<PAGE> 1
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, 1996
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)
(804) 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: 4,965,944
<PAGE>
<PAGE> 2
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item I
Unaudited Consolidated Statements of Financial Condition
as of June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Income for the
three and six months ended June 30, 1996 and 1995 . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . .5 - 6
Unaudited Consolidated Statement of Stockholders'
Equity for the six months ended June 30, 1996 . . . . . . . . . . . . . . 7
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . 8
Item II
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . .9 - 13
PART II - OTHER INFORMATION
Item 1
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2
Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3
Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . 14
Item 4
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 14
Item 5
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
<PAGE> 3
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and amounts due from banks. . . . . . . . . . . . . . . . . $ 11,718 $ 8,519
Securities purchased under agreements to resell. . . . . . . . . -- 55,000
Investment securities
Held-to-maturity (fair value $15,559,
$14,853, respectively). . . . . . . . . . . . . . . . . . . 15,924 15,050
Available-for-sale, carried at fair value . . . . . . . . . . 12,846 11,867
Mortgage-backed and related securities
Held-to-maturity (fair value $29,692,
$34,186, respectively). . . . . . . . . . . . . . . . . . . 31,613 34,458
Available-for-sale, carried at fair value . . . . . . . . . . 88,501 103,321
Loans receivable
Held-for-investment . . . . . . . . . . . . . . . . . . . . . 425,647 433,562
Held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . 3,845 14,020
Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . 3,752 5,767
Property and equipment . . . . . . . . . . . . . . . . . . . . . 5,186 5,275
Accrued income receivable. . . . . . . . . . . . . . . . . . . . 4,252 4,546
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,548 7,577
--------- ---------
$608,832 $698,962
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . $443,962 $492,971
Advances from the Federal Home Loan Bank . . . . . . . . . . 106,510 158,010
Securities sold under agreements to repurchase . . . . . . . 5,013 --
Advance payments by borrowers for taxes and
insurance. . . . . . . . . . . . . . . . . . . . . . . . . 1,412 1,252
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 10,729 5,697
--------- ---------
567,626 657,930
--------- ---------
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; 4,965,094 shares issued and
outstanding in 1996 (4,957,422 in 1995) . . . . . . . . . . 50 50
Capital in excess of par value . . . . . . . . . . . . . . . . 9,292 9,237
Retained earnings - substantially restricted. . . . . . . . . 32,481 31,706
Net unrealized gain (loss) on
securities available-for-sale . . . . . . . . . . . . . . . (617) 39
--------- ---------
41,206 41,032
--------- ---------
$ 608,832 $ 698,962
========= =========
</TABLE>
Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement<PAGE>
<PAGE> 4
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest and fees on loans . . . . . . $ 9,345 $ 9,309 $ 18,655 $ 18,234
Interest on mortgage-backed
and related securities. . . . . . . 2,124 3,395 4,374 6,896
Other interest and
dividend income . . . . . . . . . . 510 600 1,508 1,222
-------- -------- -------- --------
Total interest income . . . . . . . 11,979 13,304 24,537 26,352
-------- -------- -------- --------
Interest on deposits . . . . . . . . . 6,053 6,878 12,501 13,434
Interest on Federal Home
Loan Bank advances. . . . . . . . . 1,695 2,554 3,885 4,948
Interest on repurchase
agreements . . . . . . . . . . . . 22 234 22 394
-------- -------- -------- --------
Total interest expense. . . . . . . 7,770 9,666 16,408 18,776
-------- -------- -------- --------
Net interest income. . . . . . . . . . 4,209 3,638 8,129 7,576
Provision for loan losses. . . . . . . 100 -- 100 --
-------- -------- -------- --------
Net interest income after
provision for loan losses . . . . . 4,109 3,638 8,029 7,576
-------- -------- -------- --------
OTHER INCOME
Market value adjustment on
derivative contracts. . . . . . . . -- 80 -- (232)
Gain on sales of loans . . . . . . . . 251 480 678 579
Gain on sales of foreclosed
real estate . . . . . . . . . . . . 76 7 96 19
Mortgage loan servicing fees . . . . . 183 155 368 356
Other. . . . . . . . . . . . . . . . . 319 317 638 623
-------- -------- -------- --------
829 1,039 1,780 1,345
-------- -------- -------- --------
OTHER EXPENSES
Salaries and employee
benefits . . . . . . . . . . . . . . 1,590 1,815 3,158 3,658
Net occupancy expense of
premises . . . . . . . . . . . . . . 815 857 1,466 1,649
Provision for losses on
foreclosed real estate. . . . . . . 124 -- 424 --
Other net expense of
foreclosed real estate. . . . . . . 51 113 108 195
Federal deposit insurance
premiums . . . . . . . . . . . . . . 322 328 656 655
Other. . . . . . . . . . . . . . . . . 1,028 1,153 2,089 2,196
-------- -------- -------- --------
3,930 4,266 7,901 8,353
-------- -------- -------- --------
Income before income taxes . . . . . . 1,008 411 1,908 568
Provision for income taxes . . . . . . 383 140 736 193
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . $ 625 $ 271 $ 1,172 $ 375
========= ========= ========= =========
Earnings per common share
Net income . . . . . . . . . . . . . . $ 0.13 $ 0.06 $ 0.24 $ 0.08
========= ========= ========= =========
Dividend per common share. . . . . . . $ 0.04 $ 0.04 $ 0.08 $ 0.08
========= ========= ========= =========
</TABLE>
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement<PAGE>
<PAGE> 5
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, except per share data)
<TABLE>
For the Six Months
Ended June 30,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . $1,172 $375
Adjustments to reconcile net income to net
cash provided by operating activities . . . . . . . . .
Provision for loan losses. . . . . . . . . . . . . . . . . 100 --
Provision for losses on foreclosed real estate . . . . . . 424 --
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 581 489
Amortization of loan discounts and fees. . . . . . . . . . (686) (696)
Amortization of other discounts and premiums . . . . . . . 296 157
Market value adjustment on derivative contracts. . . . . . -- 232
Gain on sales of foreclosed real estate. . . . . . . . . . (96) (19)
Gain on sales of loans . . . . . . . . . . . . . . . . . . (678) (579)
Originations/purchases of loans held-for-sale. . . . . . . (47,594) (98,785)
Proceeds from sales of loans held-for-sale . . . . . . . . 58,447 90,191
Decrease in accrued income receivable. . . . . . . . . . . 294 51
Increase in other assets . . . . . . . . . . . . . . . . . 2,096 31
Increase in other liabilities. . . . . . . . . . . . . . . 5,032 4,768
-------- ---------
Net cash provided by (used for)
operating activities. . . . . . . . . . . . . . . . . 19,388 (3,785)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans receivable. . . . . . . . 7,626 (6,431)
Principal payments received on mortgage-backed
and related securities. . . . . . . . . . . . . . . . . 16,793 11,307
Proceeds from maturities of investment securities. . . . . 7,000 9,038
Proceeds from sales of
Securities purchased under agreements
to resell. . . . . . . . . . . . . . . . . . . . . . 55,000 --
Foreclosed real estate . . . . . . . . . . . . . . . . 2,683 3,732
Property and equipment. . . . . . . . . . . . . . . . . 8 --
Purchases of
Investment securities held-to-maturity. . . . . . . . . (8,000) (3,000)
Investment securities available-for-sale. . . . . . . . (1,000) --
Property and equipment. . . . . . . . . . . . . . . . . (500) (1,258)
Additions to foreclosed real estate . . . . . . . . . . (121) (921)
-------- ---------
Net cash provided by investing activities. . . . . . . . . 79,489 12,467
--------- ---------
</TABLE>
Continued
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement<PAGE>
<PAGE> 6
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in money market
deposit accounts, NOW accounts and
savings deposits. . . . . . . . . . . . . . . . . . . . $ (1,357) $ 259
Net increase (decrease) in certificates
of deposit . . . . . . . . . . . . . . . . . . . . . . . (47,652) 7,187
Proceeds from Federal Home Loan Bank advances. . . . . . . 128,000 194,000
Payments on Federal Home Loan Bank advances. . . . . . . . (179,500) (209,000)
Net increase in securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . 5,013 1,226
Net increase in advance payments by borrowers. . . . . . . 160 559
Proceeds from issuance of common stock . . . . . . . . . . 55 102
Cash dividends paid. . . . . . . . . . . . . . . . . . . . (397) (394)
--------- ---------
Net cash used for financing activities . . . . . . . . . (95,678) (6,061)
--------- ---------
Increase in cash and amounts due from banks. . . . . . . . . . 3,199 2,621
Cash and amounts due at beginning of period. . . . . . . . . . 8,519 2,009
--------- ---------
Cash and amounts due from banks at end of period . . . . . . . $ 11,718 $ 4,630
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits. . . . . . . . . . . . . . . . . $ 17,287 $ 18,228
SCHEDULE OF NONCASH INVESTING ACTIVITIES
Foreclosed real estate acquired in settlement
of loans, net of allowances. . . . . . . . . . . . . . . . $ 875 $ 1,635
</TABLE>
The Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement<PAGE>
<PAGE> 7
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Net
Unrealized
Gain
(Loss) on
Capital in Securities
Excess of Available- Retained
Shares Amount Par Value for-Sale Earnings Total
--------- --------- --------- --------- --------- ------
<C> <C> <C> <C> <C> <C> <C>
Balance,
Dec. 31, 1995 . . . . 4,957,422 $ 50 $9,237 $ 39 $ 31,706 $ 41,032
Net income for the six
months ended
June 30, 1996 . . . . 1,172 1,172
Sale of shares of common
stock to Employee
Stock Purchase Plan . . 6,172 47 47
Exercise of stock options
for shares of common
stock . . . . . . . . 1,500 8 8
Change in net unrealized gain
(loss) on securities
available-for-sale . . (656) (656)
Cash dividends paid. . . (397) (397)
-------- -------- --------- --------- ---------- --------
Balance,
June 30, 1996 . . . . 4,965,094 $50 $9,292 $(617) $32,481 $41,206
========= ======== ========= ========= ========= ========
</TABLE>
Notes to Unaudited Consolidated Financial Statements
are an integral part of this statement
<PAGE>
<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 "Corporation") the financial statements reflect all
adjustments, consisting of only normal recurring accruals, necessary
to present fairly the financial position of the Corporation.
The Notes to the Consolidated Financial Statements of the Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 should
be read in conjunction with this Form 10-Q.
2. Net unamortized premiums on loans and mortgage-backed securities
amounted to $770,000 at June 30, 1996. Deferred loan fees at June 30,
1996 amounted to $1,528,000.
3. The results of operations for the six months ended June 30, 1996 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 $28,250,000 the Bank had
outstanding commitments to purchase or originate $32,211,000 in loans
at June 30, 1996. The Bank also had outstanding commitments to sell
$9,308,000 in loans at June 30, 1996.
5. Primary earnings per share has been computed based on the weighted
average number of shares outstanding assuming the issuance of shares
under the Corporation's stock option plan and use of the proceeds to
purchase the Corporation's outstanding common stock at the weighted
average market price during the period. At June 30, 1996 and 1995,
there were 280,450 and 198,962 option shares exercisable at a weighted
average exercise price of $6.85 and $6.62 per share, respectively.
There is no material difference between primary and fully diluted
earnings per share.
<PAGE>
<PAGE> 9
VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1996 were $609 million which
is a decrease of $90.1 million or 12.9% from December 31, 1995. This
decrease is mainly due to the net effect of a $55.0 million decrease in
securities purchased under agreements to resell, a $ 18.1 million decrease
in net loans receivable, a $15.8 million decrease in the Bank's securities
portfolios, a $2.0 million decrease in foreclosed real estate and a $2.0
million decrease in other assets. These decreases were partially off-set
by a $3.2 million increase in cash and amounts due from banks. The
intentional reduction in total assets has caused the Bank's core capital
ratio to increase to 6.8% at June 30, 1996 from 5.8% at December 31, 1995.
The $55.0 million decrease in securities purchased under agreements to
resell was due to the Company electing not to replace these assets when they
matured, thus reducing the total assets of the Company. The decrease of
$15.8 million in the Bank's securities portfolios at June 30, 1996 as
compared to December 31, 1995 is due mainly to the normal repayment and
maturity of securities. The Bank collected $16.8 million in principal on
mortgage-backed and related securities and $7.0 million from maturities of
fixed and variable rate investment securities. These reductions were off-
set by the purchase of $9.0 million fixed rate U.S. Treasury or U. S.
Government Agency securities. In accordance with Financial Accounting
Standards No.115 ("FAS115"), the Company has recorded a reduction
to shareholders' equity of $617,000 to reflect a decline in the market
value of securities classified as available-for-sale.
The Bank's loan portfolio decreased $18.1 million at June 30, 1996 as
compared to December 31, 1995. The decrease of $10.2 million in loans held-
for-sale and $6.7 million in residential mortgage loans is attributable
primarily to the Company's sale of five of its loan production offices
outside the local retail banking market during the fourth quarter of 1995
and the Company's retention of lower levels of mortgage production for its
own portfolio. Of the net decrease of $7.4 million in the Bank's commercial
real estate and construction lending portfolios, $6.0 million was
attributable to the pay-off of commercial real estate loans outside of the
Bank's local lending area. The Bank's land acquisition, commercial and
consumer lending portfolios increased a total of $6.5 million at June 30,
1996, as compared to December 31, 1995.
LIABILITIES
Total liabilities decreased by $90.3 million or 13.7% to $568 million
during the first six months of 1996. This decrease is mainly due to a $49.0
million decrease in deposits and a $51.5 million decrease in advances from
the Federal Home Loan Bank. These decreases were partially offset by a $5.0
increase in securities sold under agreements to repurchase, and a $5.0
million increase in other liabilities associated with recurring fluctuations
in the timing of payment for certain accrued items. The decrease in deposit
balances is in keeping with management's emphasis of focusing on the local
retail deposit base. Of the $49.0 million decrease in deposits since
December 1995, $45.9 million occurred in brokered and other out-of-area
deposits.
The decrease of $51.5 million in Federal Home Loan Bank advances is
mainly attributable to the Bank's repayment of maturing advances with funds
generated from the sale of securities under agreements to resell during the
first quarter.
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 $7.1
million at June 30, 1996 compared to $9.6 million at December 31, 1995.
<PAGE>
<PAGE> 10
The delinquent loan component of non-performing assets was $3.4
million, $3.8 million, and $6.4 million, at June 30, 1996, December 31, 1995
and June 30, 1995, respectively. The delinquent loans were substantially
secured by single-family residential properties at June 30, 1996.
Charges to the foreclosed real estate allowance were $1,456,000 during
the first six months of 1996; of that amount, $1,368,000 related to a single
strip shopping center property which was sold during June 1996. The
remainder related to single family properties.
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 $4.2 million and $0.6
million, respectively at June 30, 1996.
The allowance for possible loan losses is maintained for possible but
as yet unidentified loan losses. At June 30, 1996, the Bank's allowance for
loan losses was 0.97% of total loans receivable held for investment. The
Bank also has an unallocated loss reserve for foreclosed real estate of
$128,000 as of June 30, 1996. During the first half of 1996 in an attempt
to stimulate sales of certain properties, the Company modified its
strategies with respect to the disposal of certain parcels of foreclosed
real estate and added $424,000 to the foreclosed real estate reserves during
the first half of 1996 versus no such additions during the first half of
1995. The Bank will continue its evaluation of the need for both loan
receivable and foreclosed real estate reserves, and additional reserves will
be established as needed.
The following table sets forth the Bank's loan and foreclosed real
estate allowance activity for the periods indicated:
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Loans receivable allowance
Balance, January 1. . . . . . . . . . $3,968,000 $4,328,000
Provision for loan losses . . . . . . 100,000 --
Net (charges) recoveries
to the allowance . . . . . . . . . 89,000 (432,000)
----------- -----------
Balance, June 30. . . . . . . . . . . $4,157,000 $3,896,000
=========== ===========
Foreclosed real estate allowance
Balance, January 1. . . . . . . . . . $1,599,000 $1,571,000
Provision for losses on
foreclosed real estate. . . . . . 424,000 --
Net charges to the allowance. . . . . (1,456,000) (117,000)
----------- -----------
Balance, June 30. . . . . . . . . . . $ 567,000 $1,454,000
=========== ===========
</TABLE>
Proposed Legislation. On August 2, 1996, U. S. Congress passed the Small
Business Job Protection Act of 1996. If signed by the President and enacted
into law, this bill would, among other things, equalize the taxation of
thrifts and banks. Previously, thrifts had been able to deduct a portion
of their bad-debt reserves set aside to cover potential loan losses ("bad-
debt reserves"). Furthermore, the bill will repeal current law mandating
recapture of thrifts' bad debt reserves if they convert to banks. Bad debt
reserves set aside through 1987 will not be taxed, however, any reserves
taken since January 1, 1988, will be taxed over a six year period beginning
in 1997. Institutions can delay these taxes for two years if they meet a
residential-lending test. If this bill were to become law as currently
drafted, it is not expected to have a material adverse effect on the
financial condition or results of operations of the Company taken as a
whole.<PAGE>
<PAGE> 11
RESULTS OF OPERATION: Three months Ended June 30, 1996 and 1995
NET OPERATING RESULTS
For the three months ended June 30, 1996, the Company earned $625,000
or $0.13 per share as compared to $271,000 or $0.06 per share for the same
period in 1995. Pretax earnings increased by $597,000 during the second
quarter of 1996 as compared to the year earlier period.
NET INTEREST INCOME
Net interest income during the quarter ended June 30, 1996 was
$4,209,000 as compared to $3,638,000 during the same period of 1995. Even
though total assets have decreased to $609 million at June 30, 1996 from
$722 million at June 30, 1995, net interest income increased by $571,000 as
a result of an increased net interest margin. The net interest margin for
the quarter ended June 30, 1996 was 2.85% as compared to 2.12% during the
second quarter of 1995. Net interest income during the second quarter
of 1996 was also increased by $260,000 due to prepayment interest collected
on two loans totalling $4.4 million which were paid off.
OTHER INCOME
Other income during the second quarter of 1996, decreased by $210,000
compared with the second quarter of 1995 largely due to reduced loan sales
activity that resulted from a reduction in the Company's mortgage lending
activities. Gains on sales of loans were $251,000 during the 1996 period
as compared to $480,000 during the second quarter of 1995, mainly because
the Company sold five of its loan production offices outside the local
retail banking market during the fourth quarter of 1995. The table below
compares the residential lending production during the quarter ended June
30, 1996 as compared to the same period in 1995 (in thousands):
<TABLE>
For the Three Months
Ended June 30,
----------------------------
1996 1995 Decrease
--------- --------- ----------
<S> <C> <C> <C>
Applications $37,958 $106,537 $ (68,579)
Closings 32,650 61,415 (28,765)
Fundings 33,547 56,317 (22,770)
Ending Pipeline 41,281 91,030 (49,749)
</TABLE>
OTHER EXPENSE
Other expenses, exclusive of the provision for losses on foreclosed
real estate, decreased by $460,000 or 10.8% during the second quarter of 1996
as compared to the same period in 1995. The reductions in salary and
employee benefits costs and net occupancy expenses are the direct result of
management's efforts throughout 1995 and 1996 to reduce staff, control costs
and to significantly reduce the infrastructure of the Company's mortgage
lending activities. These reductions in expenses are net of the cost
incurred to staff and operate three additional retail banking offices opened
during 1995, and the start up costs associated with the Company's
"supermarket banking" branch opened during June 1996. During the quarter
ended June 30, 1996, the Company recorded a $100,000 provision for loan
losses, and a provision for possible losses on foreclosed property of
$124,000 as compared to no provision for such losses during the 1995 period.
See "Non-performing Assets" for more information concerning the foreclosed
real estate allowance.
<PAGE>
<PAGE> 12
RESULTS OF OPERATION: Six months Ended June 30, 1996 and 1995
NET OPERATING RESULTS
For the six months ended June 30, 1996, the Company earned $1,172,000
or $0.24 per share as compared to $375,000 or $0.08 per share for the same
period in 1995. Pretax earnings increased by $1,340,000 during the six
month period as compared to the same period in 1995.
NET INTEREST INCOME
Net interest income during the first six months of 1996 increased by
7.3% to $8,129,000 as compared to $7,576,000 during the same period of 1995.
Even though total assets have decreased to $609 million at June 30, 1996
from $722 million at June 30, 1995, net interest income increased by
$553,000 as a result of an increased net interest margin. The net interest
margin for the six months ended June 30, 1996 was 2.65% as compared to 2.21%
for the same period in 1995.
OTHER INCOME
Other income during the first six months of 1996, increased by $435,000
compared with the same period of 1995 largely due to the earnings during the
1995 period reflecting a $232,000 pretax loss related to the Corporation's
interest rate swaps and caps accounted for at market value. Earnings for
the 1996 period included no gain or loss related to derivative contracts
accounted for at market value. Gains on sales of loans were $678,000
during the 1996 period as compared to $579,000 during the same period in
1995, even though the Company sold five of its loan production offices
outside the local retail banking market during the fourth quarter of 1995.
The table below compares the residential lending production during the six
month period ended June 30, 1996 as compared to the same period in 1995 (in
thousands):
<TABLE>
For the Six Months
Ended June 30,
----------------------------
1996 1995 Decrease
--------- --------- ----------
<S> <C> <C> <C>
Applications $87,578 $194,048 $ (106,470)
Closings 62,379 100,189 (37,810)
Fundings 66,089 88,560 (22,471)
Ending Pipeline 41,281 91,030 (49,749)
</TABLE>
OTHER EXPENSE
Other expenses, exclusive of the provision for losses on foreclosed
real estate, decreased by $876,000 or 10.5% during the six month period
ended June 30, 1996 as compared to the same period in 1995. The reductions
in salary and employee benefits costs and net occupancy expenses are the
direct result of management's efforts throughout 1995 and 1996 to reduce
staff, control costs and to significantly reduce the infrastructure of the
Company's mortgage lending activities. These reductions in expenses are net
of the cost incurred to staff and operate three additional retail banking
offices opened during 1995, and the start up costs associated with the
Company's "supermarket banking" branch opened during June 1996. During the
six-month period ended June 30, 1996, the Company recorded a $100,000
provision for loan losses, and a provision for possible losses on foreclosed
property of $424,000 as compared to no provision for such losses during the
1995 period. See "Non-performing Assets" for more information concerning
the foreclosed real estate allowance.
<PAGE>
<PAGE> 13
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, 1996 was 6.02% and exceeded 5% at each
measurement date during the first half of 1996.
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.
<TABLE>
Capital Amount as of
Measure June 30, 1996 Requirement Excess
- -------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $41,601,000 6.8% $ 9,178,000 1.5% $32,423,000 5.3%
Core 41,601,000 6.8% 18,356,000 3.0% 23,245,000 3.8%
Risk-based 45,358,000 12.9% 28,014,000 8.0% 17,254,000 4.9%
</TABLE>
On August 31, 1993, the OTS issued a final rule effective January 1,
1994, which sets forth the methodology for calculating an interest rate risk
("IRR") component which is added to the risk-based capital requirements for
OTS regulated thrift institutions. Under the final rule, savings
associations with a greater than "normal" level of interest rate exposure
will be subject to a deduction from total capital for purposes of
calculating their risk-based capital requirement. Specifically, interest
rate exposure will be measured as the decline in net portfolio value due to
a 200 basis point change in market interest rates. The IRR component to be
deducted from total capital is equal to one-half the difference between an
institution's measured exposure and the "normal" level of exposure which is
defined as two percent of the estimated economic value of its assets.
The final rule establishes a three quarter "lag" between the reporting
date that is used to calculate the IRR component and the effective date of
each quarter's IRR component. Under the final rule, the Director of the OTS
may waive or defer an institution's IRR component, but not decrease it
unless it is as the result of an appeal. The OTS intends to make an appeals
process available to institutions under certain circumstances.
Implementation of giving effect to the IRR component has been delayed until
OTS finalizes the appeals process and establishes an effective
implementation date. At March 31, 1996, the latest date for which OTS's
report is available, the Company did not have an IRR component.
<PAGE>
<PAGE> 14
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 24,
1996. Represented at the meeting in person or by proxy were the
holders of 4,137,483 shares. Entitled to vote were 4,960,857
shares. Results of the items voted on were as follows:
ITEM VOTES FOR
----- --------
1. Election of Directors
John A. B. Davies, Jr.. . . . . . . . . 4,121,369
Betty Anne Huey . . . . . . . . . . . . 4,121,644
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits - None
(b) No Form 8-K was filed during the
quarter ended June 30, 1996
<PAGE>
<PAGE> 15
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: August 14, 1995 \s\ John A. B. Davies, Jr.
--------------------------
John A. B. Davies, Jr.
President/Chief Executive Officer
Date: August 14, 1995 \s\ Dennis R. Stewart
--------------------------
Dennis R. Stewart
Executive Vice President/
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[DESCRIPTION] ARTICLE 9 FDS FOR 10-Q
<ARTICLE> 9
<CIK> 847260
<NAME> VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 10,533
<INT-BEARING-DEPOSITS> 1,175
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,536
<INVESTMENTS-CARRYING> 47,536
<INVESTMENTS-MARKET> 45,251
<LOANS> 433,649
<ALLOWANCE> 4,157
<TOTAL-ASSETS> 608,832
<DEPOSITS> 443,962
<SHORT-TERM> 111,523
<LIABILITIES-OTHER> 12,141
<LONG-TERM> 0
0
0
<COMMON> 50
<OTHER-SE> 41,156
<TOTAL-LIABILITIES-AND-EQUITY> 608,832
<INTEREST-LOAN> 18,655
<INTEREST-INVEST> 4,374
<INTEREST-OTHER> 1,508
<INTEREST-TOTAL> 24,537
<INTEREST-DEPOSIT> 12,501
<INTEREST-EXPENSE> 16,408
<INTEREST-INCOME-NET> 8,129
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,089
<INCOME-PRETAX> 1,908
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 8.36
<LOANS-NON> 3,382
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,968
<CHARGE-OFFS> 9
<RECOVERIES> 98
<ALLOWANCE-CLOSE> 4,157
<ALLOWANCE-DOMESTIC> 103
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,054
</TABLE>
