005 or 2004. No income or expense relating to the ineffective portion of any cash flow
hedge was recorded in the first quarter of either 2005 or 2004. Gains or losses on derivatives that are reclassified from accumulated other comprehensive income to
current income or expense are reported as components of the income or expense associated with the
hedged asset or liability. At March 31, 2005, there was a net
gain of $93 thousand on an interest rate swap that was deferred in
accumulated other comprehensive income. At April 26, 2005, this net
deferred gain had declined to $73 thousand which was reclassified to
current income upon termination of the contract. The maximum term over which the Company was
hedging its exposure to the variability of cash flows was
four months as of March 31, 2005 and fifteen
months as of March 31, 2004. 16




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Forward foreign currency exchange contracts also are used to hedge substantially all of the
Companys net investment in a foreign subsidiary in the United Kingdom. The purpose of this hedge
is to protect against adverse movements in the exchange rate between the dollar and the pound
sterling. The notional value of the contract in force at March 31, 2005 was $74.5 million compared
to $77.7 million at the end of the first quarter of 2004. Net deferred losses of $447 thousand and
$227 thousand related to this contract are included in accumulated other comprehensive income at
March 31, 2005 and 2004, respectively. Certain other derivative instruments are used to manage interest rate and foreign currency exchange
risk that are not designated to hedge specific relationships. At March 31, 2005, the Company was a
party to six forward currency exchange contracts with a notional value of $2.1 million, compared to
eight interest rate contracts and eight forward currency exchange contracts with a total notional
value of $32.6 million at March 31, 2004. The Companys net liability under these contracts at
March 31, 2005 and 2004 was carried in the accounts at a value
of -0- and $116 thousand,
respectively. These instruments are marked to market value through current period earnings and
gains of $75 thousand and $85 thousand were included in non-interest income in the first quarter of
2005 and 2004, respectively. NOTE 9:       CONSENT ORDER, CIVIL MONEY PENALTY AND OTHER MATTERS In July 2003, Riggs Bank N.A. (the Bank or Riggs Bank) entered into a Stipulation and Consent
to the Issuance of a Consent Order and a Consent Order (the July 2003 Consent Order) with the
Office of the Comptroller of the Currency (the OCC). The provisions of the July 2003 Consent Order
are effective until such time as they are amended, suspended, waived or terminated by the OCC. The
July 2003 Consent Order requires Riggs Bank to take various actions to ensure compliance and
improve the monitoring of compliance with the Bank Secrecy Act and related rules and regulations
(BSA). In May 2004, Riggs Bank entered into an additional Stipulation and Consent to the Issuance of a
Consent Order and a Consent Order (the May 2004 Consent Order) with the OCC which supplements, but
does not replace, the July 2003 Consent Order. At the same time, Riggs Bank entered into a Consent
Order of Civil Money Penalty with the OCC and a Consent to the Assessment of Civil Money Penalty
with the Financial Crimes Enforcement Network and was assessed and paid a civil money penalty of
$25 million. These consents were entered into as a result of the banking regulators allegations
that Riggs Bank (1) violated the BSA and related rules and regulations, (2) failed to comply with
the July 2003 Consent Order and (3) failed to implement adequate controls to ensure that Riggs Bank
operates in a safe and sound manner with respect to BSA compliance. The May 2004 Consent Order
requires Riggs Bank to take various actions as more fully described in the next paragraph, with
respect to BSA compliance. Among the more significant OCC-required actions Riggs Bank is required to take under the May 2004
Consent Order are (1) a review and evaluation of the adequacy of Riggs Banks staffing skills and
levels with regard to meeting its obligations under the consent order, (2) an evaluation of Riggs
Banks books, records and information systems relative to the BSA and related rules and regulations
and development of a plan to correct any noted deficiencies, (3) adoption, implementation and
adherence to written policies for internal controls applicable to account relationships and related
staffing, (4) the adoption of a dividend policy with respect to Riggs Bank which requires
regulatory approval prior to the declaration of a dividend and (5) adoption, implementation and
adherence to an internal audit program that, among other things, is adequate to detect
irregularities in Riggs Banks operations, determine Riggs Banks compliance with all applicable
laws, rules and regulations and evaluates adherence to established policies and procedures. The May
2004 Consent Order also requires that Riggs Bank review previously filed Suspicious Activity
Reports (SARs) and Currency Transaction Reports (CTRs) to ascertain that those reports were
accurately filed and to review the activity from January 1, 2001 in all accounts identified as high
risk to ensure that SARs and CTRs have been filed as appropriate. In January 2005, Riggs Bank entered into a Stipulation and Consent to the Issuance of Modification
of Existing Consent Order (the January 2005 Consent Order) with the OCC, which supplements, but
does not replace, the May 2004 Consent Order. Among the more significant OCC-required actions Riggs
Bank is required to take under the January 2005 Consent Order are (1) updating the management
review conducted pursuant to the May 2004 Consent Order, (2) developing capital, strategic and
contingency plans, (3) taking steps to ensure the maintenance and availability of all records, and
(4) paying a dividend to Riggs only if Riggs Bank is in compliance with its capital plan and upon
the prior approval of the OCC. 17




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In May 2004, Riggs and Riggs International Banking Corporation (RIBC), Riggs Banks former
Miami Edge Act subsidiary, entered into a Cease and Desist Order (the May 2004 Cease and Desist
Order) with the Federal Reserve which generally requires that (1) Riggs hire an independent
consultant to review the functions and performance of the Board of Directors and senior management,
(2) Riggs Board of Directors submit a plan to the Federal Reserve Bank of Richmond to strengthen
board oversight of the management and operations of Riggs and its subsidiaries, (3) Riggs submit to
the Federal Reserve Bank of Richmond a plan to improve the risk management practices of Riggs and
its subsidiaries, and (4) Riggs submit to the Federal Reserve Bank of Richmond an internal audit
program. The May 2004 Cease and Desist Order also generally requires that (1) RIBC submit a plan to
the Federal Reserve Bank of Atlanta to ensure compliance with all applicable provisions of the BSA
and related rules and regulations, (2) RIBC submit to the Federal Reserve Bank of Atlanta a
customer due diligence program (3) RIBC engage the services of a qualified independent firm to
conduct a review of account and transaction activity to determine whether suspicious activities in
accounts, if any, were properly identified and reported, and (4) RIBC submit a plan to the Federal
Reserve Bank of Atlanta to ensure compliance with regulations of the U.S. Department of the
Treasurys Office of Foreign Assets Control. Once such plans are approved by the Federal Reserve
Bank of Richmond and the Federal Reserve Bank of Atlanta, as the case may be, the May 2004 Cease
and Desist Order required that Riggs and RIBC, as the case may be, adopt and comply with such
plans. The May 2004 Cease and Desist Order did not impose a monetary penalty, but did require,
however, that Riggs obtain prior approval of the Federal Reserve Bank of Richmond and the Director
of the Division of Banking Supervision and Regulation of the Federal Reserve prior to declaring or
paying dividends, paying interest on its trust preferred securities or acquiring its own stock. As
noted in Riggs Form 10-Q for the quarterly period ended September 30, 2004, RIBC terminated
business operations during the third quarter of 2004. In January 2005, Riggs entered into a new Cease and Desist Order (the January 2005 Cease and Desist
Order) with the Federal Reserve. The January 2005 Cease and Desist Order replaces the May 2004
Cease and Desist Order, which was terminated by the Federal Reserve. Under the January 2005 Cease
and Desist Order, Riggs is required to, among other thing, (1) continue to implement the plans
required by the May 2004 Cease and Desist Order to strengthen management, board oversight and risk
management, (2) develop capital, strategic and contingency plans, (3) continue to implement and
enhance its internal audit program, and (4) ensure the maintenance and availability to supervisory
authorities of all records of RIBC. In addition, as required by the May 2004 Cease and Desist
Order, Riggs has agreed to continue to obtain the prior approval of the Federal Reserve in order to
pay dividends on its common stock, pay distributions on its trust preferred securities and
repurchase stock. As previously disclosed, due to the desire of Riggs to retain the strongest
possible capital levels at both Riggs and Riggs Bank, Riggs has suspended the payment of its
dividend on common stock and distributions on its trust preferred securities. Primarily as a direct result of the above noted BSA criticisms, each of Riggs Bank and Riggs has
been designated as being in a troubled condition by the OCC and the Federal Reserve,
respectively. A bank or bank holding company that is classified as being in a troubled condition
must have any new director or executive officer approved in advance by the OCC or Federal Reserve,
as the case may be, and is subject to restrictions on making severance payments to its directors,
officers and employees under the Federal Deposit Insurance Corporations (FDIC) golden parachute
regulations. In addition, entities that are in a troubled condition are subject to increased
regulatory supervision. The increased regulatory supervision has resulted and is expected to
continue to result in more frequent and intensive examinations. The results of these examinations,
as well as changes in circumstances, or the failure of Riggs and Riggs Bank to comply with the
Consent Orders and the Cease and Desist Order could result in amended or additional regulatory
sanctions and civil money penalties. In response to the regulatory concerns which led to Riggs Bank entering into the July 2003 Consent
Order with the OCC, Riggs Bank undertook numerous actions including, among others, (i) the
establishment of Riggs Banks Compliance & Security Department and the hiring of qualified
individuals with compliance and investigative experience; (ii) the implementation of policies and
procedures that govern account opening, monitoring and reporting processes; (iii) the creation of a
board-level BSA Compliance Committee, which oversees Riggs
Banks implementation of its BSA/AML (anti-money laundering)
compliance program (iv) the reconstitution of Riggs Banks BSA Management Committee, which provides
leadership and coordinated supervision of Riggs Banks BSA/AML initiatives and attempts to ensure
that regulatory issues are communicated promptly and addressed effectively; (v) the formation of
Riggs Banks Suspicious Activity Reporting Committee, which reviews investigative reports and
determines if SARs should be filed; (vi) the modification of Riggs Banks new EPS technology
platform, to provide for a more sophisticated technological foundation for the advanced BSA systems
and capabilities being implemented at Riggs Bank; (vii) the implementation of software upgrades to
improve the detection, monitoring and reporting of suspicious activity; and (viii) the
implementation of new and extensive in-house training on compliance with the BSA, the USA Patriot
Act, Customer Identification Programs, suspicious activity identification, and related policies to
attempt to ensure that Riggs Banks employees, officers and directors are adequately informed of,
and properly trained to carry out, Riggs Banks compliance policies and procedures. Riggs Bank has undertaken a revised plan of corrective action in response to the May 2004 OCC
Consent Order, the January 2005 Consent Order, the January 2005 Cease and Desist Order and the
civil money penalty orders entered into in May 2004. 18




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Pursuant to the revised plan of corrective action, on July 7, 2004, Riggs approved numerous
policies and procedures for enhancing Riggs Banks BSA internal controls applicable to Riggs Banks
account relationships and related staffing needs. In addition, in July 2004, Riggs approved
policies and procedures related to Riggs internal audit and risk management procedures as well as
BSA and anti-money laundering controls at RIBC. Riggs Bank has implemented several mechanisms to
attempt to ensure effective implementation of Riggs Banks BSA internal control policies and
procedures. The BSA Compliance Committee of the Board of Directors of Riggs Bank currently receives
tracking reports at each of its meetings from management on managements progress in implementing
these policies and procedures. These tracking reports are also being reviewed by an outside
consultant retained by Riggs Bank to assess Riggs Banks progress. Riggs Banks has also developed detailed plans to implement the BSA internal control policies and
procedures. The plans outline specific action steps that must be taken to implement the policies
and procedures and include a process for validations. The plans also specify the Bank management
responsible for completing each action step, as well as the date by which each step is expected to
be completed. In addition, Riggs Bank has made numerous changes to its internal audit function to attempt to
ensure the integrity and effectiveness of the Banks BSA compliance policies and procedures. To
improve its BSA internal audit process, in March 2004, the Banks management revised its BSA
internal audit plan. Upon learning of the deficiencies cited by the OCC in the BSA internal audits, Riggs Bank actively
sought to remedy the audit deficiencies and develop an internal audit program sufficient in scope
to attempt to ensure effective testing of the Banks BSA compliance policies and procedures. Riggs
Bank replaced its outsourced internal audit provider in June 2004 and retained an outside
consultant in August 2004 to provide outsourced internal audit management services and to provide
quality assurance reviews of Riggss outsourced internal audits, including Riggss outsourced BSA
internal audits. In August 2004, Riggs Bank hired an internal audit liaison manager to oversee and coordinate the
Banks outsourced internal audit function. In October 2004, the Banks internal audit department
engaged a BSA audit compliance expert to further assist the Bank in overseeing the audits of its
BSA compliance policies and procedures. In addition, in September 2004, the Bank named an interim
Chief Risk Officer. Finally, to attempt to provide that immediate actions are undertaken to remedy deficiencies cited
in internal audit reports, these reports, including BSA internal audit reports, are submitted to
the Audit Committees of the Boards of Directors of Riggs Bank and Riggs and discussed at Audit
Committee meetings. The Internal Audit Liaison Manager tracks reportable findings until their
resolution and provides interim progress updates to the Audit Committee. In addition to the actions taken by Riggs Bank described above to improve the Banks BSA-related
internal controls and internal audit function, Riggs Bank has undertaken numerous steps to attempt
to increase the effectiveness of Riggs Banks compliance with the BSA. These actions include, among
others (i) the implementation of enhanced suspicious activity monitoring and reporting processes;
(ii) the implementation of policies and procedures to attempt to ensure that the Banks books and
records, including electronic information systems, are maintained in a complete and accurate
condition; (iii) the implementation of policies and procedures to verify that information required
by the BSA is appropriately documented, filed and maintained, and also sets forth the necessary
actions to correct and verify any inaccurate or incomplete books and records; (iv) revising the
Banks policies and procedures for SAR filings; and (v) the hiring of Lawrence Connell, a former
bank regulator, who has senior management responsibility for overall compliance with the OCC
Consent Orders and the Federal Reserve Cease and Desist Order and is the Banks chief regulatory
liaison. Riggs BSA-related regulatory problems have significantly increased its costs of doing business and
Riggs expects to continue to incur significant expenses in connection therewith. For the first
quarter of 2005, Riggs incurred approximately $16.8 million of consulting costs, merger costs,
legal costs and audit costs, a large part of which was attributable to BSA matters. Because it has
been designated as being in a troubled condition, Riggs Banks FDIC quarterly insurance assessment
increased from approximately $136 thousand for the first quarter of 2004 to approximately $1.6
million for the first quarter of 2005. The July 2003 Consent Order is included in a Current Report on Form 8-K dated July 17, 2003. The
May 2004 OCC Consent Order, the OCC Consent Order of Civil Money Penalty, the May 2004 Cease and
Desist Order and the Assessment of Civil Money Penalty of the Financial Crimes Enforcement Network
are each included in a Current Report filed by Riggs on Form 8-K dated May 17, 2004. The January
2005 Consent Order and January 2005 Cease and Desist Order are each included in a Current Report
filed by Riggs on Form 8-K dated January 27, 2005. 19




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 10:       LEGAL PROCEEDINGS On January 27, 2005, pursuant to an agreement with the United States Attorney for the District
of Columbia and the Department of Justice, Riggs Bank pled guilty to a single felony count of
failing to file timely and/or accurate Suspicious Activity Reports as required by the BSA and its
implementing regulations in connection with certain customer transactions in Riggs Banks
now-discontinued embassy banking and international private banking businesses. Under the agreement,
Riggs Bank agreed to pay a $16 million fine to federal authorities, and has agreed to a five-year
period of corporate probation upon sentencing and the entry of an order of conviction. The
five-year period of corporate probation would terminate immediately upon the closing of the
acquisition of Riggs by PNC or any other change of control transaction. The agreement confirms that
the United States will not bring any additional criminal charges against Riggs Bank, Riggs, or any
related entity in connection with any matters arising from the conduct related to the
now-discontinued embassy banking and/or international private banking businesses of Riggs. The
agreement also reflects that Riggs fully cooperated with the investigation that was conducted by
the United States Attorney for the District of Columbia and the Department of Justice and that
Riggs own internal investigation uncovered wrongdoing that was the subject of the guilty plea. On
March 29, 2005, the United States District Court for the District of Columbia accepted the
agreement and sentenced Riggs Bank in accordance with the terms of the agreement. The payment,
which was made in March 2005, was covered by a $16 million reserve accrued as of December 31, 2004.
The guilty plea and the sentencing could have adverse effects on the business of the Company and
the Bank. A copy of the agreement with the United /States Attorney for the District of Columbia and
the Department of Justice and certain other documents related to the agreement are included on a
Current Report filed by Riggs on Form 8-K dated January 27, 2005. Riggs remains subject to numerous investigations by, and inquiries from, various U.S., foreign and
other governmental agencies and authorities. Some of the investigations and inquiries also involve
current or former employees of Riggs. Riggs understands that these investigations and inquiries (to
which there are generally no specified time periods) include, among other things, accounts
associated with Equatorial Guinea, Saudi Arabia and Augusto Pinochet
Ugarte (Pinochet), Riggs AML and BSA compliance, the use of Riggs Banks airplane and other
property and personnel, and the activities of the former Chief Risk Officer of Riggs both while at
Riggs and at the OCC. Riggs is currently in the process of its own review of these matters. The U.S. Senate Permanent Subcommittee on Investigations (the PSI Committee) is conducting an
investigation of certain matters relating to Riggs including those relating to Equatorial Guinea,
Pinochet, BSA/AML Compliance and the former Chief Risk Officer of Riggs. This investigation
formally commenced in March of 2003. The PSI minority staff issued a report on July 15, 2004 in
conjunction with a hearing the PSI held that same day. The PSI released a revised version of this
staff report on September 24, 2004, then on October 15, 2004, PSI issued a Print of the July 15,
2004 hearing which included a revised version of the minority staff report. A follow-up staff
report was issued on March 16, 2005. Riggs has been cooperating with this investigation, which has
included providing documents and materials. The U.S. Senate Committee on Governmental Affairs is conducting an investigation regarding Riggs.
It has requested various documents and materials from Riggs principally concerning accounts related
to Saudi Arabia and related persons as well as BSA/AML compliance. This investigation was formally
commenced in April of 2004. Riggs has been cooperating with this investigation, which has included
providing documents and materials. The OCC and the Federal Reserve have been reviewing various matters at Riggs, including the
activities of certain current and former employees. These matters appear to include the accounts
associated with Pinochet, accounts associated with Saudi Arabia, BSA/AML compliance, compensation,
and the use of Riggs Banks airplane and other property and personnel. Riggs has been cooperating
with these reviews, which has included providing documents, audio recordings of Board meetings and
other materials. The OCC is also continuing to review the involvement of employees, officers and directors of Riggs
Bank in connection with its compliance with AML laws and regulations and its July 2003 Consent
Order with the OCC and is considering whether to institute a civil money penalty proceeding against
such individuals. In connection with that review, Riggs Banks directors and certain officers, as
well as two former officers, have been afforded the opportunity by the OCC to submit information to
the OCC and have done so. Riggs has received a subpoena from the District Attorney of the County of New York requesting
various documents and material relating to Equatorial Guinea and related interests and a similar
request from the Fort Worth District Office of the Securities and Exchange Commission and is
cooperating and complying with each of the foregoing. The U.K. Financial Services Authority has
also made various inquiries regarding certain activities related to accounts associated with
Pinochet and related persons in the Riggs London operations. 20




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Office of the Inspector General of the U.S. Treasury Department has served three subpoenas
on Riggs, seeking, among other things, materials and documents related to Riggs former Chief Risk
Officer. Riggs understands that the DOJ is reviewing the activities of Riggs former Chief Risk
Officer both while at Riggs and the OCC. On April 7, 2004 and April 28, 2004, Riggs shareholders filed substantially similar purported
derivative actions in the Court of Chancery of the State of Delaware in and for New Castle County
against certain current and former members of Riggs Board of Directors. On April 17, 2004, Riggs
shareholders filed a purported derivative action in the Superior Court of the District of Columbia
against certain current and former members of Riggs Board of Directors, substantially similar to
the actions filed by Riggs shareholders in the Court of Chancery of the State of Delaware in and
for New Castle County. The complaints each allege that the directors violated their fiduciary
duties in relation to a variety of matters, including, among others, the compliance by Riggs with
various anti-money laundering laws and various aspects of Riggs Banks international and embassy
businesses. The lawsuits each seek, on behalf of Riggs, among other things, monetary damages and
certain types of equitable relief. The two Delaware actions have been consolidated and on November
19, 2004 the plaintiffs filed a consolidated and amended complaint challenging the terms of the
original merger agreement. The consolidated and amended complaint repeated and supplemented the
allegations and claims in the original purported derivative actions and added a shareholder class
action claim against the directors. The consolidated and amended complaint also sought to enjoin
the PNC transaction on the grounds that the proxy statement (which was preliminary at the time) did
not adequately disclose the alleged breaches by the directors and their real, allegedly
self-interested, reasons for the transaction. On January 31, 2005, the defendants filed a motion to
dismiss the Delaware action in its entirety. On February 22, 2005, the plaintiffs filed a second
amended complaint that added a class claim against the Riggs directors asserting that the directors
violated their fiduciary duties by failing to auction Riggs after PNC allegedly attempted to
abandon the original merger. On February 25, 2005, Riggs and PNC entered into an agreement in principle with plaintiffs counsel
to settle the Delaware action. In the settlement, PNC will contribute $2.7 million in cash into a
settlement fund to be distributed to all public stockholders of Riggs (other than persons named as
defendants in the Delaware action and their affiliates). In addition, PNC has agreed that the
maximum amount of the termination fee payable under the parties amended merger agreement will be
reduced from $30 million to $23 million, and plaintiffs counsel in the action was afforded the
opportunity to review and comment on the proxy statement/prospectus relating to the merger before
it was filed on February 25, 2005. The settlement will provide for a dismissal of the Delaware
litigation with prejudice and the complete release of all claims that Riggs and Riggs stockholders
may have during the period from July 15, 2004 through the completion of the merger against Riggs,
the Riggs director defendants or PNC, which arise out of, or relate to, Riggs banking practices or
the proposed merger. The settlement is subject to completion of the merger and customary
conditions, including negotiation of a definitive settlement agreement and approval by the Delaware
Court of Chancery. The payment is covered by $2.7 million reserve accrued as of December 31, 2004. On September 16, 2004, Judge Don Baltasar Garzon, Magistrate-Judge of the Central Investigative
Court Number 5 of the Audiencia Nacional in Spain (the Spanish Court), allowed a complaint to be
brought against seven current or former directors or employees of Riggs as defendants
(collectively, the individual defendants) for the alleged concealment of assets and money
laundering offenses. The Magistrate Judge allowed such complaint to be pursued within the already
existing summary proceeding concerning a criminal complaint instituted in 1996 against Pinochet on
behalf of the alleged victims of Pinochets alleged genocide, terrorism and torture. Riggs and
Riggs Bank have been added as a defendant with subsidiary civil liability in the amount of
approximately $13 million in the event that the individual defendants do not satisfy any monetary
judgment entered against them. In addition, the Spanish Court resolved to send letters rogatory (a
judicial request) to the United States Attorney General in order that, among other things, a
preventive attachment order be issued on the assets of Riggs Bank, Riggs and certain individual
defendants to post the above mentioned sum as a bond. Riggs has also been provided with a draft of
a complaint that may be filed in a related U.S. action. The draft complaint makes allegations
similar to those made in the Spanish suit and seeks, among other things, compensatory and punitive
damages. On February 25, 2005, the Spanish Court issued an order in the previously disclosed Spanish
litigation dismissing all criminal and civil claims against Riggs and seven of its former and
current directors and officers. The Spanish Courts order also dissolves related orders including
the previously disclosed letters rogatory that the Spanish Court resolved to send to the United
States Attorney General. The Spanish Courts order was issued in connection with a settlement entered into on January 27,
2005 between Riggs and the private plaintiffs who had initiated the Spanish proceedings against the
Riggs defendants under which Riggs agreed to pay $8 million and to provide the plaintiffs,
consistent with Riggs legal obligations, information concerning Pinochets accounts at Riggs. The
payment, which was made in March 2005, was covered by the previously disclosed $8 million
litigation reserve accrued as of December 31, 2004. 21




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED On March 10, 2005, the Fundacion Presidente Allende (the Fundacion) filed a petition in the
United States District Court for the District of Columbia seeking an order requiring Riggs to
produce certain documents for use in an action brought by the Fundacion against Augusto Pinochet in
Spain. The court granted the requested relief on March 21, 2005, and Riggs is complying with the
courts order. On November 18, 2004, Freeport Partners, LLC filed a class action suit against current and former
members of Riggs and Riggs Banks boards of directors in the United States District Court for the
District of Columbia. The complaint asserts that Riggs allegedly deficient AML program resulted in
violations by the defendants of the Racketeer Influenced and Corrupt Organization Act and breaches
by the defendants of their fiduciary duties. The lawsuit seeks, among other things, recovery of
economic damages and attorneys fees. On or about February 17, 2005 the defendants filed a motion
to dismiss the complaint. On March 14, 2005 plaintiff filed an amended complaint which dropped as
defendants all directors who had never been employees of Riggs and added allegations regarding the
amended and restated merger agreement with PNC. The remaining defendants will be responding to the
amended complaint. On February 15, 2005 a creditor of a former Riggs Bank customer, whose account was attached by that
creditor and closed in or about 1999, met with lawyers for Riggs Bank and indicated that it
believed Riggs Bank may have engaged in commercial bad faith regarding the customers account at
the time it was active. The creditor, which had entered into a tolling agreement with Riggs Bank
months before based on a generally unspecified claim, indicated that it may file a complaint
against Riggs Bank seeking in excess of $12 million in damages. Riggs Bank believes that it would
have substantial defenses to any such claim and as such no accrual for a loss was recorded at March
31, 2005. On September 10, 2004,
Allison Vadhan et. al. (Vadhan) and on September 13,
2004 Cantor Fitzgerald & Co. et. al., respectively, filed
substantially similar suits in the United States District Court for
the Southern District of New York against Riggs. The complaints each
assert that because of Riggs allegedly deficient AML program,
Riggs was negligent in failing to alert the United States financial
authorities to suspicious financial transactions that the plaintiffs
claim were related to the September 11, 2001 terrorist attacks.
The lawsuits seek, among other things, compensatory, punitive and/or
exemplary damages. The Cantor Fitzgerald suit was dismissed without
prejudice after the parties entered into a Tolling Agreement. Riggs
has been advised that in April 2005 PNC entered into a memorandum of
understanding with attorneys for the plaintiffs in Vadhan agreeing
that, if PNC acquires Riggs and subject to certain other conditions,
PNC and plaintiffs would resolve the Vadhan litigation by, among
other things, PNC paying $7 million to a charitable foundation.
Although Riggs is not a party to the memorandum of understanding,
because PNCs acquisition of Riggs is highly probable Riggs
established a $7 million reserve as of March 31, 2005 in
connection with PNCs conditional settlement. Riggs has also
been advised that PNC has entered into a memorandum of understanding
conditionally resolving the Cantor Fitzgerald action, although no
payment of money is involved in that agreement. It is not possible for Riggs to predict the impact of these lawsuits, investigations, inquiries and
matters nor the timing of any such impact, and they could result in the bringing of criminal and
additional civil claims against Riggs and its subsidiaries or criminal and additional civil claims
against its current and former employees and directors, additional regulatory sanctions and
financial judgments and settlements which could have a material adverse impact on Riggs business,
financial condition or results of operations and strategies which Riggs cannot quantify at this
time. NOTE 11:       RELATED PARTY TRANSACTIONS Prior to and during the three months ended March 31, 2005, the Company entered into various
transactions with officers and directors of the Company and its affiliates as well as with their
associates. These transactions were of a similar nature to those described in the Companys Annual
Report on Form 10-K for the year ended December 31, 2004. At March 31, 2005, the Company had $206.2
million of debt payable to Riggs Capital II, an unconsolidated subsidiary. 22




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 12:       NEW FINANCIAL ACCOUNTING STANDARDS In June 2004, the Emerging Issues Task Force (EITF) issued EITF No. 03-01, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-01). The
pronouncement provides new guidance for evaluating and recording impairment losses on debt and
equity investments that are deemed to be other-than-temporarily impaired and was effective for such
evaluations made in reporting periods beginning after June 15, 2004. According to EITF 03-01, a
security is impaired when its carrying value exceeds its fair value, and an impairment is
other-than-temporary if the investor does not have the ability and intent to hold the investment
until a forecasted recovery of its carrying amount. EITF 03-01 requires that once an investment is
determined to be impaired, the impairment must be assessed using the ability-and-intent-to-hold
criterion regardless of the severity or amount of the impairment. If the impairment is determined
to be other-than-temporary, an impairment loss should be recognized in earnings. On September 30,
2004, the Financial Accounting Standards
Board (FASB) Staff issued FSP EITF 03-01-1, which deferred the application of measurement
provisions of EITF 03-01. The FASB determined that a delay in the effective date of those
provisions was necessary until it can issue additional guidance on the application of EITF 03-01. In 2004, the FASB issued FASB Statement No. 123R, a revision
of FASB Statement No. 123, Accounting for Stock-Based Compensation. The statement establishes
standards for the accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entitys equity instruments
or that may be settled by the issuance of those equity instruments. The statement focuses primarily
on accounting for transactions in which an entity obtains employee services in share-based payment
transactions, and does not change the accounting guidance for share-based payment transactions with
parties other than employees provided in Statement 123 as originally issued. The provisions of the
statement are effective beginning in the first quarter of 2006. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) in March
2005. SAB 107 is an interpretation of FASB 123R only, and expresses the views of the SEC staff
regarding the interaction between FASB 123R and certain SEC rules and regulations and provides the
staffs views regarding the valuation of share-based payment arrangements for public companies. It
provides additional guidance on the requirements of FASB 123R. NOTE 13:       NET PERIODIC PENSION COST The Companys net
periodic costs for the U.S. pension plan and post-retirement health and life
insurance benefits are as follows: Components of Net Period Benefit Cost(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,Other U.S. PostU.S. Pension
    
    
    Retirement Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    86
    
    
    $
    60
    
    
    $
    118
    
    
    $
    122Interest cost
    
    
    2,251
    
    
    
    1,591
    
    
    
    519
    
    
    
    428Expected return on plan assets
    
    
    (2,932
    )
    
    
    (1,925
    )
    
    
    
    
    
    
    Amortization of transition amount
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    89Amortization of prior service cost
    
    
    (3
    )
    
    
    (29
    )
    
    
    (888
    )
    
    
    (531
    )Amortization of the net (gain) loss
    
    
    2,113
    
    
    
    1,273
    
    
    
    670
    
    
    
    590Net periodic benefit cost
    
    $
    1,515
    
    
    $
    970
    
    
    $
    532
    
    
    $
    698
 The Company did not make any contributions to the pension plan during the three month periods
ending March 31, 2005 and 2004. As noted in the Companys Annual Report on Form 10-K for the year ended December 31, 2004, because
of the exit and sale of its operations in the United Kingdom, the sponsor of the U.K. pension plan
informed the plan's trustees that it intends to cease contributing to the plan by the end of 2005. Under
U.K. law, this will result in liquidation of the plan through the purchase of individual annuity
contracts from an insurance company to provide for payment of vested benefits to participants. The
plans consulting actuary has estimated the additional cost to the Company to satisfy its
obligations under the plan to be approximately $9.9 million. That amount was contributed to the
plan in December 2004 and reported as a prepaid pension cost in the Consolidated Statement of
Condition at December 31, 2004. This prepaid cost will be charged to expense as the annuity
contracts are purchased. 23




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 14:       OTHER MATTER As previous disclosed, the Bank serves as trustee for the MEPT. The governing document provides
for amendment of the trust. Such amendment may include the naming of a new trustee and subsequent
transitioning of the trustee from Riggs to another entity. In the third quarter of 2004, Riggs
Banks Board of Directors approved and executed an Asset Purchase Agreement with the other partners
to the MEPT. This purchase is expected to close in the second quarter of 2005. NOTE 15:       SUBSEQUENT EVENT As of March 31, 2005, the Company has $12.8 million of
artwork classified as held for sale on the Consolidated Statement of
Condition. The artwork relates to domestic operations. As of
mid-May 2005, $8.9 million of the artwork has been sold at a loss
of $389 thousand. The Company anticipates, however, that total
sales proceeds on the entire collection of artwork will
approximate book value when the sale is completed. ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes forward-looking statements (as such term is defined
in Section 21E of the Securities Exchange Act of 1934, as amended) that reflect the Companys
current expectations and projections about future results, performance, prospects and
opportunities, and include, without limitation, the references in this 10-Q to earnings from
venture capital, implementation of business strategies, hedging activities and the Companys trust
and investment advisory income. The Company has attempted to identify these forward-looking
statements by using words such as may, will, expect, anticipate, believe, intend,
estimate, could or similar expressions. These forward-looking statements are based on
information currently available and are subject to a number of risks, uncertainties and other
factors that could cause actual results, performance, prospects or opportunities in 2005 and beyond
to differ materially from those expressed in, or implied by, these forward-looking statements.
These risks include, but are not limited to, certain risks and uncertainties that may affect the
operations, performance, development, growth projections and results of the business. More
specifically, these risks include the growth of (or decline in) 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, regulatory oversight, investigations, the unfavorable resolution of legal proceedings
or government inquiries, the denial of insurance coverage for claims made by the Company, actions
of the OCC and the Federal Reserve, regulatory, supervisory or enforcement actions of government
agencies, the ability to successfully wind down and/or sell its international business operations,
general economic conditions-both domestic and international-and similar matters, and the Companys
ability to satisfy the closing conditions under the merger agreement with PNC. In addition, the
continuing impact of the September 11, 2001 terrorist attacks on the U.S. and global economy, the
possibility of additional attacks, and international political conditions also may be an important
factor or make the occurrence of one or more of the aforementioned risks or factors more likely. Do not place undue reliance on any forward-looking statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result of new
information, future events, changed circumstances or any other reason after the date of this
Quarterly Report on Form 10-Q. OVERVIEW The following discussion and analysis should be read along with the consolidated financial
statements and related notes included in this Quarterly Report on Form 10-Q. As noted above, the
following discussion and analysis contains forward-looking statements that are subject to risks,
uncertainties and other factors that could cause the Companys actual results, performance,
prospects or opportunities to differ materially from those expressed in, or implied by, these
forward-looking statements. 24




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED Riggs is a bank holding company headquartered in Washington, D.C. The Company engages in a
variety of banking and financial services including community and commercial banking, trust and
investment management services and venture capital investing. Riggs conducts its activities through
five reportable segments: Banking, International Banking, Treasury, Riggs Capital Partners (venture
capital) and Other. With the exception of venture capital investing, the activities of the Company
are conducted through its principal operating subsidiary, Riggs Bank, and its subsidiaries and
divisions. Venture capital investing is performed through two subsidiaries of the Company, Riggs
Capital Partners and Riggs Capital Partners II. Riggs Bank has 51 branch locations and 137 ATMs in the metropolitan Washington, D.C. area. It has
additional operations or subsidiaries in London (England) and Nassau (Bahamas). Riggs Bank serves
an array of customers including individuals, partnerships, corporations, foundations,
not-for-profit organizations and foreign embassies and delegations. For a discussion of the more significant risk factors that impact Riggs, or could impact Riggs, see
Item 7A of the Companys 2004 Annual Report on Form 10-K. SUSPENSION OF DIVIDEND Due to the Companys desire to retain the strongest possible capital levels at both the Company
and the Bank, the Company has suspended the payment of its dividend on common stock. CRITICAL ACCOUNTING POLICIES AND ESTIMATES See Note 2 of Notes to Consolidated Financial Statements contained in this Quarterly Report on
Form 10-Q, which is incorporated herein by reference for a discussion of the Companys more
significant accounting policies and estimates. INTERNATIONAL EXIT ACTIVITIES During 2004, Riggs determined it would exit or sell all of its International Banking
businesses, including its London and Channel Islands banking subsidiaries and its embassy banking
operations. All embassy banking operations, and operations conducted at the Companys Edge Act
subsidiary in Miami, were terminated during 2004. In February 2005, the Company finalized the sale of its Channel Islands operations and certain
London operations to Bank Leumi of Israel at a net gain of approximately $0.4 million. Sale
costs related to this transaction incurred in 2004 totaled $971 thousand. Included in the sale were
credit, investment and deposit portfolios. In March 2005, Riggs sold a London office building it
owned at a pre-tax gain of $5.2 million over its adjusted carrying value. The gain on the sale of
the office building is included in Other Noninterest Income in continuing operations on the
Consolidated Statements of Operations. The net gain on the sale to Bank Leumi is included in
discontinued operations on the Consolidated Statements of Operations. Income and expense related to
the assets and liabilities held for sale at December 31, 2004 prior to the actual sale comprise the
remainder of discontinued operations activity for the quarter. A summary of the discontinued
operations activity for the first quarter 2005 and 2004 follows. DISCONTINUED
    
    
    DISCONTINUEDOPERATIONS
    
    
    OPERATIONS1 QTR 2005
    
    
    1 QTR 2004(IN THOUSANDS)Interest Income
    
    $
    881
    
    
    $
    1,270Interest Expense
    
    
    350
    
    
    
    550Net Interest Income
    
    
    531
    
    
    
    720Noninterest Income
    
    
    2,730
    
    
    
    286Noninterest Expense
    
    
    2,168
    
    
    
    885Income before Taxes
    
    
    1,093
    
    
    
    121Income Tax Expense (Benefit)
    
    
    201
    
    
    
    (53
    )Net Income
    
    $
    892
    
    
    $
    174
 25




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED As of March 31, 2005, there are no assets or liabilities related to the Companys exit from
International Operations that are classified as held for sale. As of December 31, 2004, certain
components of international operations were classified as held for sale. The Company determined
that these components were carried at lower of cost or market value in accordance with FASB
Statement No. 144, Accounting for Impairment and Disposal of Long-Lived Assets (FAS 144). The
results of operations of components of the businesses classified as held for sale or those that
have ceased operations are reported in discontinued operations at March 31, 2005 and December 31,
2004 and the components that are classified as held and used are reported in continuing operations
on the Consolidated Statements of Operations for the same period. The assets and liabilities classified as held for sale as of December 31, 2004 related to
international exit activities (with the exception of certain works of art associated with domestic
operations), and were included in the International segment. Assets held for sale totaled $196.6
million and were comprised primarily of loans in the amount of $163.4 million. Liabilities held for
sale totaled $70.7 million and were comprised primarily of interest-bearing deposits in the amount
of $69.9 million. In connection with the exit
of the Companys international operations, the Company incurred the
following exit costs in the first quarter of 2005. For the year ended
December 31, 2004, the Company
incurred exit costs in the amount of $24.8 million. These costs are detailed in Note 3 of Notes to
Consolidated Financial Statements in the Companys Form 10-K for the year ended December 31, 2004.
Exit costs were included in the International segment. Continuing
    
    
    Discontinued
    
    
    Total Exit(IN THOUSANDS)
    
    Operations
    
    
    Operations
    
    
    CostsWrite-off of Contractual Obligations
    
    $
    1,608
    
    
    $
    
    
    
    $
    1,608Lease Termination Costs
    
    
    1,031
    
    
    
    
    
    
    
    1,031$
    2,639
    
    
    $
    
    
    
    $
    2,639
 Activity related to exit costs for the first quarter of 2005 follows: One-Time
    
    
    Write-off of
    
    
    LeaseTermination
    
    
    Contractual
    
    
    Termination(IN THOUSANDS)
    
    Benefits
    
    
    Obligations
    
    
    CostsBalance as of December 31, 2004
    
    $
    6,578
    
    
    $
    
    
    
    $
    Amounts accrued
    
    
    
    
    
    
    1,608
    
    
    
    1,031Amounts paid
    
    
    (2,875
    )
    
    
    (1,608
    )
    
    
    (1,031
    )Balance as of March 31, 2005
    
    $
    3,703
    
    
    $
    
    
    
    $
    
 As discussed in Note 13 of this Form 10-Q, the consulting actuary for the Companys U.K.
pension plan had estimated the future additional cost to the Company to satisfy its obligations
under the plan to be approximately $9.9 million. This $9.9 million was contributed to the plan in
December 2004, is recorded as a prepaid pension asset as of December 31, 2004 and March 31, 2005,
and will be charged to expense as annuity contracts are purchased to settle pension liabilities.
As
discussed in Note 1 of Notes to Consolidated Financial Statements in
the Company's Form 10K for the year ended December 31, 2004, the Company enters into foreign exchange
derivative contracts to manage its exchange risk associated with the translation of foreign
currency into U.S. dollars. As of March 31, 2005, the foreign exchange translation adjustment
associated with foreign subsidiaries totaled $4.4 million pre-tax and was recorded as a reduction
in shareholders equity. At the time foreign subsidiaries are officially closed and associated
foreign exchange derivative contracts have been settled, amounts recorded as adjustments to equity
will be charged. 26




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED REGULATORY, LITIGATION AND MERGER MATTERS For information regarding various regulatory matters, certain investigations, lawsuits and
other inquiries as well as the Companys pending merger with PNC, see Notes 3, 9 and 10 to the
Notes to the Consolidated Financial Statements, which are incorporated herein by reference. RESULTS OF OPERATIONS The Company recorded a loss from continuing operations of $29.5 million, or $(.92) per diluted
share, and a net loss of $28.7 million, or $(.89) per diluted share, in the first quarter of 2005
compared to income from continuing operations of $3.7 million, or $0.13 per diluted share, and net
income of $3.9 million, or $0.13 per diluted share, in the first quarter of 2004. The decrease in earnings in the first quarter of 2005 was due primarily to continuing legal and
other costs resulting from the OCC Consent Orders, Federal Reserve Cease and Desist Orders,
Department of Justice investigations, shareholder litigation, litigation in Spain, the planned
merger with PNC, an accrual of a loss contingency associated with
litigation, and the exit from the Companys International operations. For the three months
ended March 31, 2005, the Company incurred net venture capital losses of $4.3 million. Legal fees
increased by $8.8 million year to year while consulting and outsourcing expenses increased by $7.6
million for the same time period. In addition, net interest income decreased $9.0 million, from
$40.4 million for the three months ended March 31, 2004 to $31.4 million for the three months ended
March 31, 2005. As of March 31, 2005, the Company accrued
$7.0 million for a probable loss associated with a litigation
matter. Net income from discontinued operations for the three months ended March 31, 2005 was $0.9 million,
compared to $0.2 million for the three months ended
March 31, 2004. Net income from discontinued operations for
the three months ended March 31, 2005 includes a net after-tax
gain on the sale of portions of the London operations in the amount
of $.4 million. These operations had been held for sale at
December 31, 2004. Annualized return on average
assets was (1.97)% and .25% for the three months ended March 31, 2005
and 2004, respectively. Annualized return on average
shareholders equity was (36.06)% and 4.15%
for the three months ended March 31, 2005 and 2004, respectively. 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 $33.1 million for
the three months ended March 31, 2005,
an $8.4 million (or 20%) decrease from the $41.6 million for the same period in 2004. This decrease
was mostly attributable to an increase in rates paid on all interest-bearing funds and an increase
in the balance of brokered certificates of deposit (CDs). Interest income on a tax equivalent basis increased $1.4 million, or 2%, in the first quarter of
2005 compared to the first quarter of 2004, while interest expense increased $9.8 million, or 55%
in the first quarter of 2005 compared to the first quarter of 2004. Most of the increase in
interest income was in interest on federal funds sold and reverse repurchase agreements, which
increased $3.2 million mostly due to an increase in volume of $469.4 million year to year. This
increase was partially offset by a decrease in interest income on securities available for sale of
$1.6 million, primarily due to a decrease in volume in those securities of $337.6 million year to
year. Interest expense in the first quarter of 2005 totaled $27.6 million, an increase of $9.8 million
from the first quarter of 2004. Average interest-bearing liabilities decreased from the first
quarter of 2004 to the comparable period of 2005, however, rates on these liabilities increased
from 1.41% to 2.26% in the same time period. Rates on interest-bearing deposits increased from .62%
to 1.52%, resulting in an increase in interest expense of $7.1 million. The largest decrease in
interest-bearing liabilities was in interest-bearing deposits, which decreased by $198.0 million.
This decline was a direct result of the Companys decision in 2004 to exit its International
Banking businesses. To offset these decreases, in the second quarter of 2004, the Bank began
issuing brokered CDs, which are generally obtained at a higher cost than
international deposits. At March 31, 2005, brokered CDs totaled $955.8 million. The Bank had no
brokered CDs at March 31, 2004. Repurchase agreements and other short-term borrowings also
decreased (by $12.6 million), while an increase in the rate paid of 98 basis points resulted in an
increase in interest expense of $1.4 million in the first quarter of 2005. The decline in interest
bearing deposits and repurchase agreements and other short-term borrowings was partially offset by
increases in Federal Home Loan Bank (FHLB) borrowings and other long-term debt in the amount of $105.1 million. This
increase in volume was the primary reason for the increase in
interest expense on FHLB and other long-term debt of $1.4 million year to year. 27




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED Because of the adoption of FIN 46 (Consolidation of Variable Interest Entities) on October 1,
2003, Riggs Capital II, the issuer of $200 million of 8.875% Series C debentures, is an
unconsolidated entity at March 31, 2005 and, accordingly, the $206.2 million of the Companys debt
payable to Riggs Capital II is a liability of the Company at this date. Interest on this debt for
the first quarter of 2005 in the amount of $4.8 million is included in long-term interest expense
in the Consolidated Statement of Operations. At March 31, 2005, the Company owned $49.8 million of
the Series C debentures, which are classified as securities held to maturity on the Consolidated
Statements of Condition. The average value of Series C debentures owned by the Company during the
first three months of 2005 was $49.9 million and the income earned on these securities was $1.1
million. This compares to an average of $48.8 million owned by the Company at March 31, 2004. In
the first quarter of that year, $1.1 million in income was earned on these securities. Riggs Capital, the issuer of $150 million of 8.625% Series A debentures, was initially
deconsolidated upon the adoption of FIN 46 in 2003. In February 2004, however, the Company, which
had also been acquiring these securities, acquired sufficient Series A debentures so that it owned
more than 50% of all such debentures and, accordingly, reconsolidated this entity because the
Company is the primary beneficiary of Riggs Capital. As a result, the debt payable by the Company
to Riggs Capital at March 31, 2005 and the related interest expense since reconsolidation have been
eliminated in consolidation. Interest expense on this debt that was incurred in the first quarter
of 2004 prior to reconsolidation amounted to $1.1 million and is included in interest expense on
long-term debt in the Consolidated Statements of Operations for the three months ended March 31,
2004. Prior to reconsolidation, the Series A debentures owned by the Company were classified as
held to maturity securities in the Consolidated Statements of Condition. These securities had an
average balance of $29.0 million for that period of the first quarter in 2004 and $0.5 million of
interest income on these securities is included in interest income for the first quarter of that
year. Therefore, though not significant, the reconsolidation of Riggs Capital had a $0.4 million
adverse impact on net interest income in the first three months of 2005 compared to the comparable
period of 2004. An analysis of the changes in interest income and expense attributable to volume and rate changes
follows: NET INTEREST INCOME CHANGES (1) THREE MONTHS ENDEDMARCH 31, 2005 VS. 2004(TAX-EQUIVALENT BASIS)
    
    DUE TO
    
    
    DUE TO
    
    
    TOTAL(IN THOUSANDS)
    
    RATE
    
    
    VOLUME
    
    
    CHANGEInterest Income:Loans, Including Fees
    
    $
    4,081
    
    
    $
    (3,366
    )
    
    $
    715Securities Available for Sale
    
    
    1,408
    
    
    
    (3,035
    )
    
    
    (1,627
    )Securities Held to Maturity
    
    
    
    
    
    
    (405
    )
    
    
    (405
    )Time Deposits with Other Banks
    
    
    672
    
    
    
    (1,175
    )
    
    
    (503
    )Federal Funds Sold and Reverse
Repurchase Agreements
    
    
    734
    
    
    
    2,481
    
    
    
    3,215Total Interest Income
    
    
    6,895
    
    
    
    (5,500
    )
    
    
    1,395Interest Expense:Interest-Bearing Deposits
    
    
    7,428
    
    
    
    (322
    )
    
    
    7,106Repurchase Agreements and Other
Short-Term Borrowings
    
    
    1,423
    
    
    
    (48
    )
    
    
    1,375FHLB Borrowings and Other Long-Term Debt
    
    
    209
    
    
    
    1,153
    
    
    
    1,362Total Interest Expense
    
    
    9,060
    
    
    
    783
    
    
    
    9,843Net Interest Income
    
    $
    (2,165
    )
    
    $
    (6,283
    )
    
    $
    (8,448
    )
  (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. 28




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED An analysis of the changes in the Companys Average Statements of Condition and changes to its margin for the quarters ended March 31 follows: THREE MONTHS ENDED
    
    
    THREE MONTHS ENDEDMARCH 31, 2005
    
    
    MARCH 31, 2004(TAX-EQUIVALENT BASIS) (1)
    
    AVERAGE
    
    
    INCOME/
    
    
    
    
    
    
    AVERAGE
    
    
    INCOME/(IN THOUSANDS)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSLoans (2)
    
    $
    2,977,576
    
    
    $
    40,832
    
    
    
    5.56
    %
    
    $
    3,229,263
    
    
    $
    40,117
    
    
    
    5.00
    %Securities Held to Maturity
    
    
    49,850
    
    
    
    1,145
    
    
    
    9.32
    
    
    
    77,764
    
    
    
    1,550
    
    
    
    8.02Securities Available for Sale (3)
    
    
    1,641,014
    
    
    
    14,724
    
    
    
    3.64
    
    
    
    1,978,569
    
    
    
    16,351
    
    
    
    3.32Time Deposits with Other Banks
    
    
    64,404
    
    
    
    611
    
    
    
    3.85
    
    
    
    243,763
    
    
    
    1,114
    
    
    
    1.84Federal Funds Sold and Reverse Repurchase Agreements
    
    
    562,367
    
    
    
    3,447
    
    
    
    2.49
    
    
    
    93,000
    
    
    
    232
    
    
    
    1.00Total Earning Assets and Average Rate Earned (5)
    
    
    5,295,211
    
    
    
    60,759
    
    
    
    4.65
    
    
    
    5,622,359
    
    
    
    59,364
    
    
    
    4.25Reserve for Loan Losses
    
    
    (24,505
    )
    
    
    
    
    
    
    
    
    
    
    (28,233
    )Cash and Due from Banks
    
    
    155,416
    
    
    
    
    
    
    
    
    
    
    
    176,250Assets Held for Sale
    
    
    12,828
    
    
    
    
    
    
    
    
    
    
    
    Other Assets
    
    
    450,140
    
    
    
    
    
    
    
    
    
    
    
    423,747Total Assets
    
    $
    5,889,090
    
    
    
    
    
    
    
    
    
    
    $
    6,194,123LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS EQUITYInterest-Bearing Deposits
    
    $
    3,372,801
    
    
    $
    12,651
    
    
    
    1.52
    %
    
    $
    3,570,812
    
    
    $
    5,545
    
    
    
    0.62
    %Repurchase Agreements and Other Short-Term Borrowings
    
    
    596,345
    
    
    
    3,603
    
    
    
    2.45
    
    
    
    608,912
    
    
    
    2,228
    
    
    
    1.47FHLB Borrowings and Other Long-Term Debt
    
    
    981,971
    
    
    
    11,367
    
    
    
    4.69
    
    
    
    876,900
    
    
    
    10,005
    
    
    
    4.59Total Interest-Bearing Funds and Average Rate Paid
    
    
    4,951,117
    
    
    
    27,621
    
    
    
    2.26
    
    
    
    5,056,624
    
    
    
    17,778
    
    
    
    1.41Demand Deposits (4)
    
    
    432,676
    
    
    
    
    
    
    
    
    
    
    
    642,027Other Liabilities
    
    
    110,364
    
    
    
    
    
    
    
    
    
    
    
    77,172Guaranteed Preferred Beneficial Interests in Junior
Subordinated Deferrable Interest Debentures
    
    
    72,634
    
    
    
    
    
    
    
    
    
    
    
    39,204Shareholders Equity
    
    
    322,299
    
    
    
    
    
    
    
    
    
    
    
    379,096Total Liabilities, Minority Interest and
Shareholders Equity
    
    $
    5,889,090
    
    
    
    
    
    
    
    
    
    
    $
    6,194,123NET INTEREST INCOME AND SPREAD
    
    
    
    
    
    $
    33,138
    
    
    
    2.39
    %
    
    
    
    
    
    $
    41,586
    
    
    
    2.84
    %NET INTEREST MARGIN ON EARNING ASSETS
    
    
    
    
    
    
    
    
    
    
    2.54
    %
    
    
    
    
    
    
    
    
    
    
    2.97
    %
  (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) -
    Loans held for sale and 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.(4) -
    Demand deposit balances for all periods presented exclude certain accounts transferred to the money market classification to reduce the level of deposit reserves required.(5) -
    Includes loans held for sale but excludes venture capital investments. 29




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED The composition of average earning assets and average interest-bearing liabilities is as follows: THREE MONTHS ENDEDMARCH 31,2005
    
    
    2004Total Loans
    
    
    56
    %
    
    
    58
    %Securities Available for Sale
    
    
    31
    
    
    
    35Securities Held to Maturity
    
    
    1
    
    
    
    1Time Deposits with Other Banks
    
    
    1
    
    
    
    4Federal Funds Sold &
Reverse Repurchase Agreements
    
    
    11
    
    
    
    2Total Average Earning Assets
    
    
    100
    %
    
    
    100
    %Interest-Bearings Deposits
    
    
    68
    %
    
    
    71
    %Repurchase Agreements &
Other Short-Term Borrowings
    
    
    12
    
    
    
    12Long-Term Debt
    
    
    20
    
    
    
    17Total Average Interest Bearing Liabilities
    
    
    100
    %
    
    
    100
    %
 NONINTEREST INCOME Noninterest income for the first quarter of 2005 totaled $21.9 million, a decrease of $3.3
million from the $25.2 million in the first quarter of 2004. This decrease was mostly due to an
increase in net venture capital losses of $4.2 million, primarily due to a $6.5 million write-down on
the Companys portfolio in the first quarter of 2005 based on recently acquired information
regarding its fair value. Also contributing to the overall decrease were decreases in trust and
investment advisory income of $1.5 million, mostly due to difficulties generating new business
because of regulatory matters and the Companys pending merger with PNC. The Company experienced
particular difficulty in the wealth management area. Service charges and fees also declined $2.1
million, mostly due to higher rates, which directly affected revenue in the customer analysis area,
and an increase in no fee products offered. These decreases were partially offset by increases in
other noninterest income of $4.1 million. The increase in other noninterest income is primarily the
result of a gain in the amount of $5.2 million on the sale of an office building in London that had
been held for sale at December 31, 2004. Trust and investment advisory income impacts the Banking segment while venture capital gains and
losses impact the Riggs Capital Partners segment. Securities gains impact the Treasury segment and
service charges and miscellaneous operating income primarily impact the Banking segment. NONINTEREST EXPENSE Noninterest expense for the three months ended March 31, 2005 was $91.2 million, an increase of
$31.7 million from the $59.5 million reported for the three months ended March 31, 2004. The 53%
increase in noninterest expense from the first quarter of 2004 is comprised of the following: Salaries and Employee Benefits
    
    $
    1.0
    
    millionOccupancy, Net
    
    
    0.7Data Processing Services
    
    
    0.3Furniture, Equipment and Software
    
    
    (0.2
    )Fines and
Settlements
    
    
    7.0Legal Fees
    
    
    8.8Consultants and Outsourcing
    
    
    7.6Other Noninterest Expense
    
    
    6.5$
    31.7
    
    million
 30




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED The $1.0 million increase in salaries and employee benefits was mostly due to expense incurred
in order to retain key employees through the planned merger with PNC, and was partially offset by a reduced labor force compared to a year ago. Net occupancy costs rose $734 thousand in the first quarter of 2005 compared with the first quarter
of 2004 primarily due to increases in property rentals ($432 thousand). Increases in rents, new
branches, remodeling of existing branches and building improvements on other existing buildings
contributed to the increase. The $7.0 million
increase in fines and settlements in the first quarter of 2005
compared with the first quarter of 2004 is due to the Company
establishing an accrual in the first quarter of 2005 for a probable loss
associated with a litigation matter. Legal fees increased $8.8 million from the first quarter of 2004 to the first quarter of 2005
primarily due to the Companys continuing BSA compliance efforts, the various investigations and
lawsuits the Company has encountered, the Companys merger with
PNC, and related matters. See Notes 3, 9 and 10 to the Notes to Consolidated Financial Statements, which are
incorporated herein by reference. Consulting and outsourcing fees increased $7.6 million year to year due to consultants hired to
assist with the Companys BSA compliance efforts and fees paid to the Companys outsourced internal
audit function. Other noninterest expense increased $6.5 million for the three months ended March 31, 2005 compared
to the three months ended March 31, 2004. The increase was mostly due to an increase in FDIC
insurance of $1.5 million because of Riggs Banks
designation as being in a troubled condition increases in other special services of $1.2 million and increases in miscellaneous expense of $3.3
million. Most of the increase in other special services is for BSA related internal investigations.
The increase in miscellaneous expense was mostly due to write-downs on terminated contracts and
onerous leases at the Companys international locations related to the exit from International
Operations there. Increased advertising expense in the amount of $959 thousand also contributed to
the increase in other noninterest expense as the Company sought to generate and retain deposit
relationships. EFFECTIVE TAX RATES The effective tax rate on Income (Loss) Before Taxes and Minority Interest from Continuing
Operations for the three month period ended March 31, 2005 was
24.8% compared to 27.3% during the
same period of the prior year. The primary reason for this tax rate decrease was an increase in the
valuation allowance against the deferred tax assets for unrealized losses in venture capital
operations. FINANCIAL CONDITION SECURITIES Securities available for sale totaled $1.64 billion as of March 31, 2005, compared to $1.70
billion as of year-end 2004 and $1.93 billion as of March 31, 2004. The activity for the first
three months of 2005 included purchases of securities available for sale totaling $3.95 billion,
which were offset by maturities and calls, principal payments, and sales of securities available
for sale totaling $4.01 billion. The weighted-average duration and yield for the portfolio,
adjusted for anticipated prepayments, were approximately 2.3 years and 3.47%, respectively, as of
March 31, 2005. As of March 31, 2004, the weighted-average
duration and yield for the portfolio were approximately
1.9 years and 3.60%, respectively. Details on securities available for sale follow: MARCH 31, 2005GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR(IN THOUSANDS)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUEU.S. Treasury Securities
    
    $
    135
    
    
    $
    
    
    
    $
    
    
    
    $
    135Government Agencies Securities
    
    
    720,725
    
    
    
    
    
    
    
    11,466
    
    
    
    709,259Mortgage-Backed Securities
    
    
    885,714
    
    
    
    9
    
    
    
    17,353
    
    
    
    868,370Other Securities
    
    
    60,824
    
    
    
    
    
    
    
    
    
    
    
    60,824Total Securities Available for Sale
    
    $
    1,667,398
    
    
    $
    9
    
    
    $
    28,819
    
    
    $
    1,638,588
 31




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED DECEMBER 31, 2004GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR(IN THOUSANDS)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUEU.S. Treasury Securities
    
    $
    1,999
    
    
    $
    
    
    
    $
    
    
    
    $
    1,999State and Municipal Securities
    
    
    26,834
    
    
    
    178
    
    
    
    60
    
    
    
    26,952Government Agencies Securities
    
    
    585,719
    
    
    
    31
    
    
    
    6,388
    
    
    
    579,362Mortgage-Backed Securities
    
    
    1,033,248
    
    
    
    936
    
    
    
    8,555
    
    
    
    1,025,629Other Securities
    
    
    61,597
    
    
    
    248
    
    
    
    
    
    
    
    61,845Total Securities Available for Sale
    
    $
    1,709,397
    
    
    $
    1,393
    
    
    $
    15,003
    
    
    $
    1,695,787
 MARCH 31, 2004GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR(IN THOUSANDS)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUEU.S. Treasury Securities
    
    $
    4,000
    
    
    $
    
    
    
    $
    
    
    
    $
    4,000State and Municipal Securities
    
    
    26,831
    
    
    
    248
    
    
    
    90
    
    
    
    26,989Government Agencies Securities
    
    
    626,080
    
    
    
    2,352
    
    
    
    23
    
    
    
    628,409Mortgage-Backed Securities
    
    
    1,218,720
    
    
    
    7,989
    
    
    
    1,609
    
    
    
    1,225,100Other Securities
    
    
    47,742
    
    
    
    149
    
    
    
    
    
    
    
    47,891Total Securities Available for Sale
    
    $
    1,923,373
    
    
    $
    10,738
    
    
    $
    1,722
    
    
    $
    1,932,389
 Realized gains from the sale of securities totaled $692 thousand for the three months ended
March 31, 2005, and realized losses totaled $127 thousand. For the three months ended March 31,
2004, realized gains were $232 thousand and realized losses were $5 thousand. Substantially all of the available for sale securities have been issued by the U.S. Treasury, an
agency of the U.S. Government or a government sponsored entity (such as the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation). Accordingly, the repayment of
substantially all of the available for sale securities is either guaranteed by the government or a
AAA rated entity. As a result, timely payment of principal and interest is reasonably assured and
any unrealized gain or loss is, therefore, attributable to changes in market interest rates. LOANS As of March 31, 2005, loans outstanding totaled $2.89 billion, with residential mortgage/home
equity, commercial and financial and real estate-commercial/construction comprising 54%, 14% and
29% of the portfolio, respectively. At March 31, 2004, these percentages were 49%, 16% and 26%,
respectively. The residential mortgage/home equity loans are generally fully secured, with
approximately 10% with a loan to value ratio of 90% or greater. As indicated in the following table, total loans decreased from $3.20 billion at March 31, 2004 to
$2.89 billion at March 31, 2005. The decreases were primarily in the commercial and financial,
residential mortgage and foreign portfolios and were partially offset by an increase in home equity
loans. As of March 31, 2005, foreign loans outstanding totaled $19.9 million, a decrease of $178.9 million
from December 31, 2004 and $200.1 million from March 31, 2004. These decreases are a direct result
of the Companys plan to exit or sell its international banking businesses. Consistent with the
Companys plan to exit its International Banking businesses, $163.4 million of foreign loans were
held for sale at December 31, 2004 and sold in February 2005. See Note 4 of the Notes to
Consolidated Financial Statements. 32




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED COMPOSITION OF LOAN PORTFOLIO MARCH 31,
    
    
    DECEMBER 31,
    
    
    MARCH 31,2005
    
    
    2004
    
    
    2004(IN THOUSANDS)Commercial and Financial
    
    $
    398,801
    
    
    
    14
    %
    
    $
    401,526
    
    
    
    13
    %
    
    $
    521,188
    
    
    
    16
    %Real Estate  Commercial/Construction
    
    
    844,117
    
    
    
    29
    
    
    
    903,829
    
    
    
    29
    
    
    
    821,232
    
    
    
    26Residential Mortgage
    
    
    1,152,404
    
    
    
    40
    
    
    
    1,178,771
    
    
    
    37
    
    
    
    1,242,501
    
    
    
    39Home Equity
    
    
    411,056
    
    
    
    14
    
    
    
    416,912
    
    
    
    13
    
    
    
    327,078
    
    
    
    10Consumer
    
    
    59,503
    
    
    
    2
    
    
    
    61,086
    
    
    
    2
    
    
    
    62,784
    
    
    
    2Foreign
    
    
    19,926
    
    
    
    1
    
    
    
    198,855
    
    
    
    6
    
    
    
    220,007
    
    
    
    7Total Loans
    
    $
    2,885,807
    
    
    
    100
    %
    
    $
    3,160,979
    
    
    
    100
    %
    
    $
    3,194,790
    
    
    
    100
    %Net Deferred Loan Fees,
Premiums and Discounts
    
    
    3,635
    
    
    
    
    
    
    
    3,743
    
    
    
    
    
    
    
    3,832Loans
    
    $
    2,889,442
    
    
    
    
    
    
    $
    3,164,722
    
    
    
    
    
    
    $
    3,198,622Loans Included in Assets Held for Sale
    
    
    
    
    
    
    
    
    
    
    (163,391
    )
    
    
    
    
    
    
    Loans
    
    $
    2,889,442
    
    
    
    
    
    
    $
    3,001,331
    
    
    
    
    
    
    $
    3,198,622
 RESERVE FOR LOAN LOSSES Changes in the reserve for loan losses are summarized as follows: THREE MONTHS ENDEDMARCH 31,(IN THOUSANDS)
    
    2005
    
    
    2004Balance, January 1
    
    $
    24,717
    
    
    $
    28,285Provision for loan losses
    
    
    500
    
    
    
    Loans charged-off
    
    
    979
    
    
    
    908Less: Recoveries on charged-off loans
    
    
    453
    
    
    
    362Net loan charge-offs
    
    
    526
    
    
    
    546Foreign exchange translation adjustments
    
    
    (17
    )
    
    
    44Balance, March 31
    
    $
    24,674
    
    
    $
    27,783
 The reserve amount is determined based on the risk of loss in the loan portfolio. For the three month period ended March 31, 2005, the Company
had a consolidated loan loss provision of $500 thousand and for the three month period ended March 31, 2004, the Company did not record a loan loss
provision. The Companys reserve for loan losses at March 31, 2005 approximated the balance at December 31, 2004. 33




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED ASSET QUALITY NONPERFORMING ASSETS Nonperforming assets, which include nonaccrual loans and repossessed assets, totaled $27
thousand as of March 31, 2005, a $415 thousand decrease from the year-end 2004 total of $442
thousand, primarily due to repayments on one domestic commercial loan and another commercial loan
at the Banks London based subsidiary, and a $2.0 million decrease from the March 31, 2004 total of
$2.1 million. The decrease in nonperforming assets from March 31, 2004 was mainly due to activity
in the London based portfolio, which recorded $1.4 million in charge-offs and $516 thousand in
sales and repayments in its commercial loan portfolio. Of the $27 thousand balance at March 31,
2005, $1 thousand is recorded in the Banking segment and $26 thousand
is recorded in the International
Banking segment. There were no renegotiated loans at March 31, 2005 or 2004, or at December 31,
2004. 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 are accruing interest. Loans past-due over
90 days decreased $3.2 million from March 31, 2004 to $5.7 million at March 31, 2005 and decreased
$147 thousand from December 31, 2004. NONPERFORMING ASSETS AND PAST-DUE LOANS MARCH 31,
    
    
    DECEMBER 31,
    
    
    MARCH 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    2004NONPERFORMING ASSETS:Nonaccrual Loans (1)
    
    $
    1
    
    
    $
    430
    
    
    $
    2,051Other Real Estate and Repossessed Assets, Net
    
    
    26
    
    
    
    12
    
    
    
    5Total Nonperforming Assets
    
    $
    27
    
    
    $
    442
    
    
    $
    2,05630-89 DAYS PAST-DUE LOANS (2)
    
    $
    10,050
    
    
    $
    12,182
    
    
    $
    41,83490+ DAYS PAST-DUE LOANS (3)
    
    $
    5,733
    
    
    $
    5,880
    
    
    $
    8,951POTENTIAL PROBLEM LOANS
    
    $
    700
    
    
    $
    834
    
    
    $
    1,265
  (1)
    Loans 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 30-89 days or more in principal or interest.(3)
    Loans contractually past due 90 days or more in principal or interest that are well-secured and in the process of collection. 34




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ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED DEPOSITS Deposits are the Companys primary source of funds. Deposits totaled $4.02 billion as of March
31, 2005, an increase of $221.5 million from $3.80 billion at December 31, 2004 and a decrease of
$128.8 million from March 31, 2004. In both periods, deposits decreased in demand accounts, money
market accounts, and in time deposits in foreign offices, all directly as a result of the Companys
exit from its International Banking businesses. These decreases were partially offset by increases
in time deposits in domestic offices, which increased $68.7 million and $905.0 million from
December 31 and March 31, 2004, respectively. The increase in time deposits in domestic offices
was primarily due to the Banks practice of replacing reduced
deposits due to the Companys
decision to exit its International Banking business and enhancing its liquidity with brokered
certificates of deposit. These deposits were not utilized at
March 31, 2004 but accounted for
$902.0 million and $955.8 million of deposits at December 31, 2004 and March 31, 2005,
respectively. These brokered CDs had an average rate of 3.04% and a weighted average maturity
of 1.52 years as of March 31, 2005. On March 31, 2005, a
Bank customer that is a U.S. government agency, deposited $300.0 million in a
Bank account. This amount was all wired out of the Bank on April 1, 2005. As of March 31, 2005 these
funds were invested equally in federal funds sold and overnight discount notes. As a means of reducing deposit reserve requirements, the Bank periodically sweeps excess demand
funds into money market accounts. The average balances transferred for the three months ended March
31, 2005 and 2004, which are not included in demand deposits in the Average Statement of Condition,
were $431.8 million and $476.8 million, respectively. FHLB BORROWINGS AND OTHER LONG-TERM DEBT Long-term debt at March 31, 2005 consisted of $66.5 million 9.65% fixed rate, subordinated
debentures due in 2009, $469.0 million in FHLB advances, $245.0 million in long-term repurchase
agreements, and $206.2 million in debt payable to Riggs Capital II, the issuer of the Series C
trust preferred securities. At March 31, 2004, long-term debt consisted of the $66.5 million
9.65% fixed rate subordinated debentures, $329.0 million in FHLB advances, $195.0 million in long-term repurchase
agreements, and the $206.2 million in the debt payable to Riggs
Capital II. At December 31, 2004, long-term debt included the
$66.5 million in subordinated debentures, $596.0 million in FHLB advances, $270.0
million in long-term repurchase agreements, and the $206.2 million in debt payable to Riggs Capital
II. The subordinated debentures cannot be called, and once the remaining maturity term is less than
five years, the amount includible in Tier II capital is discounted. At June 16, 2004, the amount
includible in Tier II capital decreased to 80%. Every twelve months thereafter the portion
includible decreases to 60%, 40% and 20%, respectively. Issuance costs related to this debt are
being amortized over the life of the debentures as a component of interest expense, making the
effective cost of this debt 9.73%. The FHLB advances at March 31, 2005 have maturity dates through
2008 and carry a blended rate of 2.92%. Of the $469.0 million in FHLB advances at March 31, 2005,
$75.0 million are callable in 2005 and $97.0 million are callable in 2006. The long-term repurchase
agreements at March 31, 2005 also have maturity dates through 2008 and carry a blended interest
rate of 2.62%. $50.0 million of long-term repurchase agreements are callable in 2005 and $75.0
million are callable in 2006. The Company adopted FIN46 (Consolidation of Variable Interest Entities) on October 1, 2003. At the
time of the adoption of FIN 46 and at December 31, 2003, the Company owned $60.3 million of the
Series A trust preferred securities and $47.6 million of the Series C trust preferred securities. Prior to October 1, 2003, the amount of trust preferred securities owned by the Company was netted
against the outstanding debt of Riggs Capital and Riggs Capital II and reported as minority
interest in the Consolidated Statements of Condition. The interest earned by the Company on the
trust preferred securities it owned was reflected in the Consolidated Statements of Operations as a
reduction of minority interest in income of subsidiaries, net of taxes. Beginning with the quarter
ended December 31, 2003, the trust preferred securities owned by
the Company were classified as
securities held to maturity in the Consolidated Statements of Condition and $360.8 million of debt
that the Company had which was payable to Riggs Capital and Riggs Capital II, was included in
long-term debt. Beginning the fourth quarter of 2003, interest earned on the trust preferred
securities that the Company owned was reflected as a component of interest income and the cost of
the debt payable to Riggs Capital and Riggs Capital II was included in interest expense. During the first quarter of 2004, the Company acquired sufficient Series A securities so that it
owned more than 50% of all such securities and, accordingly, the Company reconsolidated the
subsidiary that issued the securities beginning in February 2004 as the Company was deemed to be
the primary beneficiary of Riggs Capital. No trust preferred securities have been repurchased by
the Company since the first quarter of 2004. At March 31, 2005, the Series A securities are
reflected in the Consolidated Statements of Financial Condition, net of the Series A securities the
Company owns, as guaranteed preferred beneficial interests in junior subordinated deferrable
interest debentures. Since reconsolidation, the cost of these securities is reflected in the
Consolidated Statements of Income as minority interest in income of subsidiaries, net of taxes. 35




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ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED At March 31, 2005, the amount of the Series C, 8.875% securities classified as held to maturity
is $49.8 million. See also Shareholders Equity and Regulatory Capital below. LIQUIDITY AND CAPITAL RESOURCES Liquidity
Riggs maintains liquidity to meet the needs of depositors, borrowers and creditors. The
Asset/Liability Committee (ALCO) actively analyzes and manages liquidity in coordination with other
areas of the organization. See Item 3-Sensitivity to Market Risk. At March 31, 2005, the Bank had approximately $831.6 million of unencumbered securities,
approximately $794.5 million in other short-term investments, and approximately $55.9 million
remaining on its FHLB and Federal Reserve lines of credit for total liquid assets of approximately
$1.68 billion. This compares to March 31, 2004, when the Bank had approximately $937.0 million of
unencumbered securities, $371 million in other short-term investments and $455 million remaining on
its FHLB and Federal Reserve lines of credit, totaling $1.76 billion in liquid assets. Since the
second quarter of 2004, the Bank has used the brokered certificate of deposit market to enhance its
liquidity. As of March 31, 2005, the balance of brokered certificates of deposit totaled $955.8
million. Under Federal Deposit Insurance Corporation regulations (FDIC), no FDIC-insured depository
institution can accept brokered deposits unless it is considered well capitalized, or is adequately
capitalized and receives a waiver from the FDIC. Notwithstanding that an institution has capital
ratios that meet the requirements for well capitalized status, the OCC, in the case of national
banks, may reduce such institutions capital classification to adequately capitalized if the OCC
makes a specific determination for such purposes that an unsafe or unsound condition or practice
exists or if it formally mandates that the national bank maintain a specific capital level for any
capital measure. At March 31, 2005, the Bank had $469.0 million in FHLB advances outstanding. FHLB advances have
maturity dates through 2008 and bear rates of interest from 1.48% to 3.70%. At March 31, 2005, the
Bank had $245.0 million of repurchase agreements outstanding, which have maturity dates through
2008 and bear interest rates from 2.07% to 3.13%. Both the FHLB borrowings and long-term reverse
repurchase agreements are discussed in further detail in FHLB Borrowings and Other Long-Term Debt
in this Managements Discussion and Analysis. In accordance with the
May 2004 Consent Order and the January 2005 Consent Order, the Bank must obtain prior approval of the OCC
before it can declare a dividend to its shareholder, Riggs National Corporation. In accordance with
the January 2005 Cease and Desist Order, the Company must
continue to obtain the prior approval of the Federal Reserve Bank
of Richmond and the Director of the Division of Banking Supervision and Regulation of the Federal
Reserve before it declares a dividend to its shareholders or make payments on its trust preferred
securities. As disclosed in the Companys Form 10-K for the year ended December 31, 2004, the
payment of its dividend on its common stock and distributions on its trust preferred securities
have been suspended. The principal obligations of the Company as the holding company of Riggs Bank are payments of
interest and distributions on subordinated debt and trust preferred securities. As of March 31,
2005, the Company had approximately $57.0 million of liquid assets. Shareholders Equity and Regulatory Capital
Total shareholders equity as of March 31, 2005 was
$297.1 million, a decrease of $20.7 million
from year-end 2004 and a decrease of $92.2 million from
March 31, 2004. The decrease from year-end was
primarily the result of a net loss of $28.7 million and net unrealized losses on the investment
portfolio of $9.8 million. This decrease was partially offset by the issuance of common stock in
the amount of $18.3 million. The decrease from March 31, 2004 was primarily the result of a net
loss in the last four quarters of $130.9 million and net unrealized securities losses of $24.6
million. This decrease was partially offset by the issuance of common stock of $64.3 million. Book value per common share
was $9.04 as of March 31, 2005 compared to $10.03 as of year-end 2004
and $13.44 as of March 31, 2004. The changes in book value from March 31 of the prior year and from
year-end 2004 were primarily the result of the aforementioned changes in equity. Set forth below are the Banks and the Companys regulatory capital ratios as of March 31, 2005 and
2004, and December 31, 2004. It should be noted that the Companys trust preferred securities,
which at March 31, 2005 carried a blended interest rate of 8.79%, are included in the calculations
for Tier I and Combined Tier I and Tier II capital ratios. This rate is significantly higher than
the target federal funds rate at March 31, 2005, of 2.75%. Both the Company and the Bank are
classified as well-capitalized for purposes of federal banking regulations at March 31, 2005. Because of FIN 46, as of March 31, 2005, the deconsolidation of one of the two entities that
has issued trust preferred securities, regulatory authorities may conclude at a future date that
the trust preferred securities should no longer be included as a component of Tier I regulatory
capital. The Company has determined that it and the Bank would continue to meet the capital
ratio requirements for well capitalized status at March 31, 2005 without including the trust
preferred securities as a component of regulatory capital. 36




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##### 



ITEM 2.       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS, CONTINUED TO BE WELLCAPITALIZEDUNDER PROMPTCORRECTIVEMARCH 31,
    
    
    MARCH 31,
    
    
    DECEMBER 31,
    
    
    REQUIRED
    
    
    ACTION2005
    
    
    2004
    
    
    2004
    
    
    MINIMUMS
    
    
    PROVISIONSRIGGS NATIONAL CORPORATION:Tier I
    
    
    11.51
    %
    
    
    13.14
    %
    
    
    11.18
    %
    
    
    4.00
    %
    
    
    6.00
    %Combined Tier I and Tier II
    
    
    16.96
    
    
    
    18.03
    
    
    
    16.20
    
    
    
    8.00
    
    
    
    10.00Leverage
    
    
    6.99
    
    
    
    8.19
    
    
    
    7.25
    
    
    
    4.00
    
    
    
    5.00RIGGS BANK N.A.:Tier I
    
    
    12.11
    %
    
    
    11.62
    %
    
    
    11.58
    %
    
    
    4.00
    %
    
    
    6.00
    %Combined Tier I and Tier II
    
    
    12.81
    
    
    
    12.36
    
    
    
    12.23
    
    
    
    8.00
    
    
    
    10.00Leverage
    
    
    7.53
    
    
    
    7.40
    
    
    
    7.72
    
    
    
    4.00
    
    
    
    5.00
 The table below sets forth (in thousands) the approximate amount of capital each of the Company and the Bank has in excess of the regulatory
capital ratio requirements for banks to be considered well capitalized status as of March 31, 2005: RIGGSNATIONAL
    
    
    RIGGSCORPORATION
    
    
    BANK N.A.TIER 1 RISK-BASED
    
    $
    197,946
    
    
    $
    216,466TOTAL RISK-BASED
    
    
    249,930
    
    
    
    99,542TIER 1 LEVERAGE
    
    
    117,658
    
    
    
    144,160
 The ratios of total
shareholders equity to total assets were 4.99%, 5.93%, and 6.30% at March 31, 2005, December 31, 2004 and March 31, 2004,
respectively. SENSITIVITY TO MARKET RISK The Company is exposed to
various market risks which are discussed in the Companys 2004 Annual
Report on Form 10-K. Interest-rate risk is a pervasive risk which may have a material impact on the
Companys financial performance especially during periods of rapid and/or significant interest rate
changes. Because of this, the Company has established an Asset/Liability Committee (ALCO) to manage
interest-rate risk. The role of this committee is to manage the asset/liability mix of the
Companys operations in an effort to provide a stable net interest margin while maintaining desired
levels of liquidity and capital. This entails the management of 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. The Company also has risk associated with foreign currency
exchange, which it attempts to mitigate through various hedges. See Note 8 of Notes to the
Consolidated Financial Statements, which is incorporated herein by reference. Riggs manages its 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. Most likely is defined as the
outlook of the Banks Treasury Group on the path of future interest rates. As of March 31, 2005,
the most likely interest rate scenario calls for the federal funds target rate rising to 4.0% by
November 2005, to 4.75% by December 2006, and then holding at that level for the remainder of the
forecast horizon. The results are compared to risk tolerance limits set by corporate policy. The
models results as of March 31, 2005 are shown below. 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 versus the most likely scenario and a 300 basis point (3%) gradual increase
or decrease in rates over a 36-month time period versus the most likely scenario. 37




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST-RATE SENSITIVITY ANALYSIS (1) MOVEMENTS IN INTEREST RATES FROM MARCH 31, 2005SIMULATED IMPACT OVER
    
    
    SIMULATED IMPACT OVERNEXT TWELVE MONTHS
    
    
    NEXT THIRTY-SIX MONTHS(In Thousands)
    
    +100BP
    
    
    -100BP
    
    
    +300BP
    
    
    -300BPSimulated Impact Compared With a
Most Likely Scenario:Net Interest Income Increase/(Decrease)
    
    
    1.0
    %
    
    
    (2.6
    )%
    
    
    (1.0
    )%
    
    
    1.1
    %Net Interest Income Increase/(Decrease)
    
    $
    1,186
    
    
    $
    (3,193
    )
    
    $
    (3,803
    )
    
    $
    3,864
 (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. As of March 31, 2005, 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 5%, the Company guideline for a 12-month time horizon. 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 10%, the Company guideline for a 36-month time horizon. The results of the
simulation for March 31, 2005 indicated that the Bank was asset sensitive over one year due to a
large portion of its liabilities being comprised of fixed-rate instruments. Earnings are benefited
in a rising rate environment from increasing speeds on fixed-rate liabilities and are impaired by
declining rates as asset yields decline while liability costs remain fixed. Over time, the Bank
becomes liability sensitive as fixed-rate liabilities mature and are replaced by short-term
funding. As a result, over three years, earnings suffer in a rising rate environment and benefit
from declining rates. In managing 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
interest-rate risk and can effectively alter the interest-rate sensitivity of portions of the
Statements 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. Though the methodologies previously discussed provide a meaningful representation of the Companys
interest-rate and market risk sensitivity, factors other than changes in the interest-rate
environment, such as levels of non-earning assets, and changes in the composition of earning assets
and liabilities, may affect the risk sensitivity, and, therefore, net interest income. As with any
method of measuring interest-rate risk, certain shortcomings are inherent in the model. As such,
the predictive value of our model is not guaranteed. COMMITMENTS AND CONTINGENCIES Various commitments to extend credit are made in the normal course of banking business.
Commitments to extend credit and letters of credit outstanding as of March 31, 2005 and 2004, and
December 31, 2004 are: 38




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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED

MARCH 31,
    
    
    MARCH 31,
    
    
    DECEMBER 31,2005
    
    
    2004
    
    
    2004Commitments to extend credit
    
    $
    1,334,514
    
    
    $
    1,485,477
    
    
    $
    1,444,307Commercial letters of credit
    
    
    4,986
    
    
    
    31,787
    
    
    
    10,939Stand-by letters of credit
    
    
    29,663
    
    
    
    45,200
    
    
    
    49,126


At March 31, 2005, a liability of $112 thousand existed in the Consolidated Statement of
Condition for the stand-by letters of credit compared to $61 thousand at March 31, 2004 and $141
thousand at December 31, 2004.

The above commitment amounts are not reflected in the Consolidated Statements of Condition and many
of the commitments will expire without being drawn upon. Such commitments are issued only upon
careful evaluation of the financial condition of the customer.

The Company also was committed to fund venture capital investments in the amount of $5.7 million
and $8.7 million at March 31, 2005 and 2004, respectively.

CONSENT ORDER, CIVIL MONEY PENALTY AND OTHER MATTERS

See Note 9 to the Notes to
the Consolidated Financial Statements on page 17, which is
incorporated herein by reference.

PENDING MERGER

See Note 3 to the Notes to the Consolidated Financial Statements on page 9, which is
incorporated herein by reference.

OTHERS MATTERS

See Note 14 to the Notes to the Consolidated Financial Statements on page 24, which is
incorporated herein by reference.

ITEM 4.    CONTROLS AND PROCEDURES

(a)     Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive
Officer and Chief Financial Officer, after evaluating the
effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e)) under the Securities Exchange Act of 1934, as amended (the
Exchange Act) as of the end of the period covered by this Quarterly
Report on Form 10-Q, have concluded that, based on such evaluation,
the Companys disclosure controls and procedures were not
effective in reporting, on a timely basis, information required to be
disclosed by the Company in the reports that the Company files or
submits under the Exchange Act and this Quarterly Report.

(b)     Changes in Internal Controls

During its evaluation of the
Companys internal control over financial reporting as of December 31, 2004, management of the Company identified material
weaknesses with respect to the Companys control environment, its internal control monitoring function, its regulatory compliance
function, and processes and activities associated with accounting for deferred tax asset valuation allowances.

Except as described below, there were no significant changes in the Companys internal
control over financial reporting that occurred during the Companys last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over financial reporting.

39




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##### 



ITEM 4.       CONTROLS AND PROCEDURES, CONTINUED Control Environment and Internal Control Monitoring Function The Company has continued to
enhance its internal control environment and internal control monitoring functions. Specifically, the Company established
enhanced oversight of staffing levels during the first quarter of
2005 and determined that staffing levels throughout the organization,
particularly those that relate directly to financial reporting, remained stable. This is due in part to the establishment and
maintenance of a retention bonus program for over 500 employees. The
Company also continued to ensure that competent contractors were made available to each department in the Company. During the first quarter of 2005, the Company appointed a new Vice President and Interim Controller having significant experience and qualifications relating
to accounting and financial reporting. As a senior financial officer within the organization, the Interim Controller has responsibility
for supervising and directing a broad scope of finance related functions, including the implementation and maintenance of internal
controls relating to such functions. The Interim Controller reports directly to the Chief Financial Officer. The Companys internal audit function began to implement enhancements to its internal audit
program during 2004, and in the first quarter of 2005 has completed the implementation of those enhancements. The Company has expanded the
scope of certain internal audits, enhanced the tracking of outsourced audit work, and modified its previous internal audit plan scope to
encompass additional audits, including a continued focus and review of the Companys regulatory risks. Regulatory Compliance Function During the first quarter of 2005, the Company has continued to devote substantial resources to
the compliance Department. Management believes that the effectiveness of this function has been essential to its ability to remediate many
of the regulatory issues it has faced. Management believes that as of March 31, 2005, control remediation efforts within the
regulatory compliance function, particularly as they relate to controls designed to prevent violation of laws and regulations that
could have a material effect on the reliability of the Companys financial reporting, have enhanced the Companys ability to
mitigate the risk of material misstatement. Processes and Activities Associated with Accounting for Deferred Tax Asset Valuation Allowances 40




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ITEM 4.       CONTROLS AND PROCEDURES, CONTINUED In response to the material weakness previously identified in the Companys 2004 Annual Report
on Form 10-K, regarding oversight of the Companys tax process, the Company has worked to enhance
the monitoring and oversight of the tax process. In response to significant staff turnover, the
Company assessed the need for additional staff to ensure maintenance of appropriate internal
controls over financial reporting relating to the tax area and has taken appropriate action to
ensure the reliability of the tax process through the date of the pending merger. This includes
engaging an accounting and consulting firm to review the Companys first
quarter 2005 tax provision. The company has also appointed a Vice President and Interim Controller
to oversee the tax reporting process. Management has evaluated this matter relative to its current and prior internal control environment
and disclosure controls and procedures. It has concluded that the material weakness that led to
this error not being detected timely has been mitigated as of March 31, 2005 as a result of the
additional monitoring and oversight controls that were in place as of that date. RIGGS NATIONAL CORPORATION PART II OTHER INFORMATION ITEM 1.
    
    LEGAL PROCEEDINGSSee Note 10 to the Notes to the Consolidated Financial Statements on page 20, which is
incorporated herein by reference.ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSOn January 1, 2005, the Company sold to Stuart Yarbrough 400 shares of its common
stock, par value $2.50 per share. Mr. Yarbrough paid $21.26 per share, which was the per
share closing price reported on the NASDAQ National Market System on December 31, 2004.
The aggregate consideration paid by Mr. Yarbrough to the Company for the shares was
$8,504. Mr. Yarbrough acquired the shares in order to qualify as a member of the Companys
Board of Directors. The sale of the shares to Mr. Yarbrough was exempt from registration
under the Securities Act of 1933 pursuant to Regulation D.ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIESNot applicable.ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNot applicable.ITEM 5.
    
    OTHER INFORMATIONNot applicable.ITEM 6.
    
    EXHIBITS(a)      
ExhibitsThe exhibits listed on page 43
are incorporated by reference or filed
herewith in response to this item.
 41




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##### 



PART II OTHER INFORMATION, CONTINUED 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 10, 2005
    
    /s/ LAWRENCE I. HEBERTLawrence I. Hebert
Director and Principal Executive OfficerDate:
    
    May 10, 2005
    
    /s/ STEVEN T. TAMBUROSteven T. Tamburo
Treasurer 
(Chief Financial Officer)
 42




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INDEX TO EXHIBITS EXHIBIT
    
    DESCRIPTION
    
    PAGESNO.(31.1)
    
    Chief Executive Officer Section 302 Certification of Quarterly Report on Form 10-Q(31.2)
    
    Chief Financial Officer Section 302 Certification of Quarterly Report on Form 10-Q(32.1)
    
    Chief Executive Officer Section 906 Certification of Quarterly Report on Form 10-Q(32.2)
    
    Chief Financial Officer Section 906 Certification of Quarterly Report on Form 10-Q
 (Exhibits omitted are not required or not applicable.) 43