##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 FORM 10-Q (Mark One)
    
    [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13

OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended

June 30, 2004 [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13

OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to Commission File Number

0-9756 RIGGS NATIONAL

CORPORATION
(Exact name of registrant as specified in its charter) Delaware
    
    52-1217953(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1503 Pennsylvania Avenue,

N.W., Washington, D.C. 20005
(Address of principal executive offices) (Zip Code) (202) 835-4309
(Registrants telephone number, including area code) Indicate by check mark whether the

registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the

preceding 12 months
(or such shorter period that the registrant was required to file such

reports), and
(2) has been subject to such filing requirements for the past

90 days. Yes X No

. Indicate by check mark whether the

registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes

XNo . Indicate the number of shares

outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Common Stock, $2.50 par value
    
    29,261,346(Title of Class)
    
    (Outstanding at July 31, 2004)
 Transitional Small Business
Format Yes___. No x .




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##### 



RIGGS NATIONAL CORPORATION TABLE OF CONTENTS PART I.
    
    FINANCIAL INFORMATION
    PAGE NO.Item 1.
    
    Financial StatementsConsolidated Statements of Operations

(Unaudited)
Three and six months ended June 30, 2004 and 2003
    
    
    3Consolidated Statements of Condition

(Unaudited)
June 30, 2004 and 2003 and December 31, 2003
    
    
    4Consolidated Statements of Changes in

Shareholders Equity (Unaudited)
Six months ended June 30, 2004 and 2003
    
    
    5Consolidated Statements of Cash Flows

(Unaudited)
Six months ended June 30, 2004 and 2003
    
    
    6Notes to the Consolidated Financial

Statements (Unaudited)
    
    
    7-23Item 2.
    
    Managements Discussion
and Analysis of Financial
Condition and Results of Operations
    
    
    23-37Item 3.
    
    Quantitative and Qualitative
Disclosures about Market Risk
    
    
    38-41Item 4.
    
    Controls and Procedures
    
    
    41PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 2.
    
    Change in Securities
    
    
    42Item 3.
    
    Defaults Upon Senior Securities
    
    
    42Item 4.
    
    Submission of Matters to a Vote
of Security Holders
    
    
    42Item 5.
    
    Other Information
    
    
    43Item 6.
    
    Exhibits and Reports on
Form 8-K
    
    
    43Signatures
    
    
    
    
    
    
    43
 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
    
    THREE MONTHS ENDED
    
    SIX MONTHS ENDEDRIGGS NATIONAL CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
    
    
    
    
    
    JUNE 30,

    JUNE 30,(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
    
    
    
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003INTEREST

INCOMEInterest and Fees on

Loans
    
    
    
    
    
    $
    38,213
    
    
    $
    39,055
    
    
    $
    76,674
    
    
    $
    79,600Interest and

Dividends on Securities Held to Maturity
    
    
    
    
    
    
    1,096
    
    
    
    
    
    
    
    2,646
    
    
    
    Interest and

Dividends on Securities Available for Sale
    
    
    
    
    
    
    16,384
    
    
    
    18,480
    
    
    
    32,880
    
    
    
    37,451Interest on Time

Deposits with Other Banks
    
    
    
    
    
    
    166
    
    
    
    220
    
    
    
    181
    
    
    
    383Interest on Federal

Funds Sold and Reverse Repurchase Agreements
    
    
    
    
    
    
    648
    
    
    
    1,120
    
    
    
    880
    
    
    
    3,304Total Interest

Income
    
    
    
    
    
    
    56,507
    
    
    
    58,875
    
    
    
    113,261
    
    
    
    120,738INTEREST

EXPENSEInterest on

Deposits:Savings and NOW

Accounts
    
    
    
    
    
    
    130
    
    
    
    103
    
    
    
    256
    
    
    
    268Money Market Deposit

Accounts
    
    
    
    
    
    
    1,495
    
    
    
    3,684
    
    
    
    3,849
    
    
    
    7,066Time Deposits in

Domestic Offices
    
    
    
    
    
    
    2,784
    
    
    
    4,340
    
    
    
    5,274
    
    
    
    10,271Time Deposits in

Foreign Offices
    
    
    
    
    
    
    468
    
    
    
    651
    
    
    
    883
    
    
    
    1,292Total Interest on

Deposits
    
    
    
    
    
    
    4,877
    
    
    
    8,778
    
    
    
    10,262
    
    
    
    18,897Interest on

Short-Term Borrowings and Long-Term Debt:Repurchase

Agreements and Other Short-Term Borrowings
    
    
    
    
    
    
    2,281
    
    
    
    2,348
    
    
    
    4,509
    
    
    
    3,585FHLB Borrowings and

Other Long-Term Debt
    
    
    
    
    
    
    10,097
    
    
    
    3,525
    
    
    
    20,102
    
    
    
    7,438Total Interest on

Short-Term Borrowings and Long-Term Debt
    
    
    
    
    
    
    12,378
    
    
    
    5,873
    
    
    
    24,611
    
    
    
    11,023Total Interest

Expense
    
    
    
    
    
    
    17,255
    
    
    
    14,651
    
    
    
    34,873
    
    
    
    29,920Net Interest

Income
    
    
    
    
    
    
    39,252
    
    
    
    44,224
    
    
    
    78,388
    
    
    
    90,818Provision for Loan

Losses
    
    
    
    
    
    
    
    
    
    
    815
    
    
    
    
    
    
    
    2,215Net Interest Income

after Provision for Loan Losses
    
    
    
    
    
    
    39,252
    
    
    
    43,409
    
    
    
    78,388
    
    
    
    88,603NONINTEREST

INCOMETrust and Investment

Advisory Income
    
    
    
    
    
    
    9,385
    
    
    
    9,453
    
    
    
    18,796
    
    
    
    18,765Service Charges and

Fees
    
    
    
    
    
    
    12,534
    
    
    
    11,634
    
    
    
    25,276
    
    
    
    23,550Venture Capital

Investment Gains (Losses), Net
    
    
    
    
    
    
    2,009
    
    
    
    (436
    )
    
    
    1,841
    
    
    
    (2,658
    )Other Noninterest

Income
    
    
    
    
    
    
    1,737
    
    
    
    2,079
    
    
    
    4,031
    
    
    
    3,838Securities Gains,

Net
    
    
    
    
    
    
    
    
    
    
    6,507
    
    
    
    226
    
    
    
    11,134Total Noninterest

Income
    
    
    
    
    
    
    25,665
    
    
    
    29,237
    
    
    
    50,170
    
    
    
    54,629NONINTEREST

EXPENSESalaries and

Employee Benefits
    
    
    
    
    
    
    29,701
    
    
    
    26,059
    
    
    
    59,347
    
    
    
    52,930Occupancy,

Net
    
    
    
    
    
    
    5,303
    
    
    
    4,669
    
    
    
    10,467
    
    
    
    9,633Data Processing

Services
    
    
    
    
    
    
    1,664
    
    
    
    4,907
    
    
    
    3,276
    
    
    
    10,062Furniture, Equipment

and Software
    
    
    
    
    
    
    7,239
    
    
    
    3,392
    
    
    
    10,709
    
    
    
    7,085Regulatory

Fine
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    25,000
    
    
    
    Legal

Fees
    
    
    
    
    
    
    4,536
    
    
    
    1,545
    
    
    
    5,140
    
    
    
    1,969Consultants
    
    
    
    
    
    
    4,046
    
    
    
    4,402
    
    
    
    4,932
    
    
    
    6,172Other Noninterest

Expense
    
    
    
    
    
    
    23,136
    
    
    
    13,567
    
    
    
    38,595
    
    
    
    26,936Total Noninterest

Expense
    
    
    
    
    
    
    100,625
    
    
    
    58,541
    
    
    
    157,466
    
    
    
    114,787Income (Loss) before

Taxes and Minority Interest
    
    
    
    
    
    
    (35,708
    )
    
    
    14,105
    
    
    
    (28,908
    )
    
    
    28,445Applicable Income

Tax Expense (Benefit)
    
    
    
    
    
    
    (5,476
    )
    
    
    4,236
    
    
    
    (3,825
    )
    
    
    9,250Minority Interest in

Income of Subsidiaries, Net of Taxes
    
    
    
    
    
    
    1,031
    
    
    
    3,544
    
    
    
    1,774
    
    
    
    7,075Income (Loss) from

Continuing Operations
    
    
    
    
    
    $
    (31,263
    )
    
    $
    6,325
    
    
    $
    (26,857
    )
    
    $
    12,120Loss from

Discontinued Operations
    
    
    
    
    
    
    (3,156
    )
    
    
    (4,603
    )
    
    
    (3,671
    )
    
    
    (4,486
    )Applicable Income

Tax Benefit
    
    
    
    
    
    
    (44
    )
    
    
    (47
    )
    
    
    (68
    )
    
    
    (64
    )Net Loss from

Discontinued Operations
    
    
    
    
    
    
    (3,112
    )
    
    
    (4,556
    )
    
    
    (3,603
    )
    
    
    (4,422
    )Net Income
(Loss)
    
    
    
    
    
    $
    (34,375
    )
    
    $
    1,769
    
    
    $
    (30,460
    )
    
    $
    7,698EARNINGS

(LOSS) PER SHARE-CONTINUING OPERATIONS
    
    Basic
    
    $
    (1.07
    )
    
    $
    0.22
    
    
    $
    (0.93
    )
    
    $
    0.42Diluted
    
    
    (1.07
    )
    
    
    0.22
    
    
    
    (0.93
    )
    
    
    0.42EARNINGS
(LOSS) PER SHARE-DISCONTINUED OPERATIONS
    
    Basic
    
    $
    (0.11
    )
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.15
    )Diluted
    
    
    (0.11
    )
    
    
    (0.16
    )
    
    
    (0.12
    )
    
    
    (0.15
    )EARNINGS

(LOSS) PER SHARE-
    
    Basic
    
    $
    (1.18
    )
    
    $
    0.06
    
    
    $
    (1.05
    )
    
    $
    0.27Diluted
    
    
    (1.18
    )
    
    
    0.06
    
    
    
    (1.05
    )
    
    
    0.27DIVIDENDS

DECLARED AND PAID PER SHARE
    
    
    
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    0.10
 The
Accompanying Notes Are An Integral Part Of These Statements
 3




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##### 



RIGGS NATIONAL
CORPORATIONCONSOLIDATED STATEMENTS OF
CONDITION(UNAUDITED)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    JUNE 30,
    
    
    DECEMBER 31,
    
    
    JUNE 30,(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004
    
    
    2003
    
    
    2003ASSETSCash and Due from Banks
    
    $
    153,181
    
    
    $
    325,975
    
    
    $
    125,077Federal Funds Sold and Reverse Repurchase

Agreements
    
    
    374,000
    
    
    
    -
    
    
    
    1,053,000Total Cash and Cash Equivalents
    
    
    527,181
    
    
    
    325,975
    
    
    
    1,178,077Time Deposits with Other Banks
    
    
    10,700
    
    
    
    287,077
    
    
    
    242,026Securities Held to Maturity (Fair Value of
$50,868 at June 30, 2004
and $115,319 at December 31, 2003)
    
    
    49,871
    
    
    
    107,891
    
    
    
    -Securities Available for Sale (at Market

Value)
    
    
    2,291,916
    
    
    
    1,826,818
    
    
    
    2,191,971Venture Capital Investments
    
    
    43,580
    
    
    
    43,356
    
    
    
    45,098Loans
    
    
    3,089,500
    
    
    
    3,225,154
    
    
    
    2,995,413Reserve for Loan Losses
    
    
    (25,801
    )
    
    
    (28,285
    )
    
    
    (26,385
    )Total Net Loans
    
    
    3,063,699
    
    
    
    3,196,869
    
    
    
    2,969,028Premises and Equipment, Net
    
    
    182,262
    
    
    
    226,502
    
    
    
    187,767Assets Held for Sale
    
    
    332,958
    
    
    
    -
    
    
    
    -Other Assets
    
    
    241,934
    
    
    
    355,070
    
    
    
    365,023Total Assets
    
    $
    6,744,101
    
    
    $
    6,369,558
    
    
    $
    7,178,990LIABILITIESDeposits:Noninterest-Bearing Demand Deposits
    
    $
    1,290,159
    
    
    $
    673,610
    
    
    $
    622,098Interest-Bearing Deposits:Savings and

NOW Accounts
    
    
    253,551
    
    
    
    294,546
    
    
    
    285,251Money Market

Deposit Accounts
    
    
    1,919,634
    
    
    
    2,378,779
    
    
    
    2,338,335Time Deposits

in Domestic Offices
    
    
    910,462
    
    
    
    585,260
    
    
    
    1,820,471Time Deposits

in Foreign Offices
    
    
    43,231
    
    
    
    354,037
    
    
    
    359,855Total Interest-Bearing Deposits
    
    
    3,126,878
    
    
    
    3,612,622
    
    
    
    4,803,912Total Deposits
    
    
    4,417,037
    
    
    
    4,286,232
    
    
    
    5,426,010Repurchase Agreements and Other Short-Term

Borrowings
    
    
    654,900
    
    
    
    670,382
    
    
    
    540,426Liabilities Held for Sale
    
    
    166,742
    
    
    
    -
    
    
    
    -Other Liabilities
    
    
    116,411
    
    
    
    127,091
    
    
    
    156,386FHLB Borrowings and Other Long-Term

Debt
    
    
    988,693
    
    
    
    912,333
    
    
    
    415,525Total Liabilities
    
    
    6,343,783
    
    
    
    5,996,038
    
    
    
    6,538,347GUARANTEED PREFERRED BENEFICIAL

INTERESTS IN JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES
    
    
    72,634
    
    
    
    -
    
    
    
    248,584COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYCommon Stock-$2.50 Par Value
    
    
    6/30/2004
    
    
    
    12/31/2003
    
    
    
    6/30/2003Authorized Shares
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    50,000,000Issued Shares
    
    
    32,517,485
    
    
    
    31,998,260
    
    
    
    31,852,506Outstanding Shares
    
    
    29,175,564
    
    
    
    28,680,138
    
    
    
    28,536,418Treasury Shares
    
    
    3,341,921
    
    
    
    3,318,122
    
    
    
    3,316,088
    
    
    
    81,294
    
    
    
    79,996
    
    
    
    79,631Additional Paid in Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,113
    
    
    
    174,396
    
    
    
    171,272Retained Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,774
    
    
    
    200,131
    
    
    
    209,709Accumulated Other Comprehensive Income

(Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,504
    )
    
    
    (9,380
    )
    
    
    3,038Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,993
    )
    
    
    (71,623
    )
    
    
    (71,591
    )Total Shareholders Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    327,684
    
    
    
    373,520
    
    
    
    392,059Total Liabilities and Shareholders

Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,744,101
    
    
    $
    6,369,558
    
    
    $
    7,178,990
 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, 2002
    
    $
    79,530
    
    
    $
    170,747
    
    
    $
    204,865
    
    
    $
    5,468
    
    
    $
    (71,369
    )
    
    $
    389,241Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    7,698
    
    
    
    
    
    
    
    
    
    
    
    7,698Other Comprehensive Loss, Net of Tax:Unrealized Loss on
Securities Available for Sale, Net
of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,173
    )
    
    
    
    
    
    
    (3,173
    )Unrealized Gain on Derivatives,
Net of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    653
    
    
    
    
    
    
    
    653Foreign Exchange Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    90Total Other Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,430
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,268Issuance of Common Stock for
Stock Option Plans  40,084 Shares
    
    
    101
    
    
    
    525
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    626Common Stock
Repurchase  14,290 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (222
    )
    
    
    (222
    )Cash Dividends 
Common Stock, $.10 per Share
    
    
    
    
    
    
    
    
    
    
    (2,854
    )
    
    
    
    
    
    
    
    
    
    
    (2,854
    )Balance, June 30, 2003
    
    $
    79,631
    
    
    $
    171,272
    
    
    $
    209,709
    
    
    $
    3,038
    
    
    $
    (71,591
    )
    
    $
    392,059Balance, December 31, 2003
    
    $
    79,996
    
    
    $
    174,396
    
    
    $
    200,131
    
    
    $
    (9,380
    )
    
    $
    (71,623
    )
    
    $
    373,520Comprehensive Income:Net Loss
    
    
    
    
    
    
    
    
    
    
    (30,460
    )
    
    
    
    
    
    
    
    
    
    
    (30,460
    )Other Comprehensive Loss, Net of Tax:Unrealized
Loss on
Securities Available for Sale, Net
of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,599
    )
    
    
    
    
    
    
    (18,599
    )Unrealized Gain on Derivatives,
Net of Reclassification Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    930
    
    
    
    
    
    
    
    930Foreign Exchange Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (455
    )
    
    
    
    
    
    
    (455
    )Total Other Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,124
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,584
    )Issuance of Common Stock for
Stock Option and Award Plans-519,225 Shares
    
    
    1,298
    
    
    
    5,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,563Repurchase of
Trust Preferred Securities, Net
    
    
    
    
    
    
    (548
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (548
    )Common Stock
Repurchase 23,799 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (370
    )
    
    
    (370
    )Cash Dividends 
Common Stock, $.10 per Share
    
    
    
    
    
    
    
    
    
    
    (2,897
    )
    
    
    
    
    
    
    
    
    
    
    (2,897
    )Balance, June 30, 2004
    
    $
    81,294
    
    
    $
    179,113
    
    
    $
    166,774
    
    
    $
    (27,504
    )
    
    $
    (71,993
    )
    
    $
    327,684
 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) SIX MONTHS ENDEDJUNE 30,2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (Loss)
    
    $
    (30,460
    )
    
    $
    7,698Adjustments to Reconcile Net Income to Cash
Provided By Operating Activities:Provision for Loan Losses
    
    
    
    
    
    
    1,741Writedown of Fixed Asset to Fair Value
    
    
    7,128
    
    
    
    (Gains) Losses on Venture Capital Investments
    
    
    (1,841
    )
    
    
    2,658Depreciation Expense and Amortization of Leasehold Improvements
    
    
    12,213
    
    
    
    8,525Net Gains on Sales of Securities Available for Sale
    
    
    (226
    )
    
    
    (11,134
    )(Increase) Decrease in Other Assets
    
    
    168
    
    
    
    (11,740
    )Increase (Decrease) in Other Liabilities
    
    
    (6,106
    )
    
    
    4,315Total Adjustments
    
    
    11,336
    
    
    
    (5,635
    )Net Cash (Used In) Provided By Operating Activities
    
    
    (19,124
    )
    
    
    2,063CASH FLOWS FROM INVESTING ACTIVITIES:Net Decrease (Increase) in Time Deposits with Other Banks
    
    
    145,624
    
    
    
    (38,759
    )Proceeds from Maturities of Securities Available for Sale
    
    
    17,314,024
    
    
    
    5,708,631Proceeds from Sales of Securities Available for Sale
    
    
    336,446
    
    
    
    284,980Purchases of Securities Available for Sale
    
    
    (18,031,661
    )
    
    
    (5,952,156
    )Purchases of Securities Held to Maturity
    
    
    (14,331
    )
    
    
    Purchases of Venture Capital Investments
    
    
    (1,788
    )
    
    
    (2,073
    )Proceeds from Sale of Venture Capital Investments
    
    
    3,405
    
    
    
    3,736Net (Increase) Decrease in Loans
    
    
    (19,498
    )
    
    
    10,161Proceeds from Sale of OREO
    
    
    132
    
    
    
    606Net Increase in Premises and Equipment
    
    
    (13,809
    )
    
    
    (5,577
    )Other, Net
    
    
    23
    
    
    
    55Net Cash (Used In) Provided By Investing Activities
    
    
    (281,433
    )
    
    
    9,604CASH FLOWS FROM FINANCING ACTIVITIES:Net Increase in Non-Time Deposits
    
    
    160,979
    
    
    
    65,241Net Increase in Time Deposits
    
    
    130,883
    
    
    
    121,772Net (Decrease) Increase in Short-Term Borrowings
    
    
    (26,764
    )
    
    
    54Proceeds from Federal Home Loan Bank and Other Long-Term Borrowings
    
    
    242,000
    
    
    
    127,000Proceeds from the Issuance of Common Stock
    
    
    4,111
    
    
    
    626Dividend Payments
    
    
    (2,897
    )
    
    
    (2,854
    )Repurchase of Common Stock
    
    
    (370
    )
    
    
    (222
    )Repurchase of Guaranteed Preferred Beneficial Interests
in Junior Subordinated Deferrable Interest Debentures
    
    
    (5,724
    )
    
    
    Net Cash Provided By Financing Activities
    
    
    502,218
    
    
    
    311,617Effect of Exchange Rate Changes
    
    
    (455
    )
    
    
    90Net Increase in Cash and Cash Equivalents
    
    
    201,206
    
    
    
    323,374Cash and Cash Equivalents at Beginning of Period
    
    
    325,975
    
    
    
    854,703Cash and Cash Equivalents at End of Period
    
    $
    527,181
    
    
    $
    1,178,077SUPPLEMENTAL DISCLOSURES:Trade Dated Securities Purchases
    
    $
    
    
    
    $
    34,234Trade Dated Securities Sales
    
    
    
    
    
    
    126,993Interest Paid
    
    
    34,609
    
    
    
    31,037Cash Held for Sale
    
    
    7,037
    
    
    
    Non-cash
Assets transferred to Held for Sale
    
    
    325,921
    
    
    
    Liabilities
transferred to Held for Sale
    
    
    166,742
    
    
    
    
 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 accounting principles
generally accepted in the United States of America 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 and six months ended June 30, 2004 are not necessarily indicative of the
results to be expected for all of 2004. For comparability, certain prior period amounts have been reclassified to conform with the current period
presentation. These reclassifications include those resulting from the 2004 announcement that the Company would discontinue the 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, 2003. NOTE 2.
    
    EXIT FROM INTERNATIONAL BUSINESS
 As noted in the
Companys Form 10-Q for the quarterly period ended
March 31, 2004, Riggs had intentions to exit or sell most of its international banking business
and focus its remaining embassy banking business on a select client base. Subsequent to June 30, 2004, the Company announced it would completely
exit its foreign embassy banking relationships either through a sale
or wind-down of activities. Accordingly, Riggs is pursuing a buyer for its London and Channel Islands operations, closing its Miami
office and exiting its foreign embassy relationships. The Company is also selling its corporate aircraft used in support of its international operations. The operating results of the London and Channel Islands operations, which are classified as held for sale and which include all recurring operating
results as well as specific exit-related expenses identified in the following paragraph, are reported as discontinued operations in the Consolidated Statements of Operations.
The operating results of Miami and the embassy business, which include the expenses identified in the following paragraph,
are reported in results from continuing operations. The operating
results of the embassy business and Miami are included in continuing
operations since they do not meet the accounting criteria for discontinued
operations. As part of the exit from its international business, Riggs accrued approximately $2.3 million of employee severance costs in the quarter ended June
30, 2004. This severance is payable under the terms of an existing Company policy and is therefore accrued in accordance with SFAS No. 112
(Employers Accounting for Postretirement Benefits). In addition, the Company recorded approximately $500 thousand of employee retention costs
which are accrued in accordance with SFAS No. 146 (Accounting for Costs Associated with Exit or Disposal Activities). The Company anticipates
recording approximately $900 thousand of additional retention expense in the second half of 2004. The Company also recorded approximately
$300 thousand of additional exit-related expenses in the quarter ended June 30, 2004, most of which pertain to accruals for leasehold obligations at
vacated properties and write-downs associated with abandoned fixed assets. Approximately $800 thousand of the above expenses are included in results from continuing operations, impacting the Banking Segment, and
approximately $2.3 million is included in the results of discontinued operations, impacting the International Banking Segment. The Company recorded an impairment charge on its corporate aircraft that is held for sale of $7.1 million during the second quarter of 2004. The
amount of this charge was based upon an offer to purchase reduced by estimated selling costs. Consistent with its policy of allocating the operating
costs of the aircraft, 45% of the impairment charge was allocated to the International Banking Segment, 25% of the impairment charge was allocated
across all segments as part of general corporate overhead and 30% was charged to the Other Segment. As noted above, the Company is attempting to sell its London and Channel Islands operations. If a buyer cannot be found, Riggs will wind down these
operations. A wind down would result in increased costs primarily related to the London pension plan and lease breakage fees. The Company
estimates that these increased costs are approximately $8.0 to $11.0 million. 7




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The assets and liabilities that are held for sale at London and the Channel Islands at June 30, 2004, which are valued in the aggregate at the lower of
cost or estimated market value include: Assets:Cash
    
    $
    7,037Time Deposits with Other Banks
    
    
    130,753Loans
    
    
    152,558Bank Premises and Equipment
    
    
    39,124Other Assets
    
    
    3,486Total
    
    $
    332,958Liabilities:Noninterest-Bearing Demand Deposits
    
    $
    21,128Interest-Bearing Deposits
    
    
    139,929Other Liabilities
    
    
    5,685Total
    
    $
    166,742
 NOTE 3.
    
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Management of the Company has prepared the consolidated financial statements included in this Form 10-Q in conformity with accounting
principles generally accepted in the United States of America 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, subjective evaluation of economic uncertainties and assessment of business conditions that may change. Because of these and other factors,
adjustments to the reserve for loan losses 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 loans with balances
over $250 thousand for impairment, an analysis of historical loss experience by loan type, an evaluation of current economic conditions and other
factors considered pertinent to the analysis. Impaired loans are defined as those credits where the Company has determined it probable that all
amounts due in accordance with the loan agreements will not be collected or recovered from the disposition of collateral. 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
and other factors deemed relevant to the analysis. Balances related to impaired loans for which there are specific reserves are excluded when applying
historical loss ratios to determine loan loss reserves. The specific reserves for impaired loans, if any, 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. 8




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 or loan foreclosure proceedings begun upon becoming 120 days delinquent or at such time as permitted by law or other regulations. 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 evaluates the
appropriateness of its loan loss methodology to ascertain that it produces accurate assessments of probable loan losses. Domestic and international
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 June 30, 2004 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 are accounted for at fair value with gains and losses included in noninterest income in the Consolidated Statements of
Operations. At June 30, 2004, the Company valued its venture capital portfolio at $43.6 million. This valuation was arrived at using 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; an offer to
purchase; and analysis and commentary from a funds Investment Manager/General Partner. The largest investment in the venture capital portfolio
is valued at $3.7 million at June 30, 2004. Because the Company has no present intention 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 differ
significantly from the recorded carrying value. The market for the type of venture capital investments Riggs holds has since 2000 been impacted by
a slow economy, a depressed domestic equity market in which, notwithstanding the recent recovery of stock prices, the values of publicly traded
companies have declined. Because of these market conditions, there has been a decline in the number of initial public offerings and acquisitions of
private companies by publicly traded firms. 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. Although these and other factors have been assessed
in determining current values, because of the subjectivity in determining values, it is possible that the Company would experience a 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. 9




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Deferred Taxes
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 tax 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
results in
an increase in income tax expense. Unrealized losses in venture capital operations have resulted in the maintenance of $11.4 million of deferred tax assets as of June 30, 2004. 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. Because of continuing losses in the venture capital portfolio and the lack of current suitability of alternatives to generate
capital
gains, Riggs has established a valuation allowance of $6.9 million against the deferred tax asset at June 30, 2004. The Company believes that the
unreserved deferred tax asset balance of $4.5 million at June 30, 2004, which includes a deferred tax asset related to realized losses of $2.8
million,
will be realized through generation of future net capital gains within its venture capital operations or the implementation of alternative business
strategies that generate net capital gains. Management has identified several alternative business strategies that could produce sufficient capital
gains
to allow the unreserved deferred tax asset balance to be realized. 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 alternative strategies, an additional valuation allowance, resulting in a charge
against income for that portion of the deferred tax asset which will not be utilized, will be recorded in the Other 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. Possible
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 in its disclosure 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 which 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 7
of the Companys 2003 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 estimate of aggregate market value. The valuation of assets and liabilities held
for sale do not, however, represent an 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. 10




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 4.
    
    EARNINGS (LOSS) PER SHARE
 Earnings (loss) per share from continuing operations are as follows: THREE MONTHS ENDED
    
    THREE MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSIncome (Loss) from Continuing Operations
    
    $
    (31,263
    )
    
    $
    (31,263
    )
    
    $
    6,325
    
    
    $
    6,325Weighted-Average Shares Outstanding
    
    
    29,143,341
    
    
    
    29,143,341
    
    
    
    28,534,363
    
    
    
    28,534,363Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    458,817Adjusted Weighted-Average Shares Outstanding
    
    
    29,143,341
    
    
    
    29,143,341
    
    
    
    28,534,363
    
    
    
    28,993,180Earnings (Loss) Per Share-Continuing Operations
    
    $
    (1.07
    )
    
    $
    (1.07
    )
    
    $
    0.22
    
    
    $
    0.22
 SIX MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSIncome (Loss) from Continuing Operations
    
    $
    (26,857
    )
    
    $
    (26,857
    )
    
    $
    12,120
    
    
    $
    12,120Weighted-Average Shares Outstanding
    
    
    28,994,350
    
    
    
    28,994,350
    
    
    
    28,531,253
    
    
    
    28,531,253Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    449,607Adjusted Weighted-Average Shares Outstanding
    
    
    28,994,350
    
    
    
    28,994,350
    
    
    
    28,531,253
    
    
    
    28,980,860Earnings (Loss) Per Share-Continuing Operations
    
    $
    (0.93
    )
    
    $
    (0.93
    )
    
    $
    0.42
    
    
    $
    0.42
 Earnings (loss) per share from discontinued operations are as follows: THREE MONTHS ENDED
    
    THREE MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSNet Loss from Discontinued Operations
    
    $
    (3,156
    )
    
    $
    (3,156
    )
    
    $
    (4,603
    )
    
    $
    (4,603
    )Weighted-Average Shares Outstanding
    
    
    29,143,341
    
    
    
    29,143,341
    
    
    
    28,534,363
    
    
    
    28,534,363Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aAdjusted Weighted-Average Shares Outstanding
    
    
    29,143,341
    
    
    
    29,143,341
    
    
    
    28,534,363
    
    
    
    28,534,363Loss Per Share-Discontinued Operations
    
    $
    (0.11
    )
    
    $
    (0.11
    )
    
    $
    (0.16
    )
    
    $
    (0.16
    )
 SIX MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSNet Loss from Discontinued Operations
    
    $
    (3,671
    )
    
    $
    (3,671
    )
    
    $
    (4,486
    )
    
    $
    (4,486
    )Weighted-Average Shares Outstanding
    
    
    28,994,350
    
    
    
    28,994,350
    
    
    
    28,531,253
    
    
    
    28,531,253Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aAdjusted Weighted-Average Shares Outstanding
    
    
    28,994,350
    
    
    
    28,994,350
    
    
    
    28,531,253
    
    
    
    28,531,253Loss Per Share-Discontinued Operations
    
    $
    (0.12
    )
    
    $
    (0.12
    )
    
    $
    (0.15
    )
    
    $
    (0.15
    )
 11




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Earnings (loss) per share are as follows: THREE MONTHS ENDED
    
    THREE MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSNet Income (Loss) Available to Common Shareholders
    
    $
    (34,375
    )
    
    $
    (34,375
    )
    
    $
    1,769
    
    
    $
    1,769Weighted-Average Shares Outstanding
    
    
    29,143,341
    
    
    
    29,143,341
    
    
    
    28,534,363
    
    
    
    28,534,363Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    458,817Adjusted Weighted-Average Shares Outstanding
    
    
    29,143,341
    
    
    
    29,143,341
    
    
    
    28,534,363
    
    
    
    28,993,180Earnings (Loss) Per Share
    
    $
    (1.18
    )
    
    $
    (1.18
    )
    
    $
    0.06
    
    
    $
    0.06
 SIX MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003BASIC
    
    
    DILUTED
    
    
    BASIC
    
    
    DILUTEDEPS
    
    
    EPS
    
    
    EPS
    
    
    EPSNet Income (Loss) Available to Common Shareholders
    
    $
    (30,460
    )
    
    $
    (30,460
    )
    
    $
    7,698
    
    
    $
    7,698Weighted-Average Shares Outstanding
    
    
    28,994,350
    
    
    
    28,994,350
    
    
    
    28,531,253
    
    
    
    28,531,253Weighted-Average Dilutive Effect
of Stock-Based Compensation Plans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    449,607Adjusted Weighted-Average Shares Outstanding
    
    
    28,994,350
    
    
    
    28,994,350
    
    
    
    28,531,253
    
    
    
    28,980,860Earnings (Loss) Per Share
    
    $
    (1.05
    )
    
    $
    (1.05
    )
    
    $
    0.27
    
    
    $
    0.27
 12




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED At the end of June 2003,
approximately 3.7 million stock options were excluded from the
calculation of diluted earnings per share because the effect would be
anti-dilutive. All stock options were excluded from the calculation of
diluted earnings per share at June 30, 2004, because the effect
would be anti-dilutive. The weighted average exercise price for these options was
$15.61 per share and $18.76 per share at the end of the same respective periods.
During the third quarter of 2004, approximately 3,491,307 options at a
weighted-average strike price of $16.18 will expire. The Company
expects that a significant portion of these options will be exercised. Stock-Based Employee Compensation Plans
At June 30, 2004, the Company had five stock-option plans which are described more fully in Note 14 of Notes to Consolidated Financial
Statements in its 2003 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. THREE MONTHS ENDED JUNE 30,
    
    SIX MONTHS ENDED JUNE 30,(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Net income (loss) from continuing operations, as reported
   
    
    ($31,263
    )
    
    $
    6,325
    
    
    
    ($26,857
    )
    
    $
    12,120Add: Stock-based employee compensation expense included in reported
net income, net of related tax effects
    
    

    492
    
    
    
    749
    
    
    
    651
    
    
    
    539Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    (582
    )
    
    
    (1,367
    )
    
    
    (1,482
    )
    
    
    (2,178
    )Pro forma net income (loss)
    
    
    ($31,353
    )
    
    $
    5,707
    
    
    
    ($27,688
    )
    
    $
    10,481Earnings (Loss) per share-Continuing OperationsBasic-as reported
    
    
    ($1.07
    )
    
    $
    0.22
    
    
    
    ($0.93
    )
    
    $
    0.42Basic-pro forma
    
    
    ($1.08
    )
    
    $
    0.20
    
    
    
    ($0.95
    )
    
    $
    0.37Diluted-as reported
    
    
    ($1.07
    )
    
    $
    0.22
    
    
    
    ($0.93
    )
    
    $
    0.42Diluted-pro forma
    
    
    ($1.08
    )
    
    $
    0.20
    
    
    
    ($0.95
    )
    
    $
    0.36
 THREE MONTHS ENDED JUNE 30,
    
    SIX MONTHS ENDED JUNE 30,(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Net income (loss), available to common shareholders, as reported
    
    
    ($34,375
    )
    
    $
    1,769
    
    
    
    ($30,460
    )
    
    $
    7,698Add: Stock-based employee compensation expense included in reported
net income, net of related tax effects
    
    
    492
    
    
    
    749
    
    
    
    651
    
    
    
    539Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    (582
    )
    
    
    (1,267
    )
    
    
    (1,482
    )
    
    
    (2,178
    )Pro forma net income (loss)
    
    
    ($34,465
    )
    
    $
    1,251
    
    
    
    ($31,291
    )
    
    $
    6,059Earnings (Loss) per share:Basic-as reported
    
    
    ($1.18
    )
    
    $
    0.06
    
    
    
    ($1.05
    )
    
    $
    0.27Basic-pro forma
    
    
    ($1.18
    )
    
    $
    0.04
    
    
    
    ($1.08
    )
    
    $
    0.21Diluted-as reported
    
    
    ($1.18
    )
    
    $
    0.06
    
    
    
    ($1.05
    )
    
    $
    0.27Diluted-pro forma
    
    
    ($1.18
    )
    
    $
    0.04
    
    
    
    ($1.08
    )
    
    $
    0.21
 At June 30, 2004, there
were 936,339 unvested options outstanding. Upon a change of control, as defined in the 2002 Long-Term Incentive Plan,
all options become fully vested. There were 7,528,405 stock options outstanding at June 30, 2004 with an exercise price range of $10.00 to $30.25
and a weighted average exercise price of $15.61. 13




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 5.
    
    OTHER COMPREHENSIVE INCOME (LOSS)
 BEFORE -
    
    
    TAXTAX
    
    
    (EXPENSE)
    
    
    NET-OF-TAXAMOUNT
    
    
    BENEFIT
    
    
    AMOUNTSIX MONTHS ENDED JUNE 30, 2003:Foreign Currency Translation Adjustments
    
    $
    138
    
    
    $
    (48
    )
    
    $
    90Unrealized Gains on Securities:Unrealized Holding Gains Arising During Period
    
    
    6,268
    
    
    
    (2,204
    )
    
    
    4,064Reclassification Adjustment for Gains Realized in Net Income
    
    
    (11,134
    )
    
    
    3,897
    
    
    
    (7,237
    )Net
Unrealized Loss on Securities
    
    
    (4,866
    )
    
    
    1,693
    
    
    
    (3,173
    )Unrealized Gains on Derivatives:Unrealized Holding Gains Arising During Period
    
    
    1,005
    
    
    
    (352
    )
    
    
    653Reclassification Adjustment for Gains Realized in Net Income
    
    
    
    
    
    
    
    
    
    
    Net
Unrealized Gains on Derivatives
    
    
    1,005
    
    
    
    (352
    )
    
    
    653Other Comprehensive Loss
    
    $
    (3,723
    )
    
    $
    1,293
    
    
    $
    (2,430
    )SIX MONTHS ENDED JUNE 30, 2004:Foreign Currency Translation Adjustments
    
    $
    (700
    )
    
    $
    245
    
    
    $
    (455
    )Unrealized Losses on Securities:Unrealized Holding Losses Arising During Period
    
    
    (28,169
    )
    
    
    9,717
    
    
    
    (18,452
    )Reclassification Adjustment for Gains Realized in Net Income
    
    
    (226
    )
    
    
    79
    
    
    
    (147
    )Net Unrealized Losses on Securities
    
    
    (28,395
    )
    
    
    9,796
    
    
    
    (18,599
    )Unrealized Gains on Derivatives:Unrealized Holding Gains Arising During Period
    
    
    1,431
    
    
    
    (501
    )
    
    
    930Reclassification Adjustment for Gains Realized in Net Income
    
    
    
    
    
    
    
    
    
    
    Net Unrealized Gains on Derivatives
    
    
    1,431
    
    
    
    (501
    )
    
    
    930Other Comprehensive Loss
    
    $
    (27,664
    )
    
    $
    9,540
    
    
    $
    (18,124
    )
 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)SIX MONTHS ENDED JUNE 30, 2003:Balance, December 31, 2002
    
    $
    (4,154
    )
    
    $
    12,746
    
    
    $
    (3,124
    )
    
    $
    5,468Period Change
    
    
    90
    
    
    
    (3,173
    )
    
    
    653
    
    
    
    (2,430
    )Balance, June 30, 2003
    
    $
    (4,064
    )
    
    $
    9,573
    
    
    $
    (2,471
    )
    
    $
    3,038SIX MONTHS ENDED JUNE 30, 2004:Balance, December 31, 2003
    
    $
    (2,687
    )
    
    $
    (5,203
    )
    
    $
    (1,490
    )
    
    $
    (9,380
    )Period Change
    
    
    (455
    )
    
    
    (18,599
    )
    
    
    930
    
    
    
    (18,124
    )Balance, June 30, 2004
    
    $
    (3,142
    )
    
    $
    (23,802
    )
    
    $
    (560)
    
    
    $
    (27,504
    )
 14




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 6:
    
    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 2003 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 are
allocated to each operating segment based on number of employees, service usage and other factors relevant to the expense incurred. Geographic
financial information is provided in Note 15 of Notes to Consolidated Financial Statements in the Companys 2003 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. Beginning in the first quarter of 2004, the segment previously reported as Riggs & Co. is, due to an organizational
realignment, included in the Banking segment. Prior periods have been adjusted to reflect this change. Prior periods have also 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,
government contractors and embassy and diplomatic customers. Wholesale banking also provides cash management services, investment
management services (through Riggs Investment Advisors) and (through
its Multi-Employer Property Trust unit) as trustee to a commingled real estate
fund. The Banking Segment operations at June 30, 2004 are primarily conducted through 49 branch offices and 151 ATMs in and around Washington,
D.C. International Banking  As previously noted, Riggs will exit or sell its international banking business. Riggs is pursuing a buyer for its London and Channel Islands
operations, closing its Edge Act chartered subsidiary in Miami and exiting its foreign embassy relationships. 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. 15




---



##### 



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 high-tech and
high-growth 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
    
    
    
    
    
    
    
    
    
    
    NATIONALJUNE 30, 2004
    
    BANKING
    
    
    BANKING
    
    
    TREASURY
    
    
    PARTNERS
    
    
    OTHER
    
    
    RECONCILIATION
    
    
    CORPORATIONNET INTEREST INCOMEInterest Income
    
    $
    36,751
    
    
    $
    2,064
    
    
    $
    18,032
    
    
    $
    
    
    
    $
    6,042
    
    
    $
    (6,382
    )
    
    $
    56,507Interest Expense
    
    
    2,925
    
    
    
    1,515
    
    
    
    8,839
    
    
    
    
    
    
    
    10,358
    
    
    
    (6,382
    )
    
    
    17,255Funds Transfer Income (Expense)
    
    
    (340
    )
    
    
    9,109
    
    
    
    (9,441
    )
    
    
    
    
    
    
    672
    
    
    
    
    
    
    
    Net Interest Income (Loss)
    
    
    33,486
    
    
    
    9,658
    
    
    
    (248
    )
    
    
    
    
    
    
    (3,644
    )
    
    
    
    
    
    
    39,252Provision for Loan Losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Interest Income (Loss) after Provision
    
    $
    33,486
    
    
    $
    9,658
    
    
    $
    (248
    )
    
    $
    
    
    
    $
    (3,644
    )
    
    $
    
    
    
    $
    39,252NONINTEREST INCOMENoninterest Income-External
Customers
    
    $
    21,380
    
    
    $
    317
    
    
    $
    796
    
    
    $
    2,008
    
    
    $
    1,164
    
    
    
    
    
    
    $
    25,665Intersegment Noninterest Income
    
    
    670
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    (1,485
    )
    
    
    Total Noninterest Income
    
    $
    22,050
    
    
    $
    653
    
    
    $
    796
    
    
    $
    2,008
    
    
    $
    1,643
    
    
    $
    (1,485
    )
    
    $
    25,665NONINTEREST EXPENSEDirect Depreciation and Amortization
    
    $
    1,179
    
    
    $
    70
    
    
    $
    1
    
    
    $
    3
    
    
    $
    3,210
    
    
    
    
    
    
    $
    4,463Direct Expense
    
    
    22,882
    
    
    
    3,522
    
    
    
    1,161
    
    
    
    149
    
    
    
    69,933
    
    
    
    (1,485
    )
    
    
    96,162Overhead and Support
    
    
    24,262
    
    
    
    28,828
    
    
    
    532
    
    
    
    
    
    
    
    (53,622
    )
    
    
    
    
    
    
    Total Noninterest Expense
    
    $
    48,323
    
    
    $
    32,420
    
    
    $
    1,694
    
    
    $
    152
    
    
    $
    19,521
    
    
    $
    (1,485
    )
    
    $
    100,625Income (Loss) Before Taxes and Minority Interest
    
    $
    7,213
    
    
    $
    (22,109
    )
    
    $
    (1,146
    )
    
    $
    1,856
    
    
    $
    (21,522
    )
    
    $
    
    
    
    $
    (35,708
    )Taxes
    
    $
    1,799
    
    
    $
    (1,117
    )
    
    $
    (280
    )
    
    $
    
    
    
    $
    (5,878
    )
    
    
    
    
    
    $
    (5,476
    )Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    1,018
    
    
    
    
    
    
    
    1,031Income (Loss) from Continuing Operations
    
    $
    5,414
    
    
    $
    (20,992
    )
    
    $
    (866
    )
    
    $
    1,843
    
    
    $
    (16,662
    )
    
    $
    
    
    
    $
    (31,263
    )Income (Loss) from Discontinued
Operations, net of taxes
    
    
    
    
    
    
    (3,112
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,112
    )Net Income (Loss)
    
    $
    5,414
    
    
    $
    (24,104
    )
    
    $
    (866
    )
    
    $
    1,843
    
    
    $
    (16,662
    )
    
    $
    
    
    
    $
    (34,375
    )Total Average Assets
    
    $
    3,688,993
    
    
    $
    559,857
    
    
    $
    2,819,766
    
    
    $
    45,813
    
    
    $
    653,045
    
    
    $
    (1,185,152
    )
    
    $
    6,582,322
 16




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED THREE MONTHS
    
    
    
    
    
    
    
    
    
    
    
    
    
    RIGGS
    
    
    
    
    
    
    
    
    
    
    RIGGSENDED
    
    
    
    
    
    INTERNATIONAL
    
    
    
    
    
    
    CAPITAL
    
    
    
    
    
    
    
    
    
    
    NATIONALJUNE 30, 2003
    
    BANKING
    
    
    BANKING
    
    
    TREASURY
    
    
    PARTNERS
    
    
    OTHER
    
    
    RECONCILIATION
    
    
    CORPORATIONNET INTEREST INCOMEInterest Income
    
    $
    38,638
    
    
    $
    3,292
    
    
    $
    20,887
    
    
    $
    3
    
    
    $
    8,338
    
    
    $
    (12,283
    )
    
    $
    58,875Interest Expense
    
    
    6,729
    
    
    
    4,678
    
    
    
    5,998
    
    
    
    
    
    
    
    9,529
    
    
    
    (12,283
    )
    
    
    14,651Funds Transfer Income (Expense)
    
    
    4,110
    
    
    
    10,725
    
    
    
    (16,478
    )
    
    
    (744
    )
    
    
    2,387
    
    
    
    
    
    
    
    Net Interest Income (Loss)
    
    
    36,019
    
    
    
    9,339
    
    
    
    (1,589
    )
    
    
    (741
    )
    
    
    1,196
    
    
    
    
    
    
    
    44,224Provision for Loan Losses
    
    
    (722
    )
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (815
    )Net Interest Income (Loss) after Provision
    
    $
    35,297
    
    
    $
    9,246
    
    
    $
    (1,589
    )
    
    $
    (741
    )
    
    $
    1,196
    
    
    $
    
    
    
    $
    43,409NONINTEREST INCOMENoninterest Income-External
Customers
    
    $
    21,474
    
    
    $
    718
    
    
    $
    7,432
    
    
    $
    (400
    )
    
    $
    13
    
    
    
    
    
    
    $
    29,237Intersegment Noninterest Income
    
    
    1,492
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    520
    
    
    
    (2,054
    )
    
    
    Total Noninterest Income
    
    $
    22,966
    
    
    $
    760
    
    
    $
    7,432
    
    
    $
    (400
    )
    
    $
    533
    
    
    $
    (2,054
    )
    
    $
    29,237NONINTEREST EXPENSEDirect Depreciation and Amortization
    
    $
    1,033
    
    
    $
    43
    
    
    $
    2
    
    
    $
    4
    
    
    $
    2,364
    
    
    
    
    
    
    $
    3,446Direct Expense
    
    
    26,558
    
    
    
    3,872
    
    
    
    992
    
    
    
    218
    
    
    
    25,509
    
    
    
    (2,054
    )
    
    
    55,095Overhead and Support
    
    
    21,653
    
    
    
    2,696
    
    
    
    768
    
    
    
    107
    
    
    
    (25,224
    )
    
    
    
    
    
    
    Total Noninterest Expense
    
    $
    49,244
    
    
    $
    6,611
    
    
    $
    1,762
    
    
    $
    329
    
    
    $
    2,649
    
    
    $
    (2,054
    )
    
    $
    58,541Income (Loss) Before Taxes and
Minority Interest
    
    $
    9,019
    
    
    $
    3,395
    
    
    $
    4,081
    
    
    $
    (1,470
    )
    
    $
    (920
    )
    
    
    $
    
    
    $
    14,105Taxes
    
    $
    2,344
    
    
    $
    387
    
    
    $
    1,452
    
    
    $
    
    
    
    $
    53
    
    
    $
    
    
    
    $
    4,236Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    3,548
    
    
    
    
    
    
    
    3,544Income (Loss) from Continuing Operations
    
    $
    6,675
    
    
    $
    3,008
    
    
    $
    2,629
    
    
    $
    (1,466
    )
    
    $
    (4,521
    )
    
    
    $
    
    
    $
    6,325Income (Loss) from Discontinued
Operations, net of taxes
    
    
    
    
    
    
    (4,556
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,556
    )Net Income (Loss)
    
    $
    6,675
    
    
    $
    (1,548
    )
    
    $
    2,629
    
    
    $
    (1,466
    )
    
    $
    (4,521
    )
    
    
    $
    
    
    $
    1,769Total Average Assets
    
    $
    3,530,263
    
    
    $
    697,154
    
    
    $
    3,046,921
    
    
    $
    59,235
    
    
    $
    802,416
    
    
    $
    (1,648,897
    )
    
    $
    6,487,092
 17




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED SIX MONTHS
    
    
    
    
    
    
    
    
    
    
    
    
    
    RIGGS
    
    
    
    
    
    
    
    
    
    
    RIGGSENDED
    
    
    
    
    
    INTERNATIONAL
    
    
    
    
    
    
    CAPITAL
    
    
    
    
    
    
    
    
    
    
    NATIONALJUNE 30, 2004
    
    BANKING
    
    
    BANKING
    
    
    TREASURY
    
    
    PARTNERS
    
    
    OTHER
    
    
    RECONCILIATION
    
    
    CORPORATIONNET INTEREST INCOMEInterest Income
    
    $
    73,154
    
    
    $
    5,151
    
    
    $
    35,534
    
    
    $
    1
    
    
    $
    11,379
    
    
    $
    (11,958
    )
    
    $
    113,261Interest Expense
    
    
    5,929
    
    
    
    4,858
    
    
    
    15,335
    
    
    
    
    
    
    
    20,709
    
    
    
    (11,958
    )
    
    
    34,873Funds Transfer Income (Expense)
    
    
    (1,377
    )
    
    
    16,915
    
    
    
    (15,513
    )
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    Net Interest Income (Loss)
    
    
    65,848
    
    
    
    17,208
    
    
    
    4,686
    
    
    
    1
    
    
    
    (9,355
    )
    
    
    
    
    
    
    78,388Provision for Loan Losses
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Net Interest Income (Loss) after Provision
    
    $
    65,848
    
    
    $
    17,210
    
    
    $
    4,686
    
    
    $
    1
    
    
    $
    (9,357
    )
    
    $
    
    
    
    $
    78,388NONINTEREST INCOMENoninterest Income-External
Customers
    
    $
    43,030
    
    
    $
    875
    
    
    $
    2,155
    
    
    $
    1,841
    
    
    $
    2,269
    
    
    
    
    
    
    $
    50,170Intersegment Noninterest Income
    
    
    1,296
    
    
    
    416
    
    
    
    
    
    
    
    
    
    
    
    955
    
    
    
    (2,667
    )
    
    
    Total Noninterest Income
    
    $
    44,326
    
    
    $
    1,291
    
    
    $
    2,155
    
    
    $
    1,841
    
    
    $
    3,224
    
    
    $
    (2,667
    )
    
    $
    50,170NONINTEREST EXPENSEDirect Depreciation and Amortization
    
    $
    2,325
    
    
    $
    139
    
    
    $
    2
    
    
    $
    7
    
    
    $
    6,005
    
    
    
    
    
    
    $
    8,478Direct Expense
    
    
    45,781
    
    
    
    7,165
    
    
    
    2,130
    
    
    
    299
    
    
    
    96,280
    
    
    
    (2,667
    )
    
    
    148,988Overhead and Support
    
    
    41,818
    
    
    
    31,132
    
    
    
    844
    
    
    
    
    
    
    
    (73,794
    )
    
    
    
    
    
    
    Total Noninterest Expense
    
    $
    89,924
    
    
    $
    38,436
    
    
    $
    2,976
    
    
    $
    306
    
    
    $
    28,491
    
    
    $
    (2,667
    )
    
    $
    157,466Income (Loss) Before Taxes and
Minority Interest
    
    $
    20,250
    
    
    $
    (19,935
    )
    
    $
    3,865
    
    
    $
    1,536
    
    
    $
    (34,624
    )
    
    $
    
    
    
    $
    (28,908
    )Taxes
    
    $
    5,654
    
    
    $
    (1,123
    )
    
    $
    1,476
    
    
    $
    
    
    
    $
    (9,832
    )
    
    $
    
    
    
    $
    (3,825
    )Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1,764
    
    
    
    
    
    
    
    1,774Income (Loss) from Continuing Operations
    
    $
    14,596
    
    
    $
    (18,812
    )
    
    $
    2,389
    
    
    $
    1,526
    
    
    $
    (26,556
    )
    
    $
    
    
    
    $
    (26,857
    )Income (Loss) from Discontinued
Operations, net of taxes
    
    
    
    
    
    
    (3,603
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,603
    )Net Income (Loss)
    
    $
    14,596
    
    
    $
    (22,415
    )
    
    $
    2,389
    
    
    $
    1,526
    
    
    $
    (26,556
    )
    
    $
    
    
    
    $
    (30,460
    )Total Average Assets
    
    $
    3,676,830
    
    
    $
    604,676
    
    
    $
    2,615,882
    
    
    $
    45,657
    
    
    $
    663,806
    
    
    $
    (1,194,899
    )
    
    $
    6,411,952
 18




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED SIX MONTHS
    
    
    
    
    
    
    
    
    
    
    
    
    
    RIGGS
    
    
    
    
    
    
    
    
    
    
    RIGGSENDED
    
    
    
    
    
    INTERNATIONAL
    
    
    
    
    
    
    CAPITAL
    
    
    
    
    
    
    
    
    
    
    NATIONALJUNE 30, 2003
    
    BANKING
    
    
    BANKING
    
    
    TREASURY
    
    
    PARTNERS
    
    
    OTHER
    
    
    RECONCILIATION
    
    
    CORPORATIONNET INTEREST INCOMEInterest Income
    
    $
    78,486
    
    
    $
    6,240
    
    
    $
    43,361
    
    
    $
    8
    
    
    $
    16,666
    
    
    $
    (24,023
    )
    
    $
    120,738Interest Expense
    
    
    15,140
    
    
    
    8,733
    
    
    
    11,012
    
    
    
    
    
    
    
    19,058
    
    
    
    (24,023
    )
    
    
    29,920Funds Transfer Income (Expense)
    
    
    11,526
    
    
    
    20,356
    
    
    
    (35,301
    )
    
    
    (1,529
    )
    
    
    4,948
    
    
    
    
    
    
    
    Net Interest Income (Loss)
    
    
    74,872
    
    
    
    17,863
    
    
    
    (2,952
    )
    
    
    (1,521
    )
    
    
    2,556
    
    
    
    
    
    
    
    90,818Provision for Loan Losses
    
    
    (2,044
    )
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (2,215
    )Net Interest Income (Loss) after Provision
    
    $
    72,828
    
    
    $
    17,695
    
    
    $
    (2,952
    )
    
    $
    (1,521
    )
    
    $
    2,553
    
    
    $
    
    
    
    $
    88,603NONINTEREST INCOMENoninterest Income-External
Customers
    
    $
    42,999
    
    
    $
    1,544
    
    
    $
    12,660
    
    
    $
    (2,585
    )
    
    $
    11
    
    
    
    
    
    
    $
    54,629Intersegment Noninterest Income
    
    
    2,949
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    1,040
    
    
    
    (4,070
    )
    
    
    Total Noninterest Income
    
    $
    45,948
    
    
    $
    1,625
    
    
    $
    12,660
    
    
    $
    (2,585
    )
    
    $
    1,051
    
    
    $
    (4,070
    )
    
    $
    54,629NONINTEREST EXPENSEDirect Depreciation and Amortization
    
    $
    2,066
    
    
    $
    91
    
    
    $
    5
    
    
    $
    8
    
    
    $
    4,699
    
    
    
    
    
    
    $
    6,869Direct Expense
    
    
    53,507
    
    
    
    7,905
    
    
    
    1,969
    
    
    
    440
    
    
    
    48,167
    
    
    
    (4,070
    )
    
    
    107,918Overhead and Support
    
    
    40,756
    
    
    
    5,002
    
    
    
    1,516
    
    
    
    201
    
    
    
    (47,475
    )
    
    
    
    
    
    
    Total Noninterest Expense
    
    $
    96,329
    
    
    $
    12,998
    
    
    $
    3,490
    
    
    $
    649
    
    
    $
    5,391
    
    
    $
    (4,070
    )
    
    $
    114,787Income (Loss) Before Taxes and
Minority Interest
    
    $
    22,447
    
    
    $
    6,322
    
    
    $
    6,218
    
    
    $
    (4,755
    )
    
    $
    (1,787
    )
    
    $
    
    
    
    $
    28,445Taxes
    
    $
    6,266
    
    
    $
    971
    
    
    $
    2,268
    
    
    $
    
    
    
    $
    (255
    )
    
    $
    
    
    
    $
    9,250Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    7,096
    
    
    
    
    
    
    
    7,075Income (Loss) from Continuing Operations
    
    $
    16,181
    
    
    $
    5,351
    
    
    $
    3,950
    
    
    $
    (4,734
    )
    
    $
    (8,628
    )
    
    $
    
    
    
    $
    12,120Income (Loss) from Discontinued Operations, net of taxes
    
    
    
    
    
    
    (4,422
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,422
    )Net Income (Loss)
    
    $
    16,181
    
    
    $
    929
    
    
    $
    3,950
    
    
    $
    (4,734
    )
    
    $
    (8,628
    )
    
    $
    
    
    
    $
    7,698Total Average Assets
    
    $
    3,490,650
    
    
    $
    653,055
    
    
    $
    3,207,271
    
    
    $
    60,222
    
    
    $
    795,044
    
    
    $
    (1,575,542
    )
    
    $
    6,630,700
 NOTE 7:
    
    ACCOUNTING FOR DERIVATIVES
 See Note 1 of Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for a discussion of the Companys accounting policies
related to derivatives. The Company utilizes the following types of hedging instruments: Fair Value Hedges  The Company enters into pay fixed, receive floating interest rate swaps to hedge changes in fair value of fixed rate loans
attributable to changes in benchmark interest rates. At June 30, 2004 and 2003, Riggs had no fair value hedges. Cash Flow Hedges  Riggs uses interest rate swaps to hedge its exposure to variability in expected future cash outflows on floating rate liabilities
attributable to changes in interest rates. At June 30, 2004, Riggs had six such interest rate swaps with a total notional value of $45.7 million
compared to seven swaps with a total notional of $46.6 million at June 30, 2003. The Company also uses foreign currency forward contracts to
hedge the foreign exchange risk associated with principal and interest payments on loans denominated in a foreign currency. At June 30, 2004, there
were no foreign currency forward contracts compared to one such contract with a total notional value of $517 million at June 30, 2003. Gains or losses on derivatives that are reclassified from Accumulated Other Comprehensive Income to income are included in the line in the
Consolidated Statement of Operations in which the income or expense related to the hedged item is recorded. At June 30, 2004, there were no
deferred net losses on derivative instruments in Accumulated Other Comprehensive Income to be reclassified as expense during the next twelve
months compared to $6 thousand of deferred net losses at June 30, 2003. The maximum term over which Riggs was hedging its exposure to the
variability of cash flows was forty-six months as of June 30, 2004 and fifty-eight months as of June 30, 2003. 19




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Company uses forward exchange contracts to hedge substantially all of its net investment in a foreign subsidiary. The purpose of this hedge
is to
protect against adverse movements in currency exchange rates, in this case for British pounds sterling. At June 30, 2004, $174 thousand of net
gains
related to the existing net investment forward exchange contract are included in Accumulated Other Comprehensive Income compared to $575
thousand of net gains at June 30, 2003. The corresponding notional values for these periods was $76.4 million and $76.8 million, respectively. The impact on the Consolidated Statements of Operations from these swaps was a gain of $165 thousand for the first six months of 2004 and a gain
of $172 thousand for the same period in 2003. Of these gains, $155 thousand and $256 thousand are recorded in Income from Discontinued
Operations at June 30, 2004 and 2003, respectively. In addition, the Company has certain derivative instruments used to manage interest rate risk that are not designated to specific hedge
relationships.
These instruments are marked to market through current period earnings. At June 30, 2004 Riggs had three such interest rate contracts and four
such
forward contracts with a total notional value of $24.7 million compared to twenty interest rate contracts and two forward contracts with a total
notional value of $81.1 million at June 30, 2003. The carrying value of these items is a net liability held for sale of $57 thousand and $434
thousand
at June 30, 2004 and 2003, respectively. NOTE
8:        CONSENT ORDER, CIVIL MONEY PENALTY AND OTHER MATTERS
 In July 2003, Riggs Bank N.A. (the 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 Consent Order requires the 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, the 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, the Bank entered into a
Consent to the Assessment of Civil Money Penalty with the Financial Crimes Enforcement Network. These consents were entered into as
a result of the banking regulators allegations that the 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 the Bank operates in a safe and sound manner with respect to BSA
compliance. The May 2004 Consent Order requires the Bank to take various actions as more fully described in the next paragraph, with respect to
BSA compliance. Concurrently with the May 2004 Consent Order, the Bank was assessed and paid a
civil money penalty of $25 million. Among the more significant OCC-required actions the Bank is required to take under the May 2004 Consent Order are (1) a review and evaluation of
the adequacy of the Banks
staffing skills and levels with regard to meeting its obligations under the consent order, (2) an evaluation of the
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 Bank dividend policy 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 the Banks operations,
determine the 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 the 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. 20




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Also in May 2004, the Company and Riggs International Banking Corporation (RIBC), the Companys Miami Edge Act subsidiary, entered into a
Cease and Desist Order with the Board of Governors of the Federal Reserve System (the Federal Reserve) which generally requires that (1) the
Company hire an independent consultant to review the functions and performance of the Board of Directors and senior management, (2) the
Companys Board of Directors submit a plan to the Federal Reserve Bank of Richmond to strengthen board oversight of the management and
operations of the Company and its subsidiaries, (3) the Company submit to the Federal Reserve Bank of Richmond a plan to improve the risk
management practices of the Company and its subsidiaries, and (4) the Company submit to the Federal Reserve Bank of Richmond an internal audit
program. The 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 Cease and Desist Order requires
that the Company and RIBC, as the case may be, adopt and comply with such plans. The Cease and Desist Order does not impose a monetary penalty, but does require, however, that the Company 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. The operations of RIBC are currently
being
wound down. The July 2003 Consent Order, the May 2004 Consent Orders and the Cease and Desist Order allow the regulators to take whatever future actions
deemed necessary to fulfill their regulatory obligations and remain in effect until waived or terminated by the regulators. Primarily as a direct result
of the above noted BSA criticisms, each of the Bank and the Company 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 Companys
BSA-related regulatory problems have significantly increased its
costs of doing business and the company expects to continue to
incur significant expenses in connection therewith. During the first half of 2004, Riggs had
approximately $7.9 million of consulting and legal costs attributable to these matters. Because it has been designated as being in a troubled
condition, the Banks FDIC quarterly insurance assessment increased by approximately $250 thousand from the first to the second quarter of 2004. The July 2003 Consent Order is included in a Current Report on Form 8-K dated July 17, 2003 and the May 2004 Consent Order and the Cease and
Desist Order are included in a Current Report on Form 8-K dated May 17, 2004. As noted in Form 10-Q for the
quarterly period ended March 31, 2004, 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. Riggs continues to negotiate with other participants in the trust regarding the transitioning to another trustee and the amount and
timing of the consideration to be received by the Company. NOTE 9:
    
    RELATED PARTY TRANSACTIONS
 Prior to and during the six months ended June 30, 2004, 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, 2003. At June 30, 2004, the Company had $206.2 million of debt payable to Riggs Capital II, an
unconsolidated subsidiary. 21




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 10:
    
    NEW FINANCIAL ACCOUNTING STANDARDS
 In March 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 105 (SAB 105), Application of Accounting Principles
to Loan Commitments. SAB No. 105 provides guidance regarding loan commitments accounted for as derivative instruments, and is effective for
quarters beginning April 1, 2004. The Company is currently retaining substantially all of the loans it originates and therefore SAB No. 105 does not
have a material impact. NOTE 11:
    
    LITIGATION
 In the normal course of business there are other lawsuits pending against Riggs National Corporation and its subsidiaries. The Company intends to
aggressively defend itself against such suits. On April 7, 2004 and April 28, 2004, Company shareholders filed substantially similar purported derivative actions in the Court of Chancery of the
State of Delaware in and for New Castle County against the Companys Board of Directors. On April 17, 2004, Company shareholders filed a
purported derivative action in the Superior Court of the District of Columbia against the Companys Board of Directors, substantially similar to the
actions filed by Company shareholders in the Court of Chancery of the State of Delaware in and for New Castle County. The complaints each allege
that the Company violated its fiduciary duties in relation to a variety of matters, including, among others, the compliance by the Company with
various anti-money laundering laws and various aspects of the Banks international and embassy businesses. The lawsuits each seek, on behalf of the
Company, among other things, monetary damages and certain types of equitable relief. The Company is subject to numerous investigations by, and inquiries
from, various U.S. and foreign government agencies and authorities.
Some of the investigations and inquiries involve current or former
employees of the Company. These investigations and inquiries include,
among other things, accounts maintained by Equatorial Guinea, Saudi
Arabia and Augusto Pinochet and the Companys anti-money
laundering and BSA compliance. In connection with
investigations regarding the Companys Chief Risk Officer
resulting from his formerly being the OCC examiner in charge of the
Bank, the Company has placed such officer on leave. The Company
is currently in the process of attempting to review these matters. It
is not possible for the Company to predict the impact or effect of these
investigations, inquiries and matters. Certain Riggs Bank directors
or executive officers have been added as defendants to a criminal
Spanish court action involving the accounts of Augusto Pinochet. NOTE 12:
    
    NET PERIODIC PENSION COST
 The Companys net periodic costs for the pension plan and postretirement health and life insurance benefits are as follows: Components of Net Period Benefit Cost
(IN THOUSANDS) RIGGS NATIONAL CORPORATIONSix months ended June 30,Other PostPension
    
    Retirement Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Service cost
    
    $
    119
    
    
    $
    120
    
    
    $
    245
    
    
    $
    259Interest cost
    
    
    3,181
    
    
    
    3,160
    
    
    
    855
    
    
    
    832Expected return on plan assets
    
    
    (4,043
    )
    
    
    (3,935
    )
    
    
    
    
    
    
    Amortization of transition amount
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    178Amortization of prior service cost
    
    
    (57
    )
    
    
    (60
    )
    
    
    (1,535
    )
    
    
    (1,535
    )Amortization of the net (gain) loss
    
    
    2,545
    
    
    
    2,660
    
    
    
    1,653
    
    
    
    1,662Net periodic benefit cost
    
    $
    1,745
    
    
    $
    1,945
    
    
    $
    1,396
    
    
    $
    1,396
 The Company did not make any contributions to the pension plan during the six month periods ending June 30, 2004 and 2003. The Company
has not yet determined whether it will make a contribution to the pension plan in 2004. NOTE 13:
    
    PENDING MERGER
 On July 16, 2004, The PNC Financial Services Group, Inc. (PNC) and Riggs National Corporation entered into an Agreement and Plan of Merger
(the Merger Agreement) under which PNC agreed to acquire the Company. Under the terms of the Merger Agreement, Riggs National Corporation will merge into PNC and Riggs Bank will merge into PNC Bank, National
Association. 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, based upon the number of shares
outstanding at the time the Merger Agreement was signed is composed of 7,533,648 shares of PNCs common stock and $321 million in cash, 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 22




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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 equal value based on that average price. Riggs options outstanding as of
the merger will be cashed out. Total consideration paid by PNC is
expected to be approximately $774 million based upon PNCs
stock value and the number of Riggs shares outstanding at the time
of the merger announcement. In connection with the merger, Riggs has agreed to coordinate its dividend record and payment dates with those of PNC by using the same record and
payment dates used by PNC for payments of cash dividends on PNC common stock. Accordingly, Riggs expects to pay its next quarterly dividend in
October 2004, subject to prior regulatory approval. PNC has indicated to Riggs that it anticipates that the merger will be completed in the first quarter of 2005. NOTE 14:
    
    SUBSEQUENT EVENTS
 Subsequent to June 30, 2004, Riggs entered into an agreement to sell a bank property in London and agreed to a Letter of Intent to sell the corporate
aircraft formerly used in support of its international operations. The anticipated capital gain on the bank property in London is approximately $2.5
million. Net proceeds from the sale of the corporate aircraft approximate its carrying value and the transaction is expected to be completed within
the next 30 days. The Company retained the firm of Crowe Chizek (Crowe) to manage Project EPS, a two year long project to modernize the Companys technology
platform and re-design various operational processes. Under the terms of the Master Professional Services Agreement (MPSA) with Crowe, Crowe was
to be compensated in part based upon the monetary benefit derived by the Company as a result of specific projects and initiatives managed by them.
On several of these projects and initiatives, Riggs and Crowe do not agree as to the amount of benefits that Riggs has derived and, in July 2004, the
Company and Crowe mutually agreed to attempt to resolve the matter
through the mediation process set forth in the MPSA. Crowe has also alleged
material default by the Company of a number of requirements of the MPSA. The Company is analyzing the Crowe default claims. ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCAUTIONARY 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 2004 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 ability to successfully wind down and/or sell its international business operations, general
economic conditions-both domestic and international-and similar matters. 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. 23




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED 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. Riggs National Corporation is a bank holding company headquartered in Washington, D.C. The Company engages in a variety of banking and
financial services including community, commercial and international 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. The Company has 49 branch locations and 151 ATMs in the metropolitan Washington, D.C. area and a bank in the United Kingdom. It has
additional operations or subsidiaries in London (England), Miami (Florida), Jersey (Channel Islands) and Nassau (Bahamas). The Company 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 7 of the Companys 2003 Annual Report on
Form 10-K. CRITICAL ACCOUNTING POLICIES AND ESTIMATES See Note 3 of Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a discussion of the Companys more
significant accounting policies and estimates. EXIT FROM INTERNATIONAL BUSINESS As noted in the
Companys Form 10-Q for the quarterly period ended
March 31, 2004, Riggs had intentions to exit or sell most of its international banking business
and focus its remaining embassy banking business on a select client base. Subsequent to June 30, 2004, the Company announced it would completely
exit its foreign embassy banking relationships either through a sale
or wind-down of activities. Accordingly, Riggs is pursuing a buyer for its London and Channel Islands operations, closing its
Miami office and exiting its foreign embassy relationships. The Company is also selling its corporate aircraft used in support of its international
operations. The operating results of the London and Channel
Islands operations, which are classified as held for sale and which include all recurring
operating
results as well as specific exit related expenses identified in the following paragraph, are reported as discontinued
operations in the Consolidated Statements of Operations.
The operating results of the Miami business and the embassy business,
which includes the expenses identified in the following
paragraph, are reported in results from continuing operations. The operating results of the
embassy business and Miami are included in continuing operations
since they dont meet the accounting criteria for discontinued operations. As part of the exit from its
international business, Riggs accrued approximately $2.3 million
of employee severance costs in the quarter ended June 30, 2004.
This severance is payable under the terms of an existing Company policy and is therefore accrued in accordance with SFAS No. 112 (Employers
Accounting for Postretirement Benefits). In addition, the Company recorded approximately $500 thousand of employee retention costs which are
accrued in accordance with SFAS No. 146 (Accounting for Costs Associated with Exit or Disposal Activities). The Company anticipates recording
approximately $900 thousand of additional retention expense in the second half of 2004. The Company also recorded approximately $300
thousand of additional exit-related expenses in the quarter ended June 30, 2004, most of which pertain to accruals for leasehold obligations at vacated
properties and writes-downs associated with abandoned fixed assets. Approximately $800 thousand of the above expenses are included in results from continuing operations, impacting the Banking Segment, and
approximately $2.3 million is included in the results of discontinued operations, impacting the International Banking Segment. 24




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED The Company recorded an impairment charge on its corporate aircraft that is held for sale of $7.1 million during the second quarter of 2004. The
amount of this charge was based upon an offer to purchase reduced by estimated selling costs. Consistent with its policy of allocating the operating
costs of the aircraft, 45% of the impairment charge was allocated to the International Banking Segment, 25% of the impairment charge was allocated
across all segments as part of general corporate overhead and 30% was charged to the Other Segment. The assets and liabilities that are held for sale at June 30, 2004, which are valued in the aggregate at the lower of cost or estimated market value
include: Assets:Cash
    
    $
    7,037Time Deposits with Other Banks
    
    
    130,753Loans
    
    
    152,558Bank Premises and Equipment
    
    
    39,124Other Assets
    
    
    3,486Total
    
    $
    332,958Liabilities:Noninterest-Bearing Demand Deposits
    
    $
    21,128Interest-Bearing Deposits
    
    
    139,929Other Liabilities
    
    
    5,685Total
    
    $
    166,742
 As noted above, the Company is attempting to sell its London and Channel Islands operations. If a buyer cannot be found, Riggs will wind
down these operations. A wind down would result in increased costs primarily related to the London pension plan and lease breakage fees. The
Company estimates that these increased costs are approximately $8.0 to $11.0 million. RESULTS OF OPERATIONS The Company recorded a loss from continuing operations of $31.3 million, or $(1.07) per share, and a net loss of $34.4 million, or $(1.18) per
share, in the second quarter of 2004 compared to income from continuing operations of $6.3 million, or $0.22 per diluted share, and net income of
$1.8 million, or $0.06 per diluted share, in the second quarter of 2003. The second quarter 2004 and 2003 results, which were, respectively, a net
loss and net income, include the results of both continuing and discontinued operations. For the six months ended June 30, 2004, the Company
reported a loss from continuing operations of $26.9 million, or $(0.93) per share, and a net loss of $30.5 million, or $(1.05) per share. During the
comparable period of 2003, Riggs recorded income from continuing operations of $12.1 million and net income of $7.7 million, or $0.42 and $0.27
per diluted share, respectively. The net loss for the six months of 2004 and the net income for the six months of 2003 include the results of both
continuing and discontinued operations. The decrease in earnings in the second quarter of 2004 was due primarily to the previously disclosed $25.0
million civil money penalty assessed by banking regulators for alleged violations of the Bank Secrecy Act (BSA). No tax benefit has been realized
as a result of this penalty. In addition, in the second quarter of 2004 the Company incurred approximately $7.2 million of consulting, legal and other
costs directly related to its BSA compliance efforts. Also in the second quarter of 2004, the Company recorded $10.2 million of expense related
to the implementation of its exit from the international banking business. Of the $10.2 million, approximately $2.3 million is included in loss from
discontinued operations and represents primarily employee severance arrangements. The remaining amount, which is included in loss from
continuing operations, includes a $7.1 million impairment charge taken on the corporate aircraft. The remaining expense included in the results of
continuing operations is primarily attributable to employee retention programs. The Company is attempting to sell its London and Channel Islands
operations. If a satisfactory buyer for these operations cannot be located, the Company will wind down these operations which, as noted above,
could result in additional costs of approximately $8.0 to $11.0 million. Return on average assets was (2.10)% and (.96)% for the three and six months ended June 30, 2004 compared to .11% and .23% for the same periods
a year ago. Return on average shareholders equity was (38.68)% and (16.63)% for the three and six months ended June 30, 2004 compared to 1.81%
and 3.95% for the same periods of 2003. 25




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED 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 $40.4
million in the second quarter of 2004, a $5.0 million (or 11%) decrease from the $45.4 million for the same quarter in 2003. This decrease was
attributable to both a decrease in the tax-equivalent rate earned on interest-earning assets and an increase in the rate paid on interest-bearing
liabilities.
Interest income on a tax equivalent basis declined $2.4 million, or 4%, in the second quarter of 2004 compared to the second quarter of 2003. This
decline in interest income is primarily attributable to decreases in rates on loans and securities available for sale, which decreased 40 and 24 basis
points, respectively, as well as changes in the mix of average earning assets. Average interest-bearing liabilities declined from the second
quarter of 2003 to the comparable period of 2004, while rates on these liabilities
increased from 1.18% to 1.52% in the same time period. The net
decline in balances was entirely in interest-bearing deposits, which decreased by
$1.10 billion, primarily as a result of a mid-2003 methodology change in the way the U.S. Treasury compensates financial agent banks as discussed
below. Rates on interest-bearing deposits declined by 20 basis points year-to-year. The decline in interest bearing deposits was partially offset by
increases in FHLB borrowings and long-term debt. Averages balances in that category increased $461.7 million for the three months ended June 30,
2004 compared to the same period a year ago. The rate on FHLB borrowings and long term debt increased from 2.93% to 4.30% in the same period,
due to new advances in the second quarter of 2004 for which the Company is paying higher rates, the reclassification of debt payable to the trusts
which issued trust preferred securities as discussed below, variable advances outstanding that converted into higher fixed term rates, and the overall
higher rate environment compared to the prior year. For the six months ended June 30, 2004, net interest income was
$80.8 million, a $12.4 million decrease from the
$93.2 million for the six months ended June 30, 2003. As
occurred in the three month period-to-period comparison, the decline was primarily due to declines in rates on loans and investment securities
available for sale, and the increase in volume and rates on FHLB borrowings and other long-term debt. These factors simultaneously decreased interest
income and increased interest expense. Net interest income in 2004 compared to 2003 was adversely impacted by a mid-year change in 2003 in the methodology by which the U.S. Treasury
compensates financial agent banks, such as Riggs. Prior to July 14, 2003, and therefore including the first and second quarters of 2003, Riggs as a
financial agent bank was compensated by net interest earned on interest-bearing U.S. Treasury deposits. These deposits required collateral in the form
of available for sale securities to be pledged against the deposits. Hence, for the first and second quarters of 2003, the methodology by which the
U.S.
Treasury compensated financial agent banks affected the average balance of interest-earning assets, interest-bearing liabilities and, as a result, net
interest income. Beginning July 14, 2003, Riggs utilized non-interest bearing U.S. Treasury deposits to purchase a non-marketable, U.S. Treasury-issued depositary compensation security (DCS) for the same amount as the U.S. Treasury deposits. The DCS and deposit balances were netted in the
Consolidated Statements of Financial Condition in accordance with FIN
39 (Offsetting of Amount Related to Certain Contracts) and, therefore, not
included in either average interest-earnings assets or average interest-bearing liabilities during the first quarter of 2004. Effective March 2004, the
U.S. Treasury neither maintains funds at Riggs to compensate it as a financial agent bank nor does Riggs hold a U.S. Treasury DCS. Rather,
commencing in March 2004, Riggs invoices the U.S. Treasury on a monthly basis for services performed as a financial agent bank. Income earned
by Riggs in its capacity as a financial agent bank in the second
quarter of and year-to-date 2004 was $2.0 million and $4.4 million, respectively, and
is reflected as a component of noninterest income. The average balance of deposits maintained by the U.S. Treasury to compensate Riggs as a
financial agent bank during the second quarter and first six months of 2003 was approximately $520.3 million and $825.2 million, respectively. During the second quarter and first six months of 2003, guaranteed preferred beneficial interests in junior subordinated deferrable interest debentures
were reported, net of the amount of these securities which had been repurchased by the Company, as minority interest. Accordingly, the expense of
these debentures was included in the Consolidated Statement of Operations for the periods ended June 30, 2003 as minority interest in income of
subsidiaries, net of taxes. During the first half of 2003, therefore, these debentures had no impact on the reported net interest income of the
Company. On October 1, 2003, however, the Company adopted FIN 46 (Consolidation of Variable Interest Entities) and therefore ceased
consolidating Riggs Capital and Riggs Capital II, the business trusts which had issued its Series A and Series C debentures. Riggs Capital II, the issuer of $200 million of 8.875% Series C debentures, remains an unconsolidated entity at June 30, 2004 and, accordingly, the
$206.2 million of Riggs National Corporation (Parent Company) debt payable to Riggs Capital II is a liability of the Company at this date. Interest
on this debt for the second quarter and first six months of 2004 in the amount of $4.6 million and $9.1 million, respectively, is included in long-term
interest expense in the Consolidated Statement of Operations. At June 30, 2004, the Company owned $49.9 million of the Series C debentures which
are classified as securities held to maturity on the Consolidated Statements of Condition. The average of Series C debentures owned by the Company
during the second quarter and first half of 2004 was $49.9 million and $24.4 million, respectively, and the income earned on these securities was $1.1
million and $2.2 million, respectively. Therefore the deconsolidation of Riggs Capital II had a $3.5 million and $6.9 million adverse impact on net
interest income in the three and six months ended June 30, 2004 when compared to the three and six month periods of 2003. 26




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##### 



ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED Riggs Capital, the issuer of $150 million of 8.625% Series A debentures, was also 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 as the Company is the primary beneficiary of Riggs Capital. As a result, the debt
payable by Riggs National Corporation (Parent Company) to Riggs Capital at June 30, 2004 and the related interest expense since reconsolidation
have been eliminated in consolidation. Interest expense on this debt which was incurred 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 six months ended June 30, 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 $29.9 million for the first quarter of 2004 and $14.9 million for the first six months of 2004
and $0.5 million of interest income on these securities is included in interest income for the six months prior to reconsolidation. Therefore the
deconsolidation of Riggs Capital had a $0.6 million adverse impact on net interest income in the first half of 2004 compared to the comparable
period of the prior year. At June 30, 2004, the Series A debentures outstanding are netted against the Series A debentures owned by the Company and reflected in the
Consolidated Statements of Condition as guaranteed preferred beneficial interests in junior subordinated deferrable interest debentures. The expense
related to these debentures is reflected in the Consolidated Statements of Operations as minority interest expense, net of taxes. An analysis of the changes in interest income and expense attributable to volume and rate changes follows: NET INTEREST INCOME CHANGES (1) THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30, 2004 VS. 2003
    
    JUNE 30, 2004 VS. 2003(TAX-EQUIVALENT BASIS)
    
    DUE TO
    
    
    DUE TO
    
    
    TOTAL
    
    
    DUE TO
    
    
    DUE TO
    
    
    TOTAL(IN THOUSANDS)
    
    RATE
    
    
    VOLUME
    
    
    CHANGE
    
    
    RATE
    
    
    VOLUME
    
    
    CHANGEInterest Income:Loans, Including Fees
    
    $
    (3,105
    )
    
    $
    2,135
    
    
    $
    (970
    )
    
    $
    (7,879
    )
    
    $
    4,711
    
    
    $
    (3,168
    )Securities Available for Sale
    
    
    (1,351
    )
    
    
    (622
    )
    
    
    (1,973
    )
    
    
    (1,698
    )
    
    
    (2,635
    )
    
    
    (4,333
    )Securities Held to Maturity
    
    
    
    
    
    
    1,096
    
    
    
    1,096
    
    
    
    
    
    
    
    2,646
    
    
    
    2,646Time Deposits with Other Banks
    
    
    95
    
    
    
    (149
    )
    
    
    (54
    )
    
    
    (93
    )
    
    
    (109
    )
    
    
    (202
    )Federal Funds Sold and Reverse
Repurchase Agreements
    
    
    (166
    )
    
    
    (306
    )
    
    
    (472
    )
    
    
    (522
    )
    
    
    (1,902
    )
    
    
    (2,424
    )Total Interest Income
    
    
    (4,527
    )
    
    
    2,154
    
    
    
    (2,373
    )
    
    
    (10,192
    )
    
    
    2,711
    
    
    
    (7,481
    )Interest Expense:Interest-Bearing Deposits
    
    
    (1,787
    )
    
    
    (2,114
    )
    
    
    (3,901
    )
    
    
    (4,500
    )
    
    
    (4,135
    )
    
    
    (8,635
    )Repurchase Agreements and Other
Short-Term Borrowings
    
    
    (989
    )
    
    
    922
    
    
    
    (67
    )
    
    
    (583
    )
    
    
    1,507
    
    
    
    924FHLB Borrowings and Other Long-Term Debt
    
    
    2,158
    
    
    
    4,414
    
    
    
    6,572
    
    
    
    3,119
    
    
    
    9,545
    
    
    
    12,664Total Interest Expense
    
    
    (618
    )
    
    
    3,222
    
    
    
    2,604
    
    
    
    (1,964
    )
    
    
    6,917
    
    
    
    4,953Net Interest Income
    
    $
    (3,909
    )
    
    $
    (1,068
    )
    
    $
    (4,977
    )
    
    $
    (8,228
    )
    
    $
    (4,206
    )
    
    $
    (12,434
    )
  (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. 27




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND 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 June 30 follows: THREE MONTHS ENDED
    
    THREE MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003(TAX-EQUIVALENT BASIS) (1)
    
    AVERAGE
    
    
    INCOME/
    
    
    
    
    
    
    AVERAGE
    
    
    INCOME/(IN THOUSANDS)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSLoans (2)
    
    $
    3,106,269
    
    
    $
    39,278
    
    
    
    5.09
    %
    
    $
    2,939,424
    
    
    $
    40,248
    
    
    
    5.49
    %Securities Held to Maturity
    
    
    49,775
    
    
    
    1,096
    
    
    
    8.86
    
    
    
    
    
    
    
    
    
    
    
    Securities Available for Sale (3)
    
    
    2,136,647
    
    
    
    16,507
    
    
    
    3.11
    
    
    
    2,209,490
    
    
    
    18,480
    
    
    
    3.35Time Deposits with Other Banks
    
    
    31,472
    
    
    
    166
    
    
    
    2.12
    
    
    
    66,812
    
    
    
    220
    
    
    
    1.32Federal Funds Sold and Reverse Repurchase Agreements
    
    
    256,726
    
    
    
    648
    
    
    
    1.02
    
    
    
    367,802
    
    
    
    1,120
    
    
    
    1.22Total Earning Assets and Average Rate Earned (5)
    
    
    5,580,889
    
    
    
    57,695
    
    
    
    4.16
    
    
    
    5,583,528
    
    
    
    60,068
    
    
    
    4.32Reserve for Loan Losses
    
    
    (26,065
    )
    
    
    
    
    
    
    
    
    
    
    (23,259
    )Cash and Due from Banks
    
    
    195,766
    
    
    
    
    
    
    
    
    
    
    
    172,197Assets Held for Sale
    
    
    369,743
    
    
    
    
    
    
    
    
    
    
    
    335,285Other Assets
    
    
    461,989
    
    
    
    
    
    
    
    
    
    
    
    419,341Total Assets
    
    $
    6,582,322
    
    
    
    
    
    
    
    
    
    
    $
    6,487,092LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS EQUITYInterest-Bearing Deposits
    
    $
    2,940,871
    
    
    $
    4,877
    
    
    
    0.67
    %
    
    $
    4,038,611
    
    
    $
    8,778
    
    
    
    0.87
    %Repurchase Agreements and Other Short-Term Borrowings
    
    
    694,580
    
    
    
    2,281
    
    
    
    1.32
    
    
    
    463,029
    
    
    
    2,348
    
    
    
    2.03FHLB Borrowings and Other Long-Term Debt
    
    
    944,188
    
    
    
    10,097
    
    
    
    4.30
    
    
    
    482,503
    
    
    
    3,525
    
    
    
    2.93Total Interest-Bearing Funds and Average Rate Paid
    
    
    4,579,639
    
    
    
    17,255
    
    
    
    1.52
    
    
    
    4,984,143
    
    
    
    14,651
    
    
    
    1.18Demand Deposits (4)
    
    
    1,257,677
    
    
    
    
    
    
    
    
    
    
    
    536,870Liabilities Held for Sale
    
    
    209,152
    
    
    
    
    
    
    
    
    
    
    
    196,207Other Liabilities
    
    
    105,740
    
    
    
    
    
    
    
    
    
    
    
    128,418Guaranteed Preferred Beneficial Interests in Junior
Subordinated Deferrable Interest Debentures
    
    
    72,634
    
    
    
    
    
    
    
    
    
    
    
    248,584Shareholders Equity
    
    
    357,480
    
    
    
    
    
    
    
    
    
    
    
    392,870Total Liabilities, Minority Interest and
Shareholders Equity
    
    $
    6,582,322
    
    
    
    
    
    
    
    
    
    
    $
    6,487,092NET INTEREST INCOME AND SPREAD
    
    
    
    
    
    $
    40,440
    
    
    
    2.64
    %
    
    
    
    
    
    $
    45,417
    
    
    
    3.14
    %NET INTEREST MARGIN ON EARNING ASSETS
    
    
    
    
    
    
    
    
    
    
    2.91
    %
    
    
    
    
    
    
    
    
    
    
    3.26
    %
  (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. 28




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED An analysis of the changes in the Companys Average Statements of Condition and changes to its margin for the six months ended June 30 follows: SIX MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003(TAX-EQUIVALENT BASIS) (1)
    
    AVERAGE
    
    
    INCOME/
    
    
    
    
    
    
    AVERAGE
    
    
    INCOME/(IN THOUSANDS)
    
    BALANCE
    
    
    EXPENSE
    
    
    RATE
    
    
    BALANCE
    
    
    EXPENSE
    
    
    RATEASSETSLoans (2)
    
    $
    3,105,141
    
    
    $
    78,842
    
    
    
    5.11
    %
    
    $
    2,933,878
    
    
    $
    82,010
    
    
    
    5.64
    %Securities Held to Maturity
    
    
    63,719
    
    
    
    2,646
    
    
    
    8.35
    
    
    
    
    
    
    
    
    
    
    
    Securities Available for Sale (3)
    
    
    2,057,608
    
    
    
    33,118
    
    
    
    3.24
    
    
    
    2,219,750
    
    
    
    37,451
    
    
    
    3.40Time Deposits with Other Banks
    
    
    42,145
    
    
    
    181
    
    
    
    .86
    
    
    
    64,083
    
    
    
    383
    
    
    
    1.21Federal Funds Sold and Reverse Repurchase Agreements
    
    
    174,863
    
    
    
    880
    
    
    
    1.01
    
    
    
    537,956
    
    
    
    3,304
    
    
    
    1.24Total Earning Assets and Average Rate Earned (5)
    
    
    5,443,476
    
    
    
    115,667
    
    
    
    4.27
    
    
    
    5,755,667
    
    
    
    123,148
    
    
    
    4.31Reserve for Loan Losses
    
    
    (26,331
    )
    
    
    
    
    
    
    
    
    
    
    (22,955
    )Cash and Due from Banks
    
    
    183,206
    
    
    
    
    
    
    
    
    
    
    
    167,792Assets Held for Sale
    
    
    371,805
    
    
    
    
    
    
    
    
    
    
    
    316,121Other Assets
    
    
    439,796
    
    
    
    
    
    
    
    
    
    
    
    414,075Total Assets
    
    $
    6,411,952
    
    
    
    
    
    
    
    
    
    
    $
    6,630,700LIABILITIES, MINORITY INTEREST AND
SHAREHOLDERS EQUITYInterest-Bearing Deposits
    
    $
    3,168,156
    
    
    $
    10,262
    
    
    
    0.65
    %
    
    $
    4,253,557
    
    
    $
    18,897
    
    
    
    0.90
    %Repurchase Agreements and Other Short-Term Borrowings
    
    
    673,559
    
    
    
    4,509
    
    
    
    1.35
    
    
    
    456,468
    
    
    
    3,585
    
    
    
    1.58FHLB Borrowings and Other Long-Term Debt
    
    
    888,545
    
    
    
    20,102
    
    
    
    4.55
    
    
    
    439,243
    
    
    
    7,438
    
    
    
    3.41Total Interest-Bearing Funds and Average Rate Paid
    
    
    4,730,260
    
    
    
    34,873
    
    
    
    1.48
    
    
    
    5,149,268
    
    
    
    29,920
    
    
    
    1.17Demand Deposits (4)
    
    
    936,248
    
    
    
    
    
    
    
    
    
    
    
    538,323Liabilities Held for Sale
    
    
    222,145
    
    
    
    
    
    
    
    
    
    
    
    178,027Other Liabilities
    
    
    99,092
    
    
    
    
    
    
    
    
    
    
    
    123,889Guaranteed Preferred Beneficial Interests in Junior
Subordinated Deferrable Interest Debentures
    
    
    55,919
    
    
    
    
    
    
    
    
    
    
    
    248,584Shareholders Equity
    
    
    368,288
    
    
    
    
    
    
    
    
    
    
    
    392,609Total Liabilities, Minority Interest and
Shareholders Equity
    
    $
    6,411,952
    
    
    
    
    
    
    
    
    
    
    $
    6,630,700NET INTEREST INCOME AND SPREAD
    
    
    
    
    
    $
    80,794
    
    
    
    2.79
    %
    
    
    
    
    
    $
    93,228
    
    
    
    3.14
    %NET INTEREST MARGIN ON EARNING ASSETS
    
    
    
    
    
    
    
    
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    3.27
    %
  (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 CONDITIONAND RESULTS OF OPERATIONS, CONTINUED The composition of average earning assets and average interest-bearing liabilities is as follows: THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30,
    
    JUNE 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Total Loans
    
    
    55
    %
    
    
    52
    %
    
    
    57
    %
    
    
    51
    %Securities Available for Sale
    
    
    38
    
    
    
    40
    
    
    
    38
    
    
    
    39Securities Held to Maturity
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Time Deposits with Other Banks
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Federal Funds Sold &
Reverse Repurchase Agreements
    
    
    5
    
    
    
    7
    
    
    
    3
    
    
    
    9Total Average Earning Assets
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Interest-Bearing Deposits
    
    
    64
    %
    
    
    81
    %
    
    
    67
    %
    
    
    83
    %Repurchase Agreements &
Other Short-Term Borrowings
    
    
    15
    
    
    
    9
    
    
    
    14
    
    
    
    9Long-Term Debt
    
    
    21
    
    
    
    10
    
    
    
    19
    
    
    
    8Total Average Interest Bearing Liabilities
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 NONINTEREST INCOME Noninterest income for the second quarter of 2004 totaled $25.7 million, a decrease of 12% from the $29.2 million in the second quarter of 2003.
This decrease resulted primarily from a $6.5 million reduction in securities gains, partially offset by an increase in venture capital gains from the
comparable quarter of the prior year of $2.4 million and an increase in service charges of $900 thousand. Significant securities gains had been
recorded in the second quarter of 2003 as the Company sold high-coupon mortgage-backed securities that were prepaying rapidly. The increase in
service charges and fees from the prior year was partly due to the previously described change in how the U.S. Treasury compensates financial agent
banks such as Riggs. The earnings on the DCS for the quarter ended June 30, 2004 were $2.0 million. There was no comparable DCS income in the
second quarter of 2003. Deposit service charges and overdraft fees declined by $603 thousand primarily due to a reduction in the number of low
balance accounts as a result of the implementation of higher fees. Noninterest income for the six months ended June 30, 2004 totaled $50.2 million, a decrease of $4.4 million from the $54.6 million recorded for
the comparable period at June 30, 2003. The decrease was primarily due to a decrease in securities gains from the prior year of $10.9 million,
resulting from the aforementioned sale of mortgage-backed securities. These decreases in securities gains were partially offset by an increase in
venture capital gains and increases in service charges and fees of $1.7 million. Offsetting the increases were decreases in deposit account and
overdraft fees of $1.4 million due to a smaller number of low
balance accounts as the result of the implementation of higher fees. Trust and investment advisory income, which did not change significantly year to year, impacts the Riggs & Company segment while venture capital
losses impact the Riggs Capital Partners segment. Securities gains impact the Treasury segment and service charge income primarily impacts the
Banking segment. NONINTEREST EXPENSE Noninterest expense for the three months ended June 30, 2004 was $100.6 million, an increase of $42.1 million from the $58.5 million reported for
the three months ended June 30, 2003. The 72% increase in noninterest expense from the second quarter of 2003 is comprised of the following: Salaries and Employee Benefits
    
    $
    3.6
    
    
    millionOccupancy, Net
    
    
    0.6Data Processing Services
    
    
    (3.2
    )Furniture, Equipment and Software
    
    
    3.8Legal Fees
    
    
    3.0Regulatory Fine
    
    
    25.0Consultants
    
    
    (0.3
    )Other Noninterest Expense
    
    
    9.6$
    42.1
    
    
    million
 30




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##### 



ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED The $3.6 million increase in salaries and employee benefits includes approximately $2.3 million in employee severance benefits related to a
reduction in the Companys workforce due to the Companys decision to exit the international banking business and, in addition, approximately
$500 thousand of employee retention related costs. Net occupancy costs rose $634
thousand, or 14%, in the second quarter of 2004 compared with the second quarter of 2003 primarily due to
increases
in property rentals ($142 thousand) and bank premises depreciation
($133 thousand). Increases in rents, new branches, remodeling of existing
branches and building improvements on other existing buildings contributed to the increase. Data processing expense
decreased by $3.2 million, or 66%, in the second quarter of 2004 compared to the second quarter of 2003 as a result of
changing third party service providers. This change was implemented in the third and fourth quarters of 2003 as part of the Companys previously
reported Enhancing Performance and Service project (Project EPS). Because of this change, and the different ways service providers invoice the
Company for services performed, many of the costs in categories of noninterest expense other than data processing services during the quarter
ended
June 30, 2004 were contained in data processing services in the second quarter of 2003. Furniture, equipment and software expense for the second quarter of 2004 increased by $3.8 million from the comparable 2003 period. The
primary components of the change are increased software amortization and equipment depreciation. This increase is attributable to new equipment
and related maintenance agreements procured in conjunction with Project EPS. Consultant expense decreased
$356 thousand, or 8%, from the second quarter of 2003 to the second quarter of 2004 primarily due to the completion
of Project EPS in late-2003. This decrease was offset, however, by
increased legal and other non interest expense related to the Companys continuing Bank
Secrecy
Act (BSA) compliance matters in the amount of $7.2 million. See Consent Order, Notification of Possible Assessment of Civil Money Penalties and
Other Regulatory Matters. The Company anticipates that consulting and other BSA related expenses will increase in the second half of 2004
because
of continuing BSA related compliance efforts. Other noninterest expense in the second quarter of 2004 was $23.1 million, a $9.6 million increase from the second quarter of 2003. The largest
component of this increase was the previously disclosed $7.1 million impairment charge on the corporate jet. For the six months ended June 30, 2004, noninterest expense increased $42.7 million, or 37%, to $157.5 million from the prior years six month
total of $114.8 million. Salaries and employee benefits
increased $6.4 million, or 12%, with $2.3 million of the increase attributable to the
previously
mentioned employee severance benefits associated with the Companys exit from the international banking business. Data processing services expense decreased $6.8 million, or 67% for the six months ended June 30, 2004 versus 2003, due to the change in service
providers described previously for the three month variance. And, furniture and equipment expense increased $3.6 million to $10.7 million mostly
due to increased software amortization and depreciation expense on equipment acquired in conjunction with Project EPS. Other noninterest expense increased by $11.7 million, primarily due to the previously mentioned $7.1 million in impairment charges taken on the
corporate jet, and increased advertising and public relations expense of $2.2 million due to a marketing campaign in the second quarter of 2004. EFFECTIVE TAX RATES The effective tax rate on Income (Loss) Before Taxes and Minority Interest from Continuing Operations for the six month period ended June 30,
2004 was 13% compared to 33% during the same period of the prior year. The primary reasons for this
tax rate decrease were twofold: the nondeductibility of the
$25 million civil money penalty assessed and paid during the
second
quarter and the establishment of an additional $2.5 million valuation allowance relating to a portion of the domestic net operating loss
carryforward
that is subject to separate return limitation year restrictions. 31




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED FINANCIAL CONDITION SECURITIES Securities available for sale totaled $2.29 billion as of June 30, 2004, compared to $1.83 billion as of year-end 2003 and $2.19 billion as of June 30,
2003. The activity for the first six months of 2004 included purchases of securities available for sale totaling $18.02 billion, which were partially
offset by maturities and calls, principal payments and sales of securities available for sale totaling $17.52 billion. The weighted-average duration and
yield for the portfolio, adjusted for anticipated prepayments, were approximately 2.4 years and 3.03%, respectively, as of June 30, 2004. As of June
30, 2003, the weighted-average duration and yield were approximately 1.2 years and 3.24%, respectively. Details on securities available for sale follow: JUNE 30, 2004GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR(IN THOUSANDS)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUEU.S. Treasury Securities
    
    $
    301,999
    
    
    $
    
    
    
    $
    
    
    
    $
    301,999State and Municipal Securities
    
    
    26,832
    
    
    
    49
    
    
    
    799
    
    
    
    26,082Government Agencies Securities
    
    
    792,778
    
    
    
    
    
    
    
    8,725
    
    
    
    784,053Mortgage-Backed Securities
    
    
    1,154,510
    
    
    
    25
    
    
    
    26,990
    
    
    
    1,127,545Other Securities
    
    
    52,072
    
    
    
    165
    
    
    
    
    
    
    
    52,237Total Securities Available for Sale
    
    $
    2,328,191
    
    
    $
    239
    
    
    $
    36,514
    
    
    $
    2,291,916DECEMBER 31, 2003GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR(IN THOUSANDS)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUEU.S. Treasury Securities
    
    $
    25,103
    
    
    $
    
    
    
    $
    29
    
    
    $
    25,074State and Municipal Securities
    
    
    24,917
    
    
    
    145
    
    
    
    44
    
    
    
    25,018Government Agencies Securities
    
    
    720,212
    
    
    
    506
    
    
    
    3,191
    
    
    
    717,527Mortgage-Backed Securities
    
    
    1,012,635
    
    
    
    1,547
    
    
    
    6,933
    
    
    
    1,007,249Other Securities
    
    
    51,831
    
    
    
    119
    
    
    
    
    
    
    
    51,950Total Securities Available for Sale
    
    $
    1,834,698
    
    
    $
    2,317
    
    
    $
    10,197
    
    
    $
    1,826,818JUNE 30, 2003GROSS
    
    
    GROSSAMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR(IN THOUSANDS)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUEU.S. Treasury Securities
    
    $
    30,141
    
    
    $
    19
    
    
    $
    4
    
    
    $
    30,156Government Agencies Securities
    
    
    1,179,480
    
    
    
    3,036
    
    
    
    70
    
    
    
    1,182,446Mortgage-Backed Securities
    
    
    915,720
    
    
    
    12,360
    
    
    
    638
    
    
    
    927,442Other Securities
    
    
    51,886
    
    
    
    41
    
    
    
    
    
    
    
    51,927Total Securities Available for Sale
    
    $
    2,177,227
    
    
    $
    15,456
    
    
    $
    712
    
    
    $
    2,191,971
 32




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED Realized gains from the sale of securities totaled $231 thousand for the six months ended June 30, 2004, and realized losses totaled $5 thousand. For
the six months ended June 30, 2003, realized gains were $6.5 million and there were no realized losses. 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) and, therefore, 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. At June 30, 2004, state and municipal securities classified as available for sale were $26.1 million, or approximately 1% of the portfolio. LOANS As of June 30, 2004, loans outstanding totaled $3.24 billion, with residential mortgage/home equity, commercial and financial and real estate-
commercial/construction comprising 49%, 16% and 26% of the portfolio, respectively. At June 30, 2003 these percentages were 51%, 18% and
21%, respectively. The residential mortgage/home equity loans are generally fully secured with approximately 7% having a loan to value ratio of
90% or greater. As indicated in the following table, total loans increased from $3.00 billion at June 30, 2003 to $3.24 billion at June 30, 2004. The increases were
primarily in the real estate-commercial/construction and home equity loan portfolios. As of June 30, 2004, foreign loans outstanding totaled $220.8 million, a decrease of $78.2 million from December 31, 2003 and $14.6 million from
June 30, 2003. However, as of June 30, 2004, $154.1 million of these loans have been transferred to assets held for sale on the Consolidated
Statement of Condition as part of the Companys previously announced plan to exit or sell its international banking businesses. Riggs periodically purchases residential mortgage loans for asset/liability management purposes. Since June 30, 2003, the Company has purchased
$94.4 million of these loans at a net premium of approximately $1.4 million. The Company does not anticipate purchasing residential mortgage
loans during the remainder of 2004. COMPOSITION OF LOAN PORTFOLIO JUNE 30,
    
    DECEMBER 31,
    
    JUNE 30,2004
    
    2003
    
    2003(IN THOUSANDS)Commercial and Financial
    
    $
    524,896
    
    
    
    16
    %
    
    $
    581,223
    
    
    
    18
    %
    
    $
    525,467
    
    
    
    18
    %Real Estate  Commercial/Construction
    
    
    835,726
    
    
    
    26
    
    
    
    815,004
    
    
    
    25
    
    
    
    628,360
    
    
    
    21Residential Mortgage
    
    
    1,225,256
    
    
    
    38
    
    
    
    1,155,603
    
    
    
    36
    
    
    
    1,266,091
    
    
    
    42Home Equity
    
    
    369,187
    
    
    
    11
    
    
    
    306,599
    
    
    
    10
    
    
    
    269,890
    
    
    
    9Consumer
    
    
    64,042
    
    
    
    2
    
    
    
    64,403
    
    
    
    2
    
    
    
    63,073
    
    
    
    2Foreign
    
    
    220,824
    
    
    
    7
    
    
    
    299,055
    
    
    
    9
    
    
    
    235,444
    
    
    
    8Total Loans
    
    $
    3,239,931
    
    
    
    100
    %
    
    $
    3,221,887
    
    
    
    100
    %
    
    $
    2,988,325
    
    
    
    100
    %Net Deferred Loan Fees,
Premiums and Discounts
    
    
    3,648
    
    
    
    
    
    
    
    3,267
    
    
    
    
    
    
    
    7,088Loans
    
    $
    3,243,579
    
    
    
    
    
    
    $
    3,225,154
    
    
    
    
    
    
    $
    2,995,413Loans Transferred to Assets Held for Sale
    
    
    (154,079
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans
    
    $
    3,089,500
    
    
    
    
    
    
    $
    3,225,154
    
    
    
    
    
    
    $
    2,995,413
 33




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED RESERVE FOR LOAN LOSSES Changes in the reserve for loan losses are summarized as follows: SIX MONTHS ENDEDJUNE 30,(IN THOUSANDS)
    
    2004
    
    
    2003Balance, January 1
    
    $
    28,285
    
    
    $
    25,958Provision for loan losses
    
    
    
    
    
    
    2,215Loans charged-off
    
    
    2,123
    
    
    
    2,146Less: Recoveries on charged-off loans
    
    
    1,141
    
    
    
    775Net loan charge-offs
    
    
    982
    
    
    
    1,371Transfer to
lower of cost or market valuation allowance
    
    
    (1,521
    )
    
    
    Provisions and net charge-off activity reclassified to Discontinued Operations
    
    
    
    
    
    
    (474
    )Foreign exchange translation adjustments
    
    
    19
    
    
    
    57Balance, June 30
    
    $
    25,801
    
    
    $
    26,385
 The reserve amount is determined based on the risk of loss in the loan portfolio. For the six month period ended June 30, 2004, the Company had
no consolidated loan loss provision and for the six month period
ended June 30, 2003, Riggs had a consolidated loan loss
provision of $2.2 million.
The Companys reserve for loan losses decreased by approximately $2.5 million, or 9%, from December 31, 2003 to June 30, 2004 while
nonperforming assets, as noted below, decreased by approximately $1.3 million, or 53%, during the same period. $1.5 million of the decrease in
the reserve balance for the first six months of 2004 consisted of the transfer to assets held for sale that portion of the reserve associated with the
foreign entities now held for sale. This is in conjunction with our previously announced business strategy to reduce the Companys risk exposure in
the international banking business. Foreign loans and other credits may be adversely affected by sudden political instabilities, including military confrontations. The Company cannot
estimate the losses, if any, associated with any such instability.
See Note 15 of Notes to Consolidated Financial Statements in the
Companys 2003 Annual
Report on Form 10-K. ASSET QUALITY NONPERFORMING ASSETS Nonperforming assets, which include nonaccrual loans, renegotiated loans, other real estate (net of reserves) and repossessed assets, totaled $1.1
million as of June 30, 2004, a $1.2 million decrease from the year-end 2003 total of $2.3 million and a $3.4 million decrease from the June 30,
2003 total of $4.5 million. Of the $1.1 million balance at June 30, 2004, $89 thousand is recorded in the Banking segment and $1.0 million is in
the International Banking segment. As part of the Companys business strategy to exit international banking, the $1.0 million of International
Banking nonperforming assets are classified as held for sale in the Companys Statement of Condition. The decrease in nonperforming assets from
June 30, 2003 was mainly due to activity in the London based portfolio, which recorded $3.4 million in charge-offs and $1.3 million in sales and
repayments in its commercial loan portfolio. These reductions were partially offset by additions to the nonperforming asset portfolio of $1.2
million. There were no renegotiated loans at June 30, 2004 and 2003, and December 31, 2003. As of June 30, 2004 the Company had no specific
reserves for loan losses. PAST-DUE AND POTENTIAL PROBLEM LOANS Past-due loans consist of residential real estate loans, commercial and industrial loans and consumer loans that are in the process of collection and
that are accruing interest. Loans past-due over 90 days decreased $500 thousand from June 30, 2003 to $9.0 million at June 30, 2004 and decreased
$3.2 million from December 31, 2003. 34




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED NONPERFORMING ASSETS AND PAST-DUE LOANS JUNE 30,
    
    
    DECEMBER 31,
    
    
    JUNE 30,(IN THOUSANDS)
    
    2004
    
    
    2003
    
    
    2003NONPERFORMING ASSETS:Nonaccrual Loans (1)
    
    $
    1,093
    
    
    $
    2,308
    
    
    $
    4,431Other Real Estate and Repossessed Assets, Net
    
    
    4
    
    
    
    40
    
    
    
    85Total Nonperforming Assets
    
    $
    1,097
    
    
    $
    2,348
    
    
    $
    4,51630-89 DAYS PAST-DUE LOANS (2)
    
    $
    33,947
    
    
    $
    32,043
    
    
    $
    23,23790+ DAYS PAST-DUE LOANS (3)
    
    $
    9,004
    
    
    $
    12,178
    
    
    $
    9,513POTENTIAL PROBLEM LOANS
    
    $
    1,578
    
    
    $
    814
    
    
    $
    913
  (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. DEPOSITS Deposits are the Companys primary source of funds. Deposits totaled $4.42 billion as of June 30, 2004, an increase of $130.8 million from $4.29
billion at December 31, 2003 and a decrease of $1.01 billion from $5.43 billion at June 30, 2003. Compared to the June 30, 2003 balance, deposits
decreased significantly in all interest-bearing deposit accounts, with the largest decreases occurring in time deposits in both domestic and foreign
offices. Time deposits in domestic and foreign offices decreased by $910.0 million and $316.6 million, respectively. The decrease in time deposits in
domestic offices was primarily due to the previously described change in how the U.S. Treasury compensates financial agent banks. The amount of
DCS purchased in mid-July 2003 upon implementation of the new methodology was approximately $1.11 billion. Demand deposits increased $668.1
million from June 30, 2003 and $616.5 million from December 31, 2003, due to approximately $700.0 million in uncleared checks written when the
Company closed several embassy banking deposit accounts. The closing of these accounts is part of the Banks business strategy for exiting its
international banking business. As a means of reducing deposit reserve requirements, Riggs periodically sweeps excess demand funds into money market accounts. The average
balances transferred for the three months ended June 30, 2004 and 2003, which are not included in demand deposits in the Average Statement of
Condition, were $476.1 million and $491.5 million,
respectively. For the six month period ended June 30, 2004 and
2003, the average amounts transferred
were $476.5 and $481.8, respectively. FHLB BORROWINGS AND OTHER LONG-TERM DEBT Long-term debt at June 30, 2004 consisted of $66.5 million, 9.65% fixed rate, subordinated debentures due in 2009, $446.0 million in FHLB
advances, $270.0 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 June 30, 2003, long-term debt consisted of the $66.5 million subordinated debentures and $349.0 million in FHLB advances,
and at December 31, 2003 long-term debt included the $66.5 million in debentures, $279.0 in FHLB advances, $206.0 million in long-term
repurchase agreements, and $360.8 in debt payable to issuers of trust preferred securities. The subordinated debentures cannot be called.
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 June 30, 2004 have maturity dates through 2007 and carry a
blended rate of 2.51%. Of the $349.0 million in FHLB advances at
June 30, 2004, $125.0 million is callable in 2005. The long-term repurchase agreements at June 30,
2004 also have maturity dates through 2007 and carry a blended interest rate of 1.60%. $100.0 million of long-term repurchase agreements is
callable in 2004 and $50.0 million is callable in 2005. 35




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED 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, Riggs owned $60.3 million of the Series A trust preferred securities and $47.6 million of the Series C trust preferred
securities. In
the quarter and six months ended June 30, 2003, the amount of
trust preferred securities owned by Riggs 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 Riggs are classified as
securities held to maturity in the Consolidated Statements of Condition and $360.8 million of debt that the Company has which is payable to Riggs
Capital and Riggs Capital II, is included in long-term debt. Beginning the fourth quarter of 2003, interest earned on the trust preferred
securities that
the Company owns is reflected as a component of interest income and the cost of the debt payable to Riggs Capital and Riggs Capital II is 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. At June 30, 2004, the Series A securities are reflected in the Consolidated Statements of Financial Condition,
net of the Series A securities Riggs owns, as guaranteed preferred beneficial interests in junior subordinated deferrable interest debentures. Since
reconsolidation, the cost of these securities are reflected in the Consolidated Statements of Income as minority interest in income of subsidiaries,
net of taxes. At June 30, 2004, the amount of the Series C, 8.875% securities classified as held to maturity is $49.9 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). As of June 30, 2004, the Companys
liquid assets, which include cash and due from banks, government obligations and other securities, federal funds sold, reverse repurchase agreements
and time deposits at other banks, totaled $2.83 billion (42% of total assets). This compares to $2.44 billion (38% of total assets) as of December
31,
2003 and $3.58 billion (50% of total assets) as of June 30, 2003. As of June 30, 2004, $950.9 million of the Companys assets were pledged to
secure deposits and other borrowings. At June 30, 2004, the Bank had approximately $1.23 billion of unencumbered securities, approximately $384.7 million in federal funds sold and
other short-term investments and approximately $299.6 million remaining on its Federal Home Loan Bank and Federal Reserve lines of credit for
total liquid assets and lines of credit of approximately $1.91 billion. Riggs has additional liquidity available to it through the brokered
certificate of
deposit market. FHLB advances have maturity dates through 2007 and bear rates of interest from .67% to 3.70 %.
At June 30, 2004, Riggs has $270.0 million of repurchase
agreements  outstanding,
which have maturity dates through 2007 and bear interest rates from .64% to 3.02%. 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, 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 Cease and Desist Order, Riggs National Corporation must 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. Shareholders Equity and Regulatory Capital Total shareholders equity as of June 30, 2004 was $327.7 million, a decrease of $45.8 million from year-end 2003 and a decrease of $64.4 million 36




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS, CONTINUED from a year ago. The decrease from year-end was primarily the result of a net loss of $30.5 million, net unrealized losses on the investment portfolio
of $18.6 million, and dividends payments of $2.9 million. This decrease was partially offset by the issuance of common stock in the amount of $6.6
million. The decrease from June 30, 2003 was primarily the result of a net loss of $37.2 million, net unrealized securities losses of $33.4 million, and
dividends paid of $5.8 million. This decrease was partially offset by the issuance of common stock of $10.2 million. Book value per common share was $11.23 as of June 30, 2004 compared to $13.02 as of year-end 2003 and $13.74 as of June 30, 2003. The
changes in book value from June 30 of the prior year and from year-end 2003 were primarily the result of the aforementioned changes in equity. The following are the Companys regulatory capital ratios and those of Riggs Bank N.A., the Companys principal operating subsidiary, as of June
30, 2004 and 2003, and December 31, 2003. It should be noted that the Companys trust preferred securities, which at June 30, 2004 carried a
blended interest rate of 8.79%, are included in the calculations for Tier I, as allowed, and Combined Tier I and Tier II capital ratios. This rate is
significantly higher than the target federal funds rate at June 30, 2004, of 1.25%. Both Riggs and Riggs Bank N.A. are classified as well-capitalized for purposes of federal banking regulations. Because of FIN 46 and, as of
June 30, 2004 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 be well capitalized at June 30, 2004 without including the trust preferred securities as a
component of regulatory capital. During the first quarter of 2004, the Company purchased for cash $19.3 million of trust preferred securities. The average rate on these securities was
8.65% and Riggs paid a premium of $805 thousand. These first quarter purchases will result in annualized interest expense savings of $197 thousand
and after-tax minority interest expense savings of $954 thousand. TO BE WELLCAPITALIZEDUNDER PROMPTCORRECTIVEJUNE 30,
    
    JUNE 30,
    
    DECEMBER 31,
    
    REQUIRED
    
    ACTION2004
    
    2003
    
    2003
    
    MINIMUMS
    
    PROVISIONSRIGGS NATIONAL CORPORATION:Tier I
    
    
    11.11
    %
    
    
    13.24
    %
    
    
    12.52
    %
    
    
    4.00
    %
    
    
    6.00
    %Combined Tier I and Tier II
    
    
    15.57
    
    
    
    18.85
    
    
    
    17.81
    
    
    
    8.00
    
    
    
    10.00Leverage
    
    
    7.03
    
    
    
    7.82
    
    
    
    8.41
    
    
    
    4.00
    
    
    
    5.00RIGGS BANK N.A.:Tier I
    
    
    10.07
    %
    
    
    12.10
    %
    
    
    11.08
    %
    
    
    4.00
    %
    
    
    6.00
    %Combined Tier I and Tier II
    
    
    10.71
    
    
    
    12.82
    
    
    
    11.82
    
    
    
    8.00
    
    
    
    10.00Leverage
    
    
    6.47
    
    
    
    7.21
    
    
    
    7.52
    
    
    
    4.00
    
    
    
    5.00
 The ratios of total shareholders equity to total assets were 4.86%, 5.86%, and 5.46% at June 30, 2004, December 31, 2003 and June 30, 2003,
respectively. SENSITIVITY TO MARKET RISK Riggs is exposed to various market risks which are discussed in the Companys 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. Riggs also has risk associated with foreign currency exchange which it attempts to mitigate
through various hedges. See Note 7-Accounting for Derivatives. 37




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 June 30, 2004, the most
likely interest rate scenario calls for the federal funds target rate rising in July 2004 to 1.25%, to 2.0% by December 2004, to 3.0% by December
2005, and to 3.75% by July 2006, 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 June 30, 2004 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. INTEREST-RATE SENSITIVITY ANALYSIS (1) MOVEMENTS IN INTEREST RATES FROM JUNE 30, 2004SIMULATED 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)
    
    
    (0.6
    )%
    
    
    1.2
    %
    
    
    (2.1
    )%
    
    
    (0.1
    )%Net Interest Income Increase/(Decrease)
    
    $
    (824
    )
    
    $
    1,721
    
    
    $
    (9,239
    )
    
    $
    (294
    )
 (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 June 30, 2004, 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 June 30, 2004 indicated that the Bank was liability sensitive due to a large portion of its
assets being comprised of fixed-rate instruments. Earnings are benefited in a declining rate environment from increasing spreads on fixed-rate assets,
but are offset somewhat by floors on deposit rates and faster prepayment rates on mortgage loans and mortgage backed securities. 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. 38




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED 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 June 30, 2004 and 2003, and December 31, 2003 are: JUNE 30,
    
    JUNE 30,
    
    DECEMBER 31,2004
    
    2003
    
    2003Commitments to extend credit
    
    $
    1,471,914
    
    
    $
    1,214,979
    
    
    $
    1,327,070Commercial letters of credit
    
    
    34,463
    
    
    
    50,929
    
    
    
    46,273Stand-by letters of credit
    
    
    60,227
    
    
    
    62,788
    
    
    
    60,115
 At June 30, 2004, a liability of $126 thousand existed in the Consolidated Statement of Condition for the stand-by letters of credit compared to $223
thousand at June 30, 2003 and $167 thousand at December 31, 2003. 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 $7.7 million and $12.5 million at June 30, 2004 and 2003,
respectively. CONSENT ORDER, CIVIL MONEY PENALTY AND OTHER MATTERS In July 2003, Riggs Bank N.A. (the 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 Consent Order requires the 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, the 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, the Bank entered into a
Consent to the Assessment of Civil Money Penalty with the Financial Crimes Enforcement Network. These consents were entered into as
a result of the banking regulators allegations that the 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 the Bank operates in a safe and sound manner with respect to BSA
compliance. The May 2004 Consent Order requires the Bank to take various actions as more fully described in the next paragraph, with respect to
BSA compliance. Concurrently with the May 2004 Consent Order, the Bank was assessed and paid a
civil money penalty of $25 million. Among the more significant OCC-required
actions the Bank is required to take under the May 2004 Consent Order are (1) a review and evaluation of
the adequacy of the Banks staffing skills and levels with regard to meeting its obligations under the consent order, (2) an evaluation of the 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 Bank dividend policy 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 the Banks operations,
determine the 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 the 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 have been filed as
appropriate. Also in May 2004, the Company and Riggs International Banking Corporation (RIBC), the Companys Miami Edge Act subsidiary, entered into a
Cease and Desist Order with the Board of Governors of the Federal Reserve System (the Federal Reserve) which generally requires that (1) the
Company hire an independent consultant to review the functions and performance of the Board of Directors and senior management, (2) the
Companys Board of Directors submit a plan to the Federal Reserve Bank of Richmond to strengthen board oversight of the management and 39




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED operations of the Company and its subsidiaries, (3) the Company submit to the Federal Reserve Bank of Richmond a plan to improve the risk
management practices of the Company and its subsidiaries, and (4) the Company submit to the Federal Reserve Bank of Richmond an internal audit
program. The 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 Cease and Desist Order requires
the Company and RIBC, as the case may be, adopt and comply with such plans. The Cease and Desist Order does not impose a monetary penalty, but does require, however, that the Company 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. The operations of RIBC are currently
being
wound down. The July 2003 Consent Order, the May 2004 Consent Orders and the Cease and Desist Order allow the regulators to take whatever future actions
deemed necessary to fulfill their regulatory obligations and remain in effect until waived or terminated by the regulators. Primarily as a direct result
of the BSA criticisms, each of the Bank and the Company 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 Companys BSA-related regulatory problems have significantly increased its costs of doing business
and the company expects to continue to incur significant expenses in
connection therewith. During the first half of 2004, Riggs had
approximately $7.9 million of consulting and legal costs attributable to these matters. Because it has been designated as being in a troubled
condition,
the Banks FDIC quarterly insurance assessment increased by approximately $250 thousand from the first to the second quarter of 2004. The July 2003 Consent Order is included in a Current Report on Form 8-K dated July 17, 2003 and the May 2004 Consent Order and the Cease and
Desist Order are included in a Current Report on Form 8-K dated May 17, 2004. As noted in Form 10-Q for the quarterly period
ended March 31, 2004, 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. Riggs continues to negotiate with other participants in the trust regarding the transitioning to another trustee and the amount and
timing of the consideration to be received by the Company. PENDING MERGER On July 16, 2004, the PNC Financial Services Group, Inc. (PNC) and Riggs National Corporation entered into an Agreement and Plan of Merger
(the Merger Agreement) under which PNC agreed to acquire the Company. Under the terms of the Merger Agreement, Riggs National Corporation will merge into PNC and Riggs Bank will merge into PNC Bank, National
Association. 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, based upon the number of shares
outstanding at the time the Merger Agreement was signed is composed of 7,533,648 shares of PNCs common stock and $321 million in cash, 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 equal value based on that average price. Riggs options outstanding as
of the
merger will be cashed out. Total consideration paid by PNC is expected to be approximately $774 million
 based upon PNCs stock value and the number of Riggs
shares outstanding at the time
of the merger announcement. In connection with the merger, Riggs has agreed to coordinate its dividend record and payment dates with those of PNC by using the same record and
payment dates used by PNC for payments of cash dividends on PNC common stock. Accordingly, Riggs expects to pay its next quarterly dividend in
October 2004, subject to prior regulatory approval. PNC has indicated to Riggs that it anticipates that the merger will be completed in the first quarter of 2005. 40




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, CONTINUED SUBSEQUENT EVENTS Subsequent to June 30, 2004, Riggs entered into an agreement to sell a bank property in London and agreed to a Letter of Intent to sell the corporate
aircraft formerly used in support of its international operations. The anticipated capital gain on the bank property is approximately $2.5 million. Net
proceeds from the sale of the corporate aircraft approximate its carrying value and the transaction is expected to be completed within the next 30
days. The Company retained the firm of Crowe Chizek (Crowe) to manage Project EPS, a two year long project to modernize the Companys technology
platform and re-design various operational processes. Under the terms of the Master Professional Services Agreement (MPSA) with Crowe, Crowe was
to be compensated in part based upon the monetary benefit derived by the Company as a result of specific projects and initiatives managed by them.
On several of these projects and initiatives, Riggs and Crowe do not agree as to the amount of benefits that Riggs has derived and, in July 2004, the
Company and Crowe mutually agreed to attempt to resolve the matter
through the mediation process set forth in the MPSA. Crowe has also alleged
material default by the Company of a number of requirements of the MPSA. The Company is analyzing the Crowe default claims. ITEM 4. CONTROLS AND PROCEDURES Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Disclosure Controls and Procedures The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated 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 (Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Companys Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective
in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act. Internal Control over Financial Reporting There have not been any changes in the Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting. RIGGS NATIONAL CORPORATION PART II OTHER INFORMATION ITEM 1.
    
    LEGAL PROCEEDINGSIn the normal course of business we are involved in various types of litigation and disputes that may lead to litigation. The Company
believes that these pending or unasserted legal actions will not have a material impact on its financial condition or future operations.On April 7, 2004 and April 28, 2004, Company shareholders filed substantially similar purported derivative actions in the Court of
Chancery of the State of Delaware in and for New Castle County against the Companys Board of Directors. On April 17, 2004,
Company shareholders filed a purported derivative action in the Superior Court of the District of Columbia against the Companys Board
of Directors, substantially similar to the actions filed by Company shareholders in the Court of Chancery of the State of Delaware in
and
for New Castle County. The complaints each allege that the Company violated its fiduciary duties in relation to a variety of matters,
including, among others, the compliance by the Company with various anti-money laundering laws and various aspects of the Banks
international and embassy businesses. The lawsuits each seek, on behalf of the Company, among other things, monetary damages and
certain types of equitable relief.The Company is subject to
numerous investigations by, and inquiries from, various U.S. and
foreign governmental agencies and authorities. Some of the
investigations and inquiries involve current or former employees of
the Company. These investigations and inquiries include, among others
things, accounts maintained by Equatorial Guinea, Saudi Arabia and
Augusto Pinochet and the Companys anti-money laundering and
BSA compliance. In connection with investigations
regarding the Companys Chief Risk Officer resulting from his
formerly being the OCC examiner in charge of the Bank, the Company
has placed such officer on leave. The Company is currently in
the process of attempting to review these matters. It is not possible
for the Company to predict the impact or effect of these investigations,
inquiries and matters.Certain Riggs Bank directors
or executive officers have been added as defendants to a criminal
Spanish court action involving the accounts of Augusto Pinochet.
 41




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##### 



PART II     OTHER INFORMATION, CONTINUED ITEM 2.
    
    CHANGES IN SECURITIESNot applicable.ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIESNot applicable.ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSThe Annual Meeting of the shareholders of the Corporation was held on May 27, 2004, in Washington, D.C. Chairman of the Board
Robert L. Allbritton presided and 28,827,653 of the 28,987,512 shares outstanding as of the record date of April 20, 2004 were
represented in person or by proxy.1-Election of DirectorsNominees for membership on the Board of Directors of the Corporation, listed below, were elected by the shareholders. The following
schedule lists the number of shares cast for each nominee:
 Total
    
    TotalVotes For
    
    Votes WithheldRobert L. Allbritton
    
    
    22,819,584
    
    
    
    5,307,984J. Carter Beese, Jr.
    
    
    22,902,327
    
    
    
    5,307,984Charles A. Camalier, III
    
    
    21,519,669
    
    
    
    5,307,984Lawrence I. Hebert
    
    
    22,908,471
    
    
    
    5,307,984Steven B. Pfeiffer
    
    
    21,630,750
    
    
    
    5,307,984Robert L. Sloan
    
    
    21,907,171
    
    
    
    5,307,984Anthony P. Terracciano
    
    
    25,816,407
    
    
    
    5,307,984Jack Valenti
    
    
    21,817,175
    
    
    
    5,307,984William L. Walton
    
    
    24,857,462
    
    
    
    5,307,984Eddie N. Williams
    
    
    24,394,034
    
    
    
    5,307,984
 2-Proposal to Ratify the Election of the Independent Public AccountantsBy a vote of 22,421,215 For, to 4,383,858 Against, with 22,581 Abstaining, the Corporations shareholders adopted a proposal to ratify
KPMG LLP as the independent accountants. KPMG LLP has served as the Corporations independent public accountants since March
2002.3-Proposal to Publish Statement of Political ContributionsBy a vote of 2,194,663 For, to 18,119,825 Against, with 863,093 Abstaining, the Corporations shareholders rejected a proposal to
have the Corporation publish in newspapers of general circulation in major U.S. cities a detailed statement of political contributions
made by the Corporation.
 42




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##### 



PART
II    OTHER INFORMATION, CONTINUED ITEM 5.
    
    OTHER INFORMATIONNot applicable.ITEM 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
  (a)
    
    ExhibitsThe exhibits listed on page 44 are incorporated by reference or filed herewith in response to this item.(b)
    
    Reports on Form 8-KOn April 29, 2004, the Company furnished a Form 8-K to announce earnings for the quarter and year ended
March 31, 2004.On May 13, 2004, the Company filed a Form 8-K to announce it had entered into a Stipulation and Consent to the Issuance
of a Consent Order with the Office of the Comptroller of the Currency and a Consent Order of Civil Money Penalty.On May 27, 2004, the Company filed a Form 8-K to announce the retirement of Timothy C. Coughlin, President of Riggs
National Corporation.On May 28, 2004, the Company filed a Form 8-K to announce it had hired Lehman Brothers to assist it in evaluating
strategic business alternatives, including a possible business combination with a third party. 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:
    
    August 9, 2004
    
    /s/ ROBERT L. ALLBRITTONRobert L. Allbritton
Chairman of the Board and Chief Executive OfficerDate:
    
    August 9, 2004



    


    /s/ STEVEN T. TAMBUROSteven T. Tamburo
Treasurer
(Chief Financial Officer)
 43




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INDEX TO EXHIBITS EXHIBIT
    
    DESCRIPTION
    
    PAGESNO.(2.1)
    
    Agreement and Plan of Merger between The PNC Financial Services Group, Inc. and
Riggs
National Corporation, dated as of July 16, 2004
    
    
    45-95(10.2)
    
    Lawrence Connell employment agreement, dated April 6, 2004
    
    
    96-103(31.1)
    
    Chief Executive Officer Section 302 Certification of Quarterly Report on Form 10-Q
    
    
    104(31.2)
    
    Chief Financial Officer Section 302 Certification of Quarterly Report on Form 10-Q
    
    
    105(32.1)
    
    Chief Executive Officer Section 906 Certification of Quarterly Report on Form 10-Q
    
    
    106(32.2)
    
    Chief Financial Officer Section 906 Certification of Quarterly Report on Form 10-Q
    
    
    107
 (Exhibits omitted are not required or not applicable.) 44