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 QUARTER ENDED June 30, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Transition Period From: To:
Commission File Number: 0-19398
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
----------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Virginia 54-1534067
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization
2101 Parks Avenue
Virginia Beach, Virginia 23451
- -------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(757) 428-9331
----------------
N/A
- --------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed
all documents reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 4,976,415
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
ITEM I
Unaudited Consolidated Statement of Financial
Condition as of June 30, 1997 and December 31, 1996 . . . . . . . . . 1
Unaudited Consolidated Statement of Income for
the three and six months ended June 30, 1997 and 1996 . . . . . . . . 2
Unaudited Consolidated Statement of Cash Flows
for the six months ended June 30, 1997 and 1996 . . . . . . . . . . . 3 - 4
Unaudited Consolidated Statement of Stockholders'
Equity for the six months ended June 30, 1997 . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . 6
Item II
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 7 - 12
PART II - OTHER INFORMATION
ITEM 1
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 2
Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3
Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . 13
ITEM 4
Submission of Matters to a Vote of Security Holders . . . . . . . . . 13
ITEM 5
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 6
Exhibits and Report of Form 8-K . . . . . . . . . . . . . . . . . . . 13
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-i-
<PAGE 1>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
June 30, December 31,
1997 1996
-------------------------------------
ASSETS
Cash and amounts due from banks . . . . . . . . . $ 3,842 $ 3,059
Federal funds sold and interest
bearing deposits . . . . . . . . . . . . . . . 2,543 4,276
Investment securities
Held-to-maturity (approximate fair
value $11,752 and $14,687,
respectively) . . . . . . . . . . . . . . 11,984 14,943
Available-for-sale . . . . . . . . . . . . . . 12,497 12,853
Mortgage-backed and related securities
Held-to-maturity (approximate fair
value $26,246 and $28,849,
respectively) . . . . . . . . . . . . . . 27,312 29,764
Available-for-sale . . . . . . . . . . . . . . 70,477 76,785
Loans receivable, net
Held-for-investment. . . . . . . . . . . . . . 465,421 445,055
Held-for-sale. . . . . . . . . . . . . . . . . 6,522 4,785
Foreclosed real estate, net . . . . . . . . . . . 3,550 2,047
Property and equipment, net . . . . . . . . . . . 5,637 5,642
Accrued income receivable, net. . . . . . . . . . 4,478 4,289
Other assets . . . . . . . . . . . . . . . . . . 3,555 2,640
--------- ---------
$617,818 $606,138
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . $386,750 $423,389
Advances from the Federal Home
Loan Bank . . . . . . . . . . . . . . . . . . 169,784 133,110
Securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . 15,729 5,015
Advance payments by borrowers
for taxes and insurance . . . . . . . . . . . 1,493 966
Other liabilities . . . . . . . . . . . . . . . . 1,756 2,831
--------- ---------
575,512 565,311
--------- ---------
STOCKHOLDERS' EQUITY
Serial preferred stock, authorized
5,000,000 shares, no shares issued
or outstanding . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value, 10,000,000
shares authorized; 4,975,991 shares
issued and outstanding in 1997
(4,970,307 in 1996). . . . . . . . . . . . . . 50 50
Capital in excess of par value. . . . . . . . . . 9,395 9,336
Retained earnings - substantially
restricted . . . . . . . . . . . . . . . . . . 32,865 31,480
Net unrealized (loss) on securities
available-for-sale, net of tax . . . . . . . . (4) (39)
--------- ---------
42,306 40,827
--------- ---------
$617,818 $606,138
========= =========
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
<PAGE 2>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Interest and fees on loans . . . . . . . $ 10,083 $ 9,345 $ 19,810 $ 18,655
Interest on mortgage-backed
and related securities. . . . . . . . 1,707 2,124 3,483 4,374
Other interest and
dividend income . . . . . . . . . . . 433 510 873 1,508
-------- -------- -------- --------
Total interest income . . . . . . . . . 12,223 11,979 24,166 24,537
-------- -------- -------- --------
Interest on deposits . . . . . . . . . . . 4,923 6,053 10,065 12,501
Interest on advances from
Federal Home Loan Bank . . . . . . . . 2,307 1,695 4,369 3,885
Interest on repurchase
agreements . . . . . . . . . . . . . . 189 22 278 22
-------- -------- -------- --------
Total interest expense. . . . . . . . . 7,419 7,770 14,712 16,408
-------- -------- -------- --------
Net interest income. . . . . . . . . . . . 4,804 4,209 9,454 8,129
Provision for loan losses. . . . . . . . . 100 100 175 100
-------- -------- -------- --------
Net interest income after
provision for loan losses . . . . . . 4,704 4,109 9,279 8,029
-------- -------- -------- --------
OTHER INCOME
Gain on sales of loans . . . . . . . . . 263 251 515 678
Gain on sales of foreclosed
real estate . . . . . . . . . . . . . 17 76 40 96
Retail banking fees. . . . . . . . . . . 346 205 612 383
Mortgage loan servicing fees . . . . . . 184 183 356 368
Other. . . . . . . . . . . . . . . . . . 80 114 154 255
-------- -------- -------- --------
890 829 1,677 1,780
-------- -------- -------- --------
OTHER EXPENSES
Salaries and employee
benefits . . . . . . . . . . . . . . . 1,905 1,590 3,777 3,158
Net occupancy expense . . . . . . . . . 757 815 1,502 1,466
Provision for losses on
foreclosed real estate. . . . . . . . -- 124 -- 424
Other net expense of
foreclosed real estate. . . . . . . . 41 51 78 108
Federal deposit insurance
premiums . . . . . . . . . . . . . . . 102 322 206 656
Other. . . . . . . . . . . . . . . . . . 1,157 1,028 2,318 2,089
-------- -------- -------- --------
3,962 3,930 7,881 7,901
-------- -------- -------- --------
Income before income taxes . . . . . . . 1,632 1,008 3,075 1,908
Provision for income taxes . . . . . . . 645 383 1,193 736
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . $ 987 $ 625 $ 1,882 $ 1,172
======== ========= ========= =========
Earnings per share $ 0.20 $ 0.13 $ 0.38 $ 0.24
========= ========= ========= =========
Dividend per common share. . . . . . . . . $ 0.05 $ 0.04 $ 0.10 $ 0.08
========= ========= ========= =========
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
<PAGE 3>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the Six Months
Ended June 30,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,882 $ 1,172
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . 175 100
Provision for losses on foreclosed real estate . . . . . . . . . -- 424
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 538 581
Amortization of loan discounts, premiums and
fees, net. . . . . . . . . . . . . . . . . . . . . . . . . . (360) (686)
Amortization of other discounts and premiums, net. . . . . . . . 12 296
Gain on sales of foreclosed real estate. . . . . . . . . . . . . (40) (96)
Gain on sales of loans . . . . . . . . . . . . . . . . . . . . . (515) (678)
Originations of loans held-for-sale. . . . . . . . . . . . . . . (59,114) (47,594)
Proceeds from sales of loans held-for-sale . . . . . . . . . . . 57,892 58,447
(Increase) decrease in accrued income receivable . . . . . . . . (189) 294
(Increase) decrease in other assets. . . . . . . . . . . . . . . (933) 2,096
Increase (decrease) in other liabilities . . . . . . . . . . . . (1,075) 5,032
-------- ---------
Net cash provided by (used for) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . (1,727) 19,388
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans receivable. . . . . . . . . . . (21,762) 7,626
Principal payments received on mortgage-backed
and related securities . . . . . . . . . . . . . . . . . . . 12,834 16,793
Proceeds from maturities of investment securities. . . . . . . . 5,637 7,000
Proceeds from sales of
Securities purchased under agreements
to resell . . . . . . . . . . . . . . . . . . . . . . . . -- 55,000
Foreclosed real estate . . . . . . . . . . . . . . . . . . . 225 2,683
Property and equipment . . . . . . . . . . . . . . . . . . . -- 8
Purchases of
Investment securities held-to-maturity . . . . . . . . . . . -- (8,000)
Investment securities available-for-sale . . . . . . . . . . (2,284) (1,000)
Mortgage-backed and related securities
available-for-sale. . . . . . . . . . . . . . . . . . . . (4,071) --
Property and equipment . . . . . . . . . . . . . . . . . . . (533) (500)
Additions to foreclosed real estate. . . . . . . . . . . . . . . (107) (121)
-------- ---------
Net cash provided by (used for) investing
activities . . . . . . . . . . . . . . . . . . . . . . . . (10,061) 79,489
--------- ---------
Continued
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
<PAGE 4>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the Six Months
Ended June 30,
1997 1996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in money market
deposit accounts, NOW accounts and
savings deposits . . . . . . . . . . . . . . . . . . . . . $ 6,866 $ (1,357)
Net decrease in time deposits. . . . . . . . . . . . . . . . . (43,505) (47,652)
Proceeds from Federal Home Loan Bank advances. . . . . . . . . 115,700 128,000
Payments on Federal Home Loan Bank advances. . . . . . . . . . (79,026) (179,500)
Net increase in securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . 10,714 5,013
Net increase in advance payments by borrowers. . . . . . . . . 527 160
Proceeds from issuance of common stock . . . . . . . . . . . . 59 55
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . (497) (397)
--------- ---------
Net cash provided by (used for)
financing activities . . . . . . . . . . . . . . . . . 10,838 (95,678)
--------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . . . . (950) 3,199
Cash and cash equivalents at beginning of period . . . . . . . . . 7,335 8,519
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 6,385 $ 11,718
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits. . . . . . . . . . . . . . . . . . . $ 32,930 $ 17,287
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . 628 1,534
SCHEDULE OF NONCASH INVESTING ACTIVITIES
Real estate acquired in settlement
of loans, net of allowances. . . . . . . . . . . . . . . . . $ 1,581 $ 875
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
<PAGE 5>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
Net
Unrealized
Gain(Loss) on
Capital in Securities
Common Stock Excess of Available Retained
Shares Amount Par Value for-Sale Earnings Total
-----------------------------------------------------------------------------
Balance,
Dec. 31, 1996 4,970,307 $ 50 $ 9,336 $ (39) $ 31,480 $ 40,827
Net income for the
six months ended
June 30, 1997 1,882 1,882
Sale of shares of
common stock to
Employee Stock
Purchase Plan 3,559 39 39
Exercise of stock
options for
shares of
common stock 750 5 5
Issuance of common
stock under
Dividend Reinvest-
ment Plan 1,375 15 15
Change in net
unrealized
gain (loss) on
securities available-
for-sale, net of tax 35 35
Cash dividends paid (497) (497)
-------- ------- ------- ------- ------- -------
Balance,
June 30, 1997 4,975,991 $ 50 $ 9,395 $ (4) $ 32,865 $ 42,306
========= ======= ======= ======= ======= =======
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
<PAGE 6>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial
statements are prepared in accordance with the
instructions to Form 10-Q and do not include all of the
disclosures and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of the management of Virginia Beach
Federal Financial Corporation (the "Company") the
financial statements reflect all adjustments, consisting
of only normal recurring accruals, necessary to present
fairly the financial position of the Company. The
consolidated financial statements include the accounts
of the Company and First Coastal Bank (the "Bank") and
its wholly-owned subsidiaries.
The Notes to the Consolidated Financial Statements of
the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 should be read in conjunction
with this Form 10-Q.
2. Net unamortized premiums on loans and mortgage-backed
securities amounted to
$745,000 at June 30, 1997. Deferred loan fees at June
30, 1997 amounted to $1,454,000.
3. The results of operations for the three and six months
ended June 30, 1997 are not necessarily indicative of
the results to be expected for the entire fiscal year
or any other period.
4. In addition to undisbursed loan funds of $30,132,000,
the Bank had outstanding commitments to purchase or
originate $25,127,000 in loans and investment securities
at June 30, 1997. The Company also had outstanding
commitments to sell $15,306,000 in loans and securities
at June 30, 1997.
5. Earnings per share have been computed based on the
weighted average shares outstanding. The weighted
average number of shares used in the computation of
earnings per share was 4,972,026 and 4,961,013 at June
30, 1997 and 1996, respectively. The potential issuance
of shares under the Company's stock option plan does not
have a material dilutive effect on earnings per share.
<PAGE 7>
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS
The Company's total assets at June 30, 1997 were $618 million
which is an increase of $11.7 million or 1.93% from December
31, 1996. This increase is mainly due to the net effect of a
$22.1 million increase in loans receivable, a $1.5 million
increase in other real estate owned, and a $1.1 million
increase in other assets. These increases were partially
offset by a $12.1 million decrease in the Bank's securities
portfolios and a $.9 million net decrease in cash, federal
funds sold and interest-bearing deposits. The Bank's core
capital ratio increased to 6.8% at June 30, 1997 from 6.6% at
December 31, 1996.
The Company's loan portfolio increased $22.1 million at June
30, 1997, as compared to December 31, 1996, primarily due to
increases in the Bank's construction ($17.5 million),
commercial ($5.9 million), consumer ($2.7 million) and land
acquisition ($1.0 million) portfolios. The Bank's held-for-
sale portfolio also increased $1.7 million. In addition, the
Bank's commercial real estate and residential portfolios
decreased $6.7 million as compared to December 31, 1996 due,
in part, to unexpected prepayments of approximately $7.8
million in commercial real estate loans.
The $1.5 million increase in foreclosed real estate resulted
from the foreclosure of a local apartment complex ($609,000)
along with the foreclosure on several residential properties
($900,000).
The decrease of $12.1 million in the Bank's securities
portfolios at June 30, 1997 as compared to December 31, 1996
was due to the normal repayment and maturity of securities.
The Bank collected $12.8 million in principal on mortgage-
backed and related securities and $5.6 million from maturities
of fixed rate investment securities. These reductions were
offset by the purchase of $4.1 million in mortgage-backed and
related securities and $2.3 million of investment securities.
LIABILITIES
Total liabilities increased by $10.2 million or 1.8% to $576
million during the first six months of 1997. This increase is
mainly due to a $36.7 million increase in advances from the
Federal Home Loan Bank, a $10.7 million increase in securities
sold under agreements to repurchase, and a $.5 million
increase in advance payments by borrowers for taxes and
insurance. These increases were partially offset by a $36.6
million decrease in deposits and a $1.1 million decrease in
other liabilities associated with recurring fluctuations in
the timing of payment for certain accrued items. The $36.6
million decrease in deposits is in keeping with management's
emphasis of focusing on the local retail deposit base. Of the
$36.6 million decrease in deposits since December 1996, $36.2
million occurred in brokered and other out-of-area deposits.
These deposits were replaced mainly by the increase in Federal
Home Loan Bank advances.
<PAGE 8>
NON-PERFORMING ASSETS
Non-performing assets of the Bank comprise delinquent loans on
which income accrual has ceased or is being fully reserved,
and property acquired through foreclosure or repossession.
Non-performing assets totaled $7.2 million at June 30, 1997
and $6.2 million, at December 31, 1996.
The delinquent loan component of non-performing assets was
$3.7 million, $4.1 million, and $3.4 million, at June 30,
1997, December 31, 1996 and June 30, 1996, respectively. The
delinquent loans were substantially secured by single-family
residential properties at June 30, 1997.
During the first six months of 1997, there were no charges to
the foreclosed real estate allowance. There were $1,456,000
of charges during the same period in 1996 of which $1,368,000
related to a single strip shopping center property sold in
June 1996.
The allowance for possible loan losses is maintained for
possible but as yet unidentified loan losses. Allowances for
possible losses on loans and foreclosed real estate are
maintained by the Bank when the collectability of loans is
impaired and the value of the security property has declined
below the outstanding principal balance of the related loan,
or the carrying value of foreclosed real estate has been
impaired. The allowances for possible losses on loans
receivable held-for-investment and foreclosed real estate
totaled $4.4 million and $.2 million, respectively at June 30,
1997. At June 30, 1997, the Bank's allowance for loan losses
was $4.4 million or .94% of total loans receivable held for
investment.
The following table sets forth the Bank's loan receivable and
foreclosed real estate allowance activity for the periods
indicated:
1997 1996
----------------------------
LOANS RECEIVABLE ALLOWANCE
Balance, January 1 . . . . . . . . . . . . . . $4,390,000 $3,968,000
Provision for loan losses. . . . . . . . . . . 175,000 100,000
Net (charges) recoveries
to the allowance . . . . . . . . . . . . . (153,000) 89,000
Balance, June 30, . . . . . . . . . . . . . . $4,412,000 $4,157,000
FORECLOSED REAL ESTATE ALLOWANCE
Balance, January 1 . . . . . . . . . . . . . . $ 235,000 $1,599,000
Provision for losses on foreclosed
real estate. . . . . . . . . . . . . . . . -- 424,000
Net charges to the allowance . . . . . . . . . -- (1,456,000)
Balance, June 30,. . . . . . . . . . . . . . . $ 235,000 $ 567,000
RESULTS OF OPERATIONS: Three months ended June 30, 1997 and 1996
NET OPERATING RESULTS
For the three months ended June 30, 1997, the Company earned
$987,000 or $.20 per share as compared to $625,000 or $.13 per
share for the same period in 1996. Pretax earnings increased
by $624,000 during the second quarter of 1997 as compared to
the year earlier period mainly due to a $595,000 increase in
net interest income.
<PAGE 9>
NET INTEREST INCOME
Net interest income during the quarter ended June 30,1997 was
$4.8 million as compared to $4.2 million during the same
period of 1996. The net interest margin for the quarter ended
June 30, 1997 was 3.23% as compared to 2.83% during the second
quarter of 1996.
The following table sets forth the weighted average yields
earned on the Company's assets, the weighted average interest
rates paid on the Company's liabilities, and the net yield on
average interest earning assets for the periods indicated.
Average balances are determined on a daily basis and
nonperforming loans are included in the average loan amount
(dollars in thousands).
For the three-months ended June 30,
-----------------------------------------------------------
1997 1996
-------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- --------- -------- -------- -------- --------
Interest earning assets
Loans. . . . . . . . . . . . . . . $ 465,425 $ 10,083 8.67% $430,225 $ 9,345 8.69%
Mortgage-backed and related
securities . . . . . . . . . . . 98,827 1,707 6.91% 126,345 2,124 6.73%
Investment securities and other
earning assets . . . . . . . . . 27,429 433 6.34% 33,130 510 6.19%
-------- -------- ------ -------- -------- ------
Total earning assets 591,681 12,223 8.27% 589,700 11,979 8.13%
Nonearning assets. . . . . . . . . . 16,854 16,009
-------- --------
Total assets . . . . . . . . . . 608,535 605,709
======== ========
Interest bearing liabilities
Time deposits. . . . . . . . . . . 279,268 4,005 5.75% 351,593 5,228 5.98%
Interest bearing demand and
other deposits . . . . . . . . . 101,691 929 3.66% 88,922 824 3.73%
FHLB advances. . . . . . . . . . . 149,406 2,307 6.19% 102,785 1,696 6.63%
Other borrowings . . . . . . . . . 13,273 188 5.70% 1,819 22 4.92%
-------- -------- ------ -------- -------- ------
Total interest bearing
liabilities . . . . . . . . . . 543,638 7,429 5.48% 545,119 7,770 5.73%
Noninterest bearing liabilities. . . 23,995 19,926
-------- --------
Total liabilities. . . . . . . . . . 567,633 565,045
Equity . . . . . . . . . . . . . . . 40,902 40,665
-------- --------
Liabilities & equity . . . . . . . . 608,535 605,710
======== ========
-------- --------
Net interest income. . . . . . . . . 4,794 4,209
======== ========
------ ------
Interest rate spread . . . . . . . . 2.79% 2.40%
====== ======
Net yield on earning assets. . . . . 3.23% 2.83%
====== ======
OTHER INCOME
Other income during the second quarter of 1997, increased by
$61,000 or 7.4% compared with the second quarter of 1996
largely due to increased retail banking fees of $141,000,
partially offset by a $59,000 decrease in gains on foreclosed
real estate. The increased retail banking resulted primarily
from the fees associated with an increased number of checking
accounts and the initiation of surcharge fees on foreign ATM
transactions during the quarter ended June 30, 1997.
In addition, gains on sales of loans increased slightly to
$263,000 for the first three months of 1997 as compared to
$251,000 for the same period of 1996. The table below
compares the residential lending production during the quarter
ended June 30, 1997 to the same period in 1996 (in thousands):
<PAGE 10>
For the Quarter Ended
June 30,
------------------------------------------
Increase
1997 1996 (Decrease)
------------------------------------------
Applications $39,752 $37,958 $ 1,794
Closings 32,506 32,650 144
Fundings 27,179 33,547 (6,368)
Ending Pipeline 21,872 41,281 (19,409)
OTHER EXPENSES
Other expenses, exclusive of the provision for losses on
foreclosed real estate, increased $156,000 or 4.1% during the
second quarter of 1997 as compared to the same period in 1996.
This increase was primarily due to a $257,000 net increase in
salary, benefits and occupancy expense, and a $129,000
increase in other expenses. These increases were offset by a
$220,000 reduction in federal deposit insurance premiums. The
net increase in salary, employee benefits and occupancy of
$257,000 is the result of the cost incurred to operate and
staff three additional retail banking offices opened in the
second half of 1996 and the first quarter of 1997. The second
quarter of 1997 benefitted from a $220,000 reduction in
federal deposit insurance premiums as compared to the same
period in 1996. This decrease is due to the combined effect
of a 16.6 basis point reduction in the premium rate as a
result of the special SAIF assessment during the third quarter
of 1996 and a lower assessment base resulting from decreased
amounts of insured deposits.
During the second quarter of 1997, the Company recorded no
provision for possible losses on foreclosed real estate
compared with a $124,000 provision for the second quarter of
1996.
RESULTS OF OPERATION: Six months Ended June 30, 1997 and 1996
NET OPERATING RESULTS
For the six months ended June 30, 1997, the Company earned
$1,882,000 or $0.38 per share as compared to $1,172,000 or
$0.24 per share for the same period in 1996. Pretax earnings
increased by $1,167,000 during the six month period as
compared to the same period in 1996 mainly due to a $1,325,000
increase in net interest income.
NET INTEREST INCOME
Net interest income during the first six months of 1997
increased by 16.3% to $9,454,000 as compared to $8,129,000
during the same period of 1996. The net interest margin for
the six months ended June 30, 1997 was 3.17% as compared to
2.63% for the same period in 1996.
<PAGE 11>
For the six-months ended June 30,
-----------------------------------------------------------
1997 1996
-------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- --------- -------- -------- -------- --------
Interest earning assets
Loans. . . . . . . . . . . . . . . $ 460,401 $ 19,810 8.61% $432,139 $18,655 8.64%
Mortgage-backed and related
securities . . . . . . . . . . . 101,186 3,483 6.88% 130,527 4,374 6.70%
Investment securities and other
earning assets . . . . . . . . . 27,798 873 6.33% 51,393 1,508 5.90%
-------- -------- ------ -------- -------- ------
Total earning assets 589,385 24,166 8.21% 614,059 24,537 8.00%
Nonearning assets. . . . . . . . . . 15,366 16,872
-------- --------
Total assets . . . . . . . . . . 604,751 630,931
======== ========
Interest bearing liabilities
Time deposits. . . . . . . . . . . 288,076 8,247 5.78% 362,608 10,830 6.01%
Interest bearing demand and
other deposits . . . . . . . . . 100,876 1,818 3.63% 89,299 1,671 3.76%
FHLB advances. . . . . . . . . . . 142,604 4,369 6.18% 119,392 3,886 6.54%
Other borrowings . . . . . . . . . 10,063 278 5.58% 909 21 4.59%
-------- -------- ------ -------- -------- ------
Total interest bearing
liabilities . . . . . . . . . . 541,619 14,712 5.48% 572,208 16,408 5.77%
Noninterest bearing liabilities. . . 22,339 17,960
-------- --------
Total liabilities. . . . . . . . . . 563,958 590,168
Equity . . . . . . . . . . . . . . . 40,793 40,764
-------- --------
Liabilities & equity . . . . . . . . 604,751 630,932
======== ========
-------- --------
Net interest income. . . . . . . . . 9,454 8,129
======== ========
------ ------
Interest rate spread . . . . . . . . 2.73% 2.23%
====== ======
Net yield on earning assets. . . . . 3.17% 2.63%
====== ======
OTHER INCOME
Other income during the first six months of 1997, decreased by
$103,000 compared with the same period of 1996 largely due to
decreases in gain on sales of loans of $163,000 and gains on
sales of foreclosed real estate of $56,000. Mortgage loan
servicing fees and other income, consisting principally of
loan related fees, decreased a total of $113,000 as compared
to the first six months of 1996. These decreases were partially
offset by an increase in retail banking fees of $229,000. Gains
on sales of loans were $515,000 during the first six months of
1997 as compared to $678,000 during the same period in 1996.
The table below compares the residential lending production
during the six month period ended June 30, 1997 as compared
to the same period in 1996 (in thousands):
For the Six Months
Ended June 30,
--------------------------
1997 1996 Decrease
--------- --------- ----------
Applications $79,825 $ 87,578 $ (7,753)
Closings 59,114 62,379 (3,265)
Fundings 50,950 66,089 (15,139)
Ending Pipeline 21,872 41,281 (19,409)
Gains on sales of foreclosed property decreased $56,000 to
$40,000 for the first six months of 1997 as compared to 1996.
The $229,000 increase in retail banking fees was due primarily
to the fees associated with an increased number of checking
accounts and the initiation of surcharge fees on foreign ATM
transactions in second quarter of 1997.
OTHER EXPENSE
Other expenses, exclusive of the provision for losses on
foreclosed real estate, increased by $404,000 or 5.4% during
the six month period ended June 30, 1997 as compared to the
same period in 1996. The increase was primarily due to
increases in salary, employee benefits and occupancy expenses
of $655,000 partially offset by a decrease of $450,000 in
federal deposit insurance premiums. The increase in salary,
employee benefits, and net occupancy expense is mainly the net
result of the cost incurred to operate and staff three
additional retail banking offices opened in the second half of
1996 and the first quarter of 1997. In addition, the first
six months of 1997 includes approximately $194,000 in
<PAGE 12>
advertising expense associated with the change in the name of
the Bank. The first six months of 1997 benefitted from a
$450,000 reduction in federal deposit insurance premiums as
compared to the same period in 1996. This decrease is due to
the combined effect of a 16.6 basis point reduction in the
premium rate as a result of the special SAIF assessment during
the third quarter of 1996 and a lower assessment base
resulting from decreased amounts of insured deposits.
During the first six months of 1997, the Company recorded no
provision for possible losses on foreclosed real estate
compared with a $424,000 provision for the first six months of
1996.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Office of Thrift Supervision ("OTS") has established
minimum liquidity requirements for savings associations.
These regulations provide, in part, that members of the
Federal Home Loan Bank System maintain daily average balances
of liquid assets equal to a certain percentage of net
withdrawable deposits and current borrowings (payable in one
year or less). Current regulations require a liquidity level
of at least 5%. The Bank's liquidity ratio at June 30, 1997
was 6.46% and exceeded 5% at each measurement date during the
first six months of 1997.
REGULATORY CAPITAL STANDARDS
The OTS has established the regulatory capital requirements
for savings institutions. The following table sets forth the
capital position of the Bank in accordance with the
requirements.
Capital Amount as of
Measure June 30, 1997 Requirement Excess
- -------------------------------------------------------------------------------------------------
Tangible $42,349,000 6.8% $ 9,409,000 1.5% $32,940,000 5.3%
Core 42,349,000 6.8% 18,817,000 3.0% 23,532,000 3.8%
Risk-based 46,240,000 12.5% 29,561,000 8.0% 16,679,000 4.5%
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128), which is required to be
adopted on December 31, 1997. At that time, the Company will
be required to change the method currently being used to
compute earnings per share and to restate all prior periods.
Under the requirements of SFAS 128, the primary earnings per
share calculation will be replaced with a basic earnings per
share calculation, which will exclude any dilutive effect of
outstanding common stock options. Also, the calculation for
fully diluted earnings per share will be replaced with
"diluted" earnings per share, whose calculation will include
the effect of dilutive outstanding common stock options. The
impact of calculating basic earnings per share is not expected
to result in an increase or decrease in the primary earnings
(loss) per share reported in each of the quarters ended March
31, 1996, June 30, 1996, March 31, 1997 and June 30, 1997.
The impact of SFAS 128 on the calculation of diluted earnings
per share is expected to result in a $0.01 per share
decrease in the earnings per share reported for each of the
four quarters noted in the immediately preceding sentence.
PAGE 13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Inapplicable
ITEM 2 - CHANGES IN SECURITIES
Inapplicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders was
held on April 30, 1997. Represented at the
meeting in person or by proxy were the
holders of 3,506,769 shares. Entitled to
vote were 4,971,399 shares. Results of the
items voted on were as follows:
ITEM VOTES FOR
----------------------------- ------------
1. ELECTION OF DIRECTORS
Edward E. Brickell 3,443,858
Floyd E. Kellam, Jr. 3,443,858
Ivan D. Mapp 3,428,758
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
PAGE 14
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.
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
August 14, 1997 /s/ John A. B. Davies, Jr.
- ----------------- -------------------------
Date John A. B. Davies, Jr.
Principal Executive Officer
August 14, 1997 /s/ Dennis R. Stewart
- ---------------- --------------------------------
Date Dennis R. Stewart
Principal Financial Officer