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 September 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
(State of incorporation)
IRS Employer ID No.: 54-1534067
2101 Parks Avenue, Virginia Beach, Virginia 23451
(Address of principal executive offices)
(757) 428-9331
(Registrant's telephone number, including area code)
Former Name, Former Address and Former Fiscal Year, If Changed
Since Last Report: N/A
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 October 31, 1997: 4,979,146
--------------------
Page (2)
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item I
Unaudited Consolidated Statement of
Financial Condition as of September 30,
1997 and December 31, 1996. . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statement of Income
for the three and nine months ended September
30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statement of Cash Flows
for the nine months ended September 30, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 6
Unaudited Consolidated Statement of Stockholders'
Equity for the nine months ended September 30, 1997 7
Notes to Unaudited Consolidated Financial Statements 8
Item II
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 9 - 14
PART II - OTHER INFORMATION
Item 1
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2
Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 15
Item 3
Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 15
Item 4
Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5
Other Information . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6
Exhibits and Report of Form 8-K . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Page (3)
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(dollars in thousands, except share data)
September 30, December 31,
1997 1996
----------- ----------
ASSETS
Cash and amounts due from banks. . . . . . . . . . . . . . $ 9,333 $ 3,059
Federal funds sold and interest
bearing deposits. . . . . . . . . . . . . . . . . . . . 219 4,276
Investment securities
Held-to-maturity (approximate fair value
$10,773, $14,687, respectively). . . . . . . . . . . 11,002 14,943
Available-for-sale. . . . . . . . . . . . . . . . . . . 10,058 12,853
Mortgage-backed and related securities
Held-to-maturity (approximate fair value
$25,227 and $28,849, respectively) . . . . . . . . . 25,903 29,764
Available-for-sale . . . . . . . . . . . . . . . . . . 68,809 76,785
Loans receivable, net
Held-for-investment . . . . . . . . . . . . . . . . . . 454,570 445,055
Held-for-sale . . . . . . . . . . . . . . . . . . . . . 8,935 4,785
Foreclosed real estate, net. . . . . . . . . . . . . . . . 2,363 2,047
Property and equipment, net. . . . . . . . . . . . . . . . 6,396 5,642
Accrued income receivable, net . . . . . . . . . . . . . . 4,040 4,289
Other assets . . . . . . . . . . . . . . . . . . . . . . . 3,858 2,640
------- --------
$ 605,486 $ 606,138
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . $ 387,574 $ 423,389
Advances from the Federal Home Loan Bank . . . . . . . . . 153,084 133,110
Securities sold under agreements to repurchase 17,136 5,015
Advance payments by borrowers for taxes and
insurance . . . . . . . . . . . . . . . . . . . . . . . 1,742 966
Other liabilities. . . . . . . . . . . . . . . . . . . . . 2,630 2,831
-------- --------
562,166 565,311
-------- --------
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; 4,978,795 shares issued
and outstanding in 1997 (4,970,307 in 1996) 50 50
Capital in excess of par value . . . . . . . . . . . . . . 9,434 9,336
Retained earnings - substantially restricted 33,715 31,480
Net unrealized (loss) on securities
available-for-sale, net of tax. . . . . . . . . . . . . 121 (39)
-------- --------
43,320 40,827
-------- --------
$ 605,486 $ 606,138
======== ========
Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
Page (4)
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
-------- -------- -------- --------
Interest and fees on loans . . . . . . . $ 10,262 $ 9,370 $ 30,072 $ 28,024
Interest on mortgage-backed
and related securities. . . . . . . . 1,634 1,985 5,117 6,359
Other interest and
dividend income . . . . . . . . . . . 404 507 1,277 2,016
-------- -------- -------- --------
Total interest income . . . . . . . . 12,300 11,862 36,466 36,399
-------- -------- -------- --------
Interest on deposits . . . . . . . . . . 4,735 5,865 14,800 18,366
Interest on advances from
Federal Home Loan Bank. . . . . . . . 2,556 1,731 6,925 5,617
Interest on repurchase
agreements . . . . . . . . . . . . . 238 68 516 89
-------- -------- -------- --------
Total interest expense . . . . . . 7,529 7,664 22,241 24,072
-------- -------- -------- --------
Net interest income. . . . . . . . . . . 4,771 4,198 14,225 12,327
Provision for loan losses. . . . . . . . 50 50 225 150
-------- -------- -------- --------
Net interest income after
provision for loan losses . . . . . . 4,721 4,148 14,000 12,177
-------- -------- -------- --------
OTHER INCOME
Gain on sales of securities. . . . . . . 15 -- 15 --
Gain on sales of loans . . . . . . . . . 386 239 901 917
Gain on sales of foreclosed
real estate . . . . . . . . . . . . . 20 11 60 107
Retail banking fees. . . . . . . . . . . 429 226 1,041 609
Mortgage loan servicing fees . . . . . . 154 182 510 550
Other . . . . . . . . . . . . . . . . 84 101 238 357
-------- -------- -------- --------
1,088 759 2,765 2,540
-------- -------- -------- --------
OTHER EXPENSES
Salaries and employee benefits . . . . . 1,987 1,649 5,764 4,806
Net occupancy expense premises . . . . . 767 756 2,269 2,222
Provision for losses on
foreclosed real estate. . . . . . . . 100 60 100 484
Other net expense (gain) of
foreclosed real estate. . . . . . . . (22) (22) 56 86
Federal deposit insurance
premiums. . . . . . . . . . . . . . . 66 3,620 272 4,277
Other . . . . . . . . . . . . . . . . 1,138 1,042 3,456 3,132
-------- -------- -------- --------
4,036 7,105 11,917 15,007
-------- -------- -------- --------
Income (loss) before income
taxes . . . . . . . . . . . . . . . . 1,773 (2,198) 4,848 (290)
Provision (benefit) for
income taxes. . . . . . . . . . . . . 674 (835) 1,867 (99)
-------- -------- -------- --------
Net income (loss). . . . . . . . . . . . $ 1,099 $(1,363) $ 2,981 $ (191)
======== ======== ======== ========
Earnings (loss) per share. . . . . . . . $ 0.22 $ (0.27) $ 0.60 $ (0.04)
======== ======== ======== ========
Dividend per common share. . . . . . . . $ 0.05 $ .04 $ 0.15 $ 0.12
======== ======== ======== ========
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 CASH FLOWS
(dollars in thousands)
For the Nine Months
Ended September 30,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ 2,981 $ (191)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . 225 150
Provision for losses on foreclosed real estate . . . . . . . 100 484
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 822 863
Amortization of loan discounts, premiums and
fees, net. . . . . . . . . . . . . . . . . . . . . . . . . (569) (913)
Amortization of other discounts and premiums, net 99 317
Gain on sales of securities available-for-sale. . . . . . . . (15) --
Gain on sales of foreclosed real estate . . . . . . . . . . . (60) (107)
Gain on sales of loans. . . . . . . . . . . . . . . . . . . . (901) (917)
Originations of loans held-for-sale . . . . . . . . . . . . . (88,424) (77,433)
Proceeds from sales of loans held-for-sale. . . . . . . . . . 85,175 90,169
Decrease in accrued income receivable . . . . . . . . . . . . 249 437
(Increase) decrease in other assets . . . . . . . . . . . . . (1,300) 3,787
Increase (decrease) in other liabilities. . . . . . . . . . . (201) 4,851
-------- ---------
Net cash provided by (used for) operating
activities. . . . . . . . . . . . . . . . . . . . . . (1,819) 21,497
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans receivable. . . . . . . . . . . . . . (10,983) (90)
Principal payments received on mortgage-backed
and related securities . . . . . . . . . . . . . . . . . 22,651 24,920
Proceeds from maturities of investment securities 7,072 8,000
Proceeds from sales of
Securities purchased under agreements to resell -- 55,000
Investment securities available-for-sale . . . . . . . . 2,015 --
Foreclosed real estate . . . . . . . . . . . . . . . . . 1,598 3,878
Property and equipment . . . . . . . . . . . . . . . . . -- 8
Purchases of
Investment securities held-to-maturity . . . . . . . . . -- (8,000)
Investment securities available-for-sale . . . . . . . . (2,284) (2,000)
Mortgage-backed and related securities
available-for-sale. . . . . . . . . . . . . . . . . . (10,723) --
Property and equipment . . . . . . . . . . . . . . . . . (1,576) (878)
Additions to foreclosed real estate. . . . . . . . . . . (142) (207)
-------- --------
Net cash provided by investing activities . . . . . . . . . . 7,628 80,631
--------- --------
Continued
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
Page (6)
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
For the Nine Months
Ended September 30,
1997 1996
--------- ---------
c>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in money market
deposit accounts, NOW accounts and
savings deposits . . . . . . . . . . . . . . . . . . . . . 8,302 $ 1,672
Net decrease in time deposits . . . . . . . . . . . . . . . . (44,117) (61,803)
Proceeds from Federal Home Loan Bank advances . . . . . . . . 175,200 240,500
Payments on Federal Home Loan Bank advances . . . . . . . . . (155,226) (284,500)
Net increase in securities sold under agreements
to repurchase. . . . . . . . . . . . . . . . . . . . . . . 12,121 5,090
Net increase in advance payments by borrowers . . . . . . . . 776 402
Proceeds from issuance of common stock. . . . . . . . . . . . 98 73
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . (746) (596)
--------- ---------
Net cash used for financing
activities. . . . . . . . . . . . . . . . . . . . . . . . (3,592) (99,162)
--------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . . . . 2,217 2,966
Cash and cash equivalents at beginning of period . . . . . . . . . 7,335 8,519
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 9,552 $ 11,485
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits . . . . . . . . . . . . . . . . . . . $ 40,711 $ 25,289
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . 1,685 1,787
SCHEDULE OF NONCASH INVESTING ACTIVITIES
Real estate acquired in settlement of loans,
net of allowances. . . . . . . . . . . . . . . . . . . . . . $ 1,812 $ 1,004
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
Page (7)
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
Unrealized
Gain
(Loss) on
Capital in Available
Stock Excess of for Sale Retained
Shares Amount Par Value Securities Earnings Total
--------- --------- --------- --------- --------- ------
Balance, Dec. 31, 1996. . . . . . . . 4,970,307 $ 50 $ 9,336 $ (39) $ 31,480 $ 40,827
Net (loss) for the nine months ended
Sept. 30, 1997. . . . . . . . . . . 2,981 2,981
Sale of shares of common stock to
Employee Stock Purchase Plan. . . . 4,855 57 57
Exercise of stock options
for shares of common stock. . . . . 750 5 5
Issuance of common stock under
Dividend Reinvestment Plan. . . . . 2,883 36 36
Change in unrealized
gain (loss) on
available-for-sale
securities, net of tax. . . . . . . 160 160
Cash dividends paid. . . . . . . . . . (746) (746)
-------- -------- --------- --------- -------- -------
Balance, Sept. 30, 1997. . . . . . . . 4,978,795 $ 50 $ 9,434 $ 121 $ 33,715 $ 43,320
========= ======== ========= ========= ========= ========
Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
Page (8)
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 $1,090,000 at September 30, 1997.
Deferred loan fees at September 30, 1997 amounted to
$1,286,000.
3. The results of operations for the three and nine months
ended September 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 $22,246,000, the
Bank had outstanding commitments to purchase or originate
$51,367,000 in loans and investment securities at
September 30, 1997. The Company also had outstanding
commitments to sell $14,761,000 in loans and securities
at September 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 4,976,413 and 4,965,936 at
September 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 (9)
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 September 30, 1997 were $605
million which is a decrease of $.7 million or .1% from
December 31, 1996. This decrease is attributed to the net
effect of a $18.6 million decrease in the Bank's securities
portfolios partially offset by a $13.7 million increase in
loans receivable, a $2.2 million increase in cash, federal
funds sold and interest-bearing deposits, and a $2.0 million
increase in other assets and other real estate owned. The
Bank's core capital ratio increased to 6.9% at September 30,
1997 from 6.6% at December 31, 1996.
The decrease of $18.6 million in the Bank's securities
portfolios at September 30, 1997 as compared to December 31,
1996 was due to the normal repayment and maturity of
securities. The Bank collected $22.7 million in principal on
mortgage-backed and related securities and $7.1 million from
maturities of fixed rate investment securities. These
reductions were partially offset by the purchase of $10.7
million in mortgage-backed and related securities and $2.3
million of investment securities.
The Company's loan portfolio increased $13.7 million at
September 30, 1997, as compared to December 31, 1996,
primarily due to increases in the Bank's construction ($15.7
million), commercial ($9.3 million), consumer ($3.2 million)
and land acquisition ($3.1 million) loan portfolios. The
Bank's held-for-sale portfolio also increased $4.2 million.
Offsetting these increases, the Bank's residential real estate
and commercial real estate portfolios decreased $12.7 and $9.1
million, respectively, as compared to December 31, 1996 due to
normal prepayments and loan amortization.
LIABILITIES
Total liabilities decreased by $3.1 million or .6% to $562
million during the first nine months of 1997. This increase
is mainly due to a $35.8 million decrease in deposits
partially offset by a $20.0 million increase in advances from
the Federal Home Loan Bank, a $12.1 million increase in
securities sold under agreements to repurchase, and a $.6
million net increase in advance payments by borrowers for
taxes and insurance and other liabilities. The decrease in
deposits is in keeping with management's emphasis of focusing
on the local retail deposit base. Of the $35.8 million
decrease in deposits since December 1996, $37.7 million
occurred in brokered and other out-of-area deposits. These
deposits were replaced mainly by the $20.0 million increase in
Federal Home Loan Bank advances and the $12.1 million increase
in securities sold under agreements to repurchase.
NON-PERFORMING ASSETS
Non-performing assets of the Bank consist of delinquent loans
on which income accrual has ceased or is being fully reserved,
and property acquired through foreclosure or repossession.
Non-performing assets totaled $6.9 million at September 30,
1997 and $6.2 million at December 31, 1996.
The delinquent loan component of non-performing assets was
$4.6 million, $4.1 million, and $3.7 million, at September 30,
Page (10)
1997, December 31, 1996 and September 30, 1996, respectively.
The delinquent loans were substantially secured by single-
family residential properties at September 30, 1997.
During the first nine months of 1997, there were no charges to
the foreclosed real estate allowance. There were $1,829,000
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 $4.5 million and $0.3 million, respectively at
September 30, 1997. At September 30, 1997, the Bank's
allowance for loan losses was $4.5 million or .97% 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 . . . . . . . . . . . . 225,000 150,000
Net (charges) recoveries
to the allowance. . . . . . . . . . . . . . . . (152,000) 271,000
--------- ----------
Balance, September 30, . . . . . . . . . . . . . $4,463,000 $4,389,000
========= ==========
FORECLOSED REAL ESTATE ALLOWANCE
Balance, January 1. . . . . . . . . . . . . . . . $ 235,000 $1,599,000
Provision for losses on foreclosed
real estate . . . . . . . . . . . . . . . . . . 100,000 484,000
Net charges to the allowance. . . . . . . . . . . -- (1,829,000)
--------- ----------
Balance, September 30,. . . . . . . . . . . . . . $ 335,000 $ 254,000
========= ==========
RESULTS OF OPERATIONS: Three months ended September 30, 1997
and 1996
NET OPERATING RESULTS
For the three months ended September 30, 1997, the Company
earned $1,099,000 or $.22 per share as compared to a loss of
$1,363,000 or $(0.27) per share for the same period in 1996.
Pretax earnings increased by $3,971,000 during the third
quarter of 1997 as compared to the year earlier period.
During the quarter ended September 30, 1996, the Bank paid a
$3,310,000 one-time special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF").
NET INTEREST INCOME
Net interest income during the quarter ended September 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
Page (11)
ended September 30, 1997 was 3.26% as compared to 2.89% during
the third 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 Quarter Ended September 30,
------------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- --------- -------- -------- -------- --------
Interest earning assets
Loans . . . . . . . . . . $ 471,057 $ 10,262 8.71% $ 435,209 $ 9,370 8.61%
Mortgage-backed and
related securities . . . . 95,357 1,634 6.86% 117,695 1,985 6.75%
Investment securities and
other earning assets. . . 26,561 404 6.04% 31,913 507 6.33%
-------- -------- ------ -------- -------- ------
Total earning assets 592,975 12,300 8.29% 584,817 11,862 8.11%
Non-earning assets . . . . . . . 20,086 16,376
-------- --------
Total assets. . . . . $ 613,061 $ 601,193
======== ========
Interest bearing liabilities
Time deposits. . . . . . . . $ 262,946 3,823 5.77% $ 333,900 4,992 5.95%
Interest bearing demand
and other deposits . . . 101,701 912 3.52% 91,978 873 3.78%
FHLB advances. . . . . . . . 163,649 2,556 6.20% 108,461 1,731 6.35%
Other borrowings . . . . . . 16,545 238 5.70% 5,034 68 5.43%
-------- -------- ------ -------- -------- ------
Total interest bearing
liabilities . . . . . 544,841 7,529 5.48% 539,373 7,664 5.66%
Non-interest bearing
liabilities. . . . . . . . . 25,779 20,333
-------- --------
Total liabilities. . . . . . . . 570,620 559,706
Equity . . . . . . . . . . . 42,441 41,487
-------- --------
Liabilities & equity . . . . . . $ 613,061 $ 601,193
======== ========
-------- --------
Net interest income. . . . . . $ 4,771 $ 4,198
======== ========
------ ------
Interest rate spread . . . . . 2.81% 2.45%
====== ======
Net yield on earning assets. . . 3.26% 2.89%
====== ======
OTHER INCOME
Other income during the third quarter of 1997 increased by
$329,000 or 43.3% compared with the third quarter of 1996
largely due to increases in retail banking fees of $203,000
and gain on sale of loans of $147,000. The increased retail
banking fees resulted primarily from the fees associated with
an increased number of checking accounts and the initiation of
surcharge fees on foreign ATM transactions in the second
quarter 1997. Gains on sales of loans increased to $386,000
for the third quarter of 1997 as compared to $239,000 for the
same period of 1996 as a result of higher amount of the
residential lending production being sold to outside
investors. The table below compares the residential lending
production during the quarter ended September 30, 1997 to the
same period in 1996 (in thousands):
Page (12)
For the Quarter Ended
September 30,
-------------------------------------
Increase
1997 1996 (Decrease)
-------------------------------------
Applications. . . . . . . . . $ 38,832 $ 34,565 $ 4,267
Closings. . . . . . . . . . . 29,234 29,839 (605)
Fundings. . . . . . . . . . . 29,434 32,242 (2,808)
Ending Pipeline . . . . . . . 25,179 33,217 (8,038)
OTHER EXPENSES
Other expenses, exclusive of the provision for losses on
foreclosed real estate, decreased to $3,109,000 or 44.1%
during the third quarter of 1997 as compared to the same
period in 1996. During the third quarter 1996 the Bank paid
a one-time special assessment of $3,310,000 to recapitalize
the SAIF.
RESULTS OF OPERATION: Nine months Ended September 30, 1997
and 1996
NET OPERATING RESULTS
For the nine months ended September 30, 1997, the Company
earned $2,981,000 or $.60 per share as compared to a loss of
$191,000 or $(0.04) per share for the same period in 1996.
The increase in pretax earnings of $5,138,000 during the nine
month period as compared to the same period in 1996 is
attributable to a $1,898,000 increase in net interest income
and the absence of the one-time special SAIF assessment.
NET INTEREST INCOME
Net interest income during the first nine months of 1997
increased by $1,898,000 to $14,225,000 as compared to
$12,327,000 during the same period of 1996. The net interest
margin for the nine months ended September 30, 1997 was 3.20%
as compared to 2.71% for the same period in 1996.
For the Nine Months Ended September 30,
-------------------------------------------------------------------
1997 1996
---------------------------- -------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- --------- -------- -------- -------- --------
Interest earning assets
Loans . . . . . . . . . . . . . $ 463,992 $ 30,072 8.64% $ 433,170 $28,024 8.63%
Mortgage-backed and related
securities. . . . . . . . . . 99,222 5,117 6.88% 126,219 6,359 6.72%
Investment securities and other
earning assets. . . . . . . . 27,381 1,277 6.24% 44,852 2,016 6.00%
-------- -------- ------ -------- -------- ------
Total earning assets. . . . 590,595 36,466 8.24% 604,241 36,399 8.03%
Non-earning assets . . . . . . . . 16,957 16,705
-------- --------
Total assets. . . . . . . . $ 607,552 $ 620,946
======== ========
Interest bearing liabilities
Time deposits . . . . . . . . . $ 279,607 12,080 5.78% $ 352,969 15,822 5.99%
Interest bearing demand and
other deposits. . . . . . . . 101,154 2,720 3.59% 90,198 2,544 3.77%
FHLB advances . . . . . . . . . 149,696 6,925 6.19% 115,722 5,617 6.48%
Other borrowings. . . . . . . . 12,248 516 5.64% 2,294 89 5.21%
-------- -------- ------ -------- -------- ------
Total interest bearing
liabilities . . . . . . . . 542,705 22,241 5.48% 561,183 24,072 5.73%
Non-interest bearing liabilities . 23,498 18,756
-------- --------
Total liabilities. . . . . . . . . 566,203 579,939
Equity . . . . . . . . . . . . . . 41,349 41,007
-------- --------
Liabilities & equity . . . . . . . $ 607,552 $ 620,946
======== ========
-------- --------
Net interest income. . . . . . . . $ 14,225 $ 12,327
======== ========
------ ------
Interest rate spread . . . . . . . 2.76% 2.30%
====== ======
Net yield on earning assets. . . . 3.20% 2.71%
====== ======
Page (13)
OTHER INCOME
Other income during the first nine months of 1997, increased
by $225,000 compared with the same period of 1996 largely due
to an increase in retail banking fees of $432,000 partially
offset by small decreases in other income of $119,000, gain on
sales of foreclosed real estate of $47,000 and mortgage loan
servicing fees of $40,000. The $432,000 increase in retail
banking fees was primarily due to the fees associated with an
increased number of checking accounts and initiation of
surcharge fees on foreign ATM transactions in second quarter
of 1997. Gain on sales of loans decreased slightly to
$901,000 for the nine months ended September 30, 1997 as
compared to $917,000 for the same period on 1996. The table
below compares the residential lending production during the
nine month period ended September 30, 1997 as compared to the
same period in 1996 (in thousands):
For the Nine Months
Ended September 30,
--------------------------
1997 1996 Decrease
--------- --------- ----------
Applications. . . . . . . . . $118,658 $122,143 $(3,485)
Closings. . . . . . . . . . . 88,348 92,218 (3,870)
Fundings. . . . . . . . . . . 80,384 102,123 (21,739)
Ending Pipeline . . . . . . . 25,179 33,217 (8,038)
OTHER EXPENSE
Other expenses, exclusive of the provision for losses on
foreclosed real estate, decreased by $2,706,000 or (18.6)%
during the nine month period ended September 30, 1997 as
compared to the same period in 1996. The decrease was
primarily due to a decrease in federal deposit insurance
premiums of $4,005,000 partially offset by an increase in
salary, employee benefits and occupancy expenses of $1,005,000
and an increase in other expenses of $324,000. Federal
deposit insurance premiums decreased due to the special SAIF
assessment. 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.
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
Page (14)
of liquid assets equal to a certain percentage of net
withdrawable deposits and current borrowings (payable in one
year or less). OTS regulations require a liquidity level of
at least 5%. The Bank's liquidity ratio at September 30, 1997
was 6.22% and exceeded 5% at each measurement date during the
first nine 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 September 30, 1997 Requirement Excess
- -------------------------------------------------------------------------------------------------------
Tangible . . . . . . . . . . . . . . . $42,505,000 6.9% $9,208,000 1.5% $33,297,000 5.4%
Core . . . . . . . . . . . . . . . . . 42,505,000 6.9% 18,416,000 3.0% 24,089,000 3.9%
Risk-based . . . . . . . . . . . . . . 46,447,000 12.7% 29,295,000 8.0% 17,152,000 4.7%
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, September 1996, March 31, 1997, June
30, 1997 and September 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 six quarters noted in the immediately
preceding sentence.
Page (15)
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
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
None
Page (16)
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
Date: November 13, 1997 \s\ John A. B. Davies, Jr.
- ------------------------- ---------------------------------
John A. B. Davies, Jr.
President/Chief Executive Officer
Date: November 13, 1997 \s\ Dennis R. Stewart
- ------------------------- ---------------------------------
Dennis R. Stewart
Executive Vice President/
Chief Financial Officer