EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
COMMISSION FILE NUMBER: 0-19398
A. Full title of the Plan and the address of the Plan:
Virginia Beach Federal Savings Bank
Employee Stock Purchase Plan
c/o Human Resources Department
Virginia Beach Federal Savings Bank
Pavilion Center Office
2101 Parks Avenue,
Virginia Beach, Virginia 23451
B. Name of issuer of the securities held pursuant to the Plan and the address
of its principal executive office:
Virginia Beach Federal Financial Corporation
2101 Parks Avenue, Suite 400
Virginia Beach, Virginia 23451
REQUIRED INFORMATION
PAGE
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(a) Financial Statements
Independent Auditor's Report...................... 1
Statement of Financial Condition.................. 2
Statement of Income and Changes in Plan Equity.... 3
Notes to Financial Statements..................... 4 - 7
(b) Consent of Independent Auditors................... 8
Independent Auditor's Report
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To the Participants and Plan Administrator of the
Virginia Beach Federal Savings Bank Employee Stock Purchase Plan
We have audited the accompanying statement of financial condition of Virginia
Beach Federal Savings Bank Employee Stock Purchase Plan as of December 31, 1996
and 1995, and the related statement of income and changes in plan equity for the
years then ended. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Virginia Beach Federal
Savings Bank Employee Stock Purchase Plan as of December 31, 1996 and 1995, and
the results of its operations and changes in plan equity for the years then
ended in conformity with generally accepted accounting principles.
\s\ KPMG PEAT MARWICK LLP
Richmond, Virginia
March 13, 1997
1
Virginia Beach Federal Savings Bank Employee Stock Purchase Plan
Statement of Financial Condition
December 31, 1996 and 1995
1996 1995
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Assets:
Investments, at market value -
Virginia Beach Federal Financial Corporation Common Stock
18,563 shares in 1996 - Cost $160,303;
24,741 shares in 1995 - Cost $199,972 (Note 4)................................. $ 175,188 $ 191,742
Contributions receivable................................................................ 2,968 15,644
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Total Assets................................................................... $ 178,156 $ 207,386
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Liabilities and Plan Equity:
Stock purchase payable.................................................................. $ -- $ 11,912
Plan equity............................................................................. 178,156 195,474
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Total Liabilities and Plan Equity.............................................. $ 178,156 $ 207,386
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See accompanying Notes to Financial Statements
2
Virginia Beach Federal Savings Bank Employee Stock Purchase Plan
Statement of Income and Changes in Plan Equity
Year Ended December 31, 1996 and 1995
1996 1995
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Contributions to the plan:
Employee.................................................................. $ 80,115 $ 144,569
Employer.................................................................. 4,217 7,267
Dividend income................................................................ 2,761 3,818
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Total................................................................. 87,093 155,654
Unrealized appreciation of investments (Note 4)................................ 23,115 18,087
Withdrawals - distributions to participants.................................... (127,526) (90,028)
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Net (decease) increase in plan equity.......................................... (17,318) 83,713
Plan equity - beginning of period.............................................. 195,474 111,761
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Plan equity - end of period.................................................... $ 178,156 $ 195,474
=================================================
Net asset value per unit....................................................... $ 9.60 $ 7.90
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Number of units outstanding.................................................... 18,563 24,741
=================================================
See accompanying Notes to Financial Statements
3
Virginia Beach Federal Savings Bank Employee Stock Purchase Plan
Notes to Financial Statements
December 31, 1996 and 1995
Note 1 - Plan Description
Virginia Beach Federal Savings Bank ("the Bank") established the Virginia Beach
Federal Savings Bank Employee Stock Purchase Plan ("the Plan") effective April
1, 1994, and amended the Plan effective in January 1996. The following is a
brief description of the Plan provided for general information purposes only.
Participants should refer to the Plan Agreement for more complete information.
The Plan is not qualified under Section 401(a) of the Internal Revenue Code and
is exempt from the provisions of the Employee Retirement Income Security Act of
1974, as amended (ERISA). During 1995 and 1994 the Bank's Board of Directors
("Board of Directors") appointed First Union National Bank of North Carolina
("Plan Administrator") to administer the Plan and make purchases of common stock
of Virginia Beach Federal Financial Corporation ("the Corporation") as agent for
the participants. The Board of Directors has the authority to make changes in
the Plan and to appoint or to remove the Plan Administrator, at any time.
Effective January 1996, the Board of Directors appointed American Stock Transfer
& Trust Company to serve as Plan Administrator.
The Plan offers a way for employees to commence or increase their ownership of
the Corporation's common stock. All employees are eligible to participate in the
Plan on a voluntary basis up to a maximum of $900 per pay period. Once an
employee is enrolled as a participant in the Plan, payroll deductions are made
and such funds are used to purchase common stock of the Corporation in the
open-market, or directly from the Corporation under the terms of the Plan. The
Plan grants participants options to purchase common stock of the Corporation at
95% of the current market price during a thirty day investment period. The Bank
contributes the remaining 5%. The participant pays no brokerage commissions or
service charges for purchases made under the Plan. Certain charges, such as
brokerage commissions and transfer taxes, may be incurred upon a participant's
withdrawal from the Plan or upon termination of the Plan. The Plan Administrator
may deduct expenses from the Plan to the extent such expenses have not been paid
directly by the Bank; provided that not less than 15 days written notice of such
intent to make such deductions is furnished to the Bank.
The Plan Administrator holds and acts as custodian of shares purchased under the
Plan. The Plan Administrator may establish such procedures and make such other
provisions for the administration and operation of the Plan as it deems
appropriate to give effect to the Plan's purpose.
Cash dividends paid on shares credited to a participant's account will be
retained in the participant's account and invested in common stock as soon as
practicable following the dividend payment date.
4
Notes to Financial Statements
December 31, 1996 and 1995 (Continued)
A participant may withdraw from the Plan at any time to be effective as of the
first day of any calendar quarter. Upon termination of employment with the Bank,
participation under the Plan shall immediately cease and no unexercised options
to purchase common stock under the Plan shall be deemed exercisable. Termination
of employment shall include termination as a result of death or disability of
the participant.
Upon written request to the Plan Administrator, a participant may request the
distribution of shares held under the Plan in stock certificates of not less
than 100 share increments on a quarterly basis. Alternatively, a participant may
request that such distribution be made in the form of cash, in which case such
distribution of cash will be made in accordance with established procedures,
with the proceeds from the sale of such shares, less any brokerage commissions
and any taxes, if applicable, remitted to the participant. Such distribution of
Plan shares shall not be deemed a "Withdrawal" under the Plan.
Each participant has the authority to direct the Plan Administrator in the
manner of voting the number of whole shares (units) and fractional shares of
common stock held in his or her account. The aggregate number of remaining
shares representing shares for which no participant voting instructions are
received in a timely manner shall not be voted by the Plan Administrator.
Note 2 - Summary of Significant Accounting Policies
The financial statements are prepared on the accrual basis of accounting whereby
Plan contributions and withdrawals are recognized as incurred; dividend income
is recognized when earned; and unrealized appreciation or depreciation of
investments is recognized as it occurs.
The common shares of Virginia Beach Federal Financial Corporation are valued at
fair value based upon the last traded market price at year end.
Contributions receivable represent amounts withheld from participants prior to
year-end, and which were scheduled for payment to the Plan for investment
subsequent to the Plan's year end.
Note 3 - Tax Status
The Plan was established to qualify as an Employee Stock Purchase Plan as
defined in Section 423 of the Internal Revenue Code.
The following is a brief summary of the tax consequences of the Plan.
Participants should consult their tax advisors as to the tax consequences of
their individual transactions.
(1) The grant of an option to purchase stock under the Plan will not, by
itself, result in the recognition of taxable income to the participant or
entitle the Bank to a deduction at the time of such grant.
5
Notes to Financial Statements
December 31, 1996 and 1995 (Continued)
(2) The exercise of an option generally will not, by itself, result in the
recognition of taxable income to the participant or entitle the Bank to a
deduction at the time of such exercise. Provided that the participant
holds such shares received under the Plan for at least one year after
acquisition of the shares or two years after the grant of the option,
whichever is later, the participant will recognize taxable income upon
sale of such common stock as follows:
a) with respect to the 5% purchase discount, the difference between the
amount paid by the participant for such common stock (the option
exercise price) and the Plan purchase price of the common stock will
be taxable as ordinary income upon the sale of the common stock;
b) the participant will recognize capital gain upon the sale of the
common stock received upon the exercise of options to purchase such
stock under the Plan, to the extent that the sale price of such
common stock exceeds the Plan purchase price of such common stock;
c) if the sale price of such common stock is below the Plan purchase
price of such common stock, the participant shall recognize a
long-term capital loss upon the sale of such common stock.
(3) The sale of the common stock acquired within two years of the date of
grant of such option or one year of such acquisition, whichever is later,
will result in the recognition of ordinary income by the participant on
the date of sale in an amount equal to the difference between the exercise
price of such option (i.e., 95% of the market price of the stock
purchased) and the sale proceeds of such common stock.
(4) Receipt of cash dividends on stock held under the Plan will result in
taxable income to the participant in the year received without regard to
the reinvestment of such dividends for the purchase of additional common
stock under the Plan.
6
Note 4 - Unrealized Appreciation of Investments
The following table summarizes the unrealized appreciation (depreciation) of the
Plan's investments in common stock for the periods ended December 31, 1996 and
1995.
1996 1995
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Market value............................................................. $ 175,188 $ 191,742
Prior year accumulated unrealized depreciation........................... (8,230) (26,317)
Cost..................................................................... 160,303 199,972
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Unrealized appreciation ................................................. $ 23,115 $ 18,087
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7
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Virginia Beach Federal Financial Corporation
We consent to incorporation by reference in Registration Statement No. 33-76678
on Form S-8 of Virginia Beach Federal Financial Corporation of our report dated
March 13, 1997, relating to the statements of financial condition of Virginia
Beach Federal Savings Bank Employee Stock Purchase Plan as of December 31, 1996
and 1995, and the related statements of income and changes in plan equity for
the years then ended, which report is included in the December 31, 1996 annual
report on Form 11-K of Virginia Beach Federal Savings Bank Employee Stock
Purchase Plan.
/s/ KPMG Peat Marwick LLP
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Richmond, Virginia
March 26, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Board
of Directors has duly caused this annual report to be signed by the undersigned
thereunto duly authorized.
VIRGINIA BEACH FEDERAL SAVINGS BANK
EMPLOYEE STOCK PURCHASE PLAN
March 27, 1997 /s/ John A. B. Davies, Jr.
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Date John A. B. Davies, Jr.
President/Chief Executive Officer
March 27, 1997 /s/ Dennis R. Stewart
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Date Dennis R. Stewart
Executive Vice President/Chief Financial Officer
9