the largest bank company headquartered in the government's backyard is reporting substantial loan troubles.

Nonperforming assets at Washington-based Riggs National Corp., which was long known for its conservative approach to lending, skyrocketed to $53.5 million in the third quarter, up 81% since the end of June. In the last year, bad loans at $5.5 billion-asset Riggs have soared by a whopping 1,345%.

Not surprisingly, Riggs' stock price has taken a beating since its loan troubles surfaced late last year. The stock hit a 52-week low this week when it closed Monday at $14.9375. Since Jan. 1 its stock price has tumbled 27%, compared with a drop of 6.71% for commercial banks with $5 billion to $10 billion of assets, according to SNL Securities Inc. of Charlottesville, Va.

Observers don't expect things to get much better anytime soon.

Angelina Billon, a bank analyst at Johnston, Lemon & Co. in Washington, downgraded the company's stock this week from "buy" to "market perform."

"The risk far outweighs the reward," Ms. Billon said.

Derek J. Statkevicus, a bank analyst at Keefe, Bruyette & Woods Inc. in New York, said, "With heightened concerns about credit quality, this doesn't bode well for the stock."

Bank officials, who rarely speak to the press, declined to respond to questions about its present woes. But analysts said Riggs' management described the troubled loans as isolated events that do not reflect an overall deterioration in its loan portfolio.

Despite its troubles, Riggs beat the consensus third-quarter earnings estimate by 2 cents a share. Boosted by gains in fee income, Riggs earned $9.8 million, or 34 cents a share, in the quarter that ended Sept. 30, up 7.7% from the year earlier.

But that was overshadowed by the bank's loan woes. The company, which does business with the embassies of roughly 170 countries, has not endured loan problems of this magnitude since the late-1980s real estate debacle.

Riggs has three troubled loans it shares with other banks. Riggs' portion of these loans includes credits of $13.7 million to a nursing home and $12 million to a computer equipment manufacturing firm; both are secured loans. The other is a $25 million credit to Criimi Mae, a Rockville, Md., real estate company that is operating under bankruptcy protection.

The bank, which has not booked a loan-loss provision since 1994, has a loss reserve of $51.4 million that could cover any potential loss.

Though loan troubles have remained isolated cases, observers are urging banks to be cautious at this point in the credit cycle. Last week the Office of the Comptroller of the Currency backed up its concern by unveiling Project Canary, an early warning system designed to help examiners detect imminent loan troubles.

Analysts also expressed concern about the company's spending habits. Specifically, they pointed to its purchase of a Gulfstream V aircraft, for about $39 million, which is to be used to shuttle employees and clients to and from its operations in Europe. Fearing the cost of the jet would nibble at earnings, Johnston, Lemon reduced its 2000 earnings estimate by 2 cents, to $1.30 a share.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.