EXHIBIT 99.1
<PAGE>

                       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


<PAGE>



                              REQUIRED INFORMATION

                                                                        PAGE
                                                                     -----------





(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




<PAGE>



                          Independent Auditor's Report
                          ----------------------------

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


<PAGE>



        Virginia Beach Federal Savings Bank Employee Stock Purchase Plan
                        Statement of Financial Condition

                           December 31, 1996 and 1995
<TABLE>
<CAPTION>

                                                                                                  1996                 1995
                                                                                         ------------------------------------------
<S>                                                                                                  <C>                <C>
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
                                                                                         ------------------------------------------

         Total Assets...................................................................             $ 178,156          $ 207,386
                                                                                         ==========================================



Liabilities and Plan Equity:

Stock purchase payable..................................................................             $      --          $  11,912

Plan equity.............................................................................               178,156            195,474
                                                                                         ------------------------------------------

         Total Liabilities and Plan Equity..............................................             $ 178,156          $ 207,386
                                                                                         ==========================================
</TABLE>















                 See accompanying Notes to Financial Statements

                                        2


<PAGE>



        Virginia Beach Federal Savings Bank Employee Stock Purchase Plan
                 Statement of Income and Changes in Plan Equity

                      Year Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>

                                                                                         1996                    1995
                                                                                -------------------------------------------------

<S>                                                                                         <C>                       <C>

Contributions to the plan:

     Employee..................................................................             $  80,115                 $ 144,569

     Employer..................................................................                 4,217                     7,267

Dividend income................................................................                 2,761                     3,818
                                                                                -------------------------------------------------

         Total.................................................................                87,093                   155,654

Unrealized appreciation of investments (Note 4)................................                23,115                    18,087

Withdrawals - distributions to participants....................................              (127,526)                  (90,028)
                                                                                -------------------------------------------------

Net (decease) increase in plan equity..........................................               (17,318)                   83,713

Plan equity - beginning of period..............................................               195,474                   111,761
                                                                                -------------------------------------------------

Plan equity - end of period....................................................             $ 178,156                 $ 195,474
                                                                                =================================================

Net asset value per unit.......................................................             $    9.60                 $    7.90
                                                                                =================================================

Number of units outstanding....................................................                18,563                    24,741
                                                                                =================================================

</TABLE>

                 See accompanying Notes to Financial Statements

                                        3


<PAGE>



        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


<PAGE>


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


<PAGE>


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


<PAGE>




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.
<TABLE>
<CAPTION>

                                                                                   1996                   1995
                                                                          -----------------------------------------------



<S>                                                                                 <C>                       <C>
Market value.............................................................           $  175,188                $ 191,742

Prior year accumulated unrealized depreciation...........................               (8,230)                 (26,317)

Cost.....................................................................              160,303                  199,972
                                                                          -----------------------------------------------

Unrealized appreciation .................................................            $  23,115                $  18,087
                                                                          ===============================================
</TABLE>



                                        7


<PAGE>



                         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
-------------------------

Richmond, Virginia
March 26, 1997

                                        8


<PAGE>


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.
     --------------     -------------------------------------------------------
               Date            John A. B. Davies, Jr.
                               President/Chief Executive Officer

     March 27, 1997       /s/ Dennis R. Stewart
     ---------------    --------------------------------------------------------
               Date           Dennis R. Stewart
                              Executive Vice President/Chief Financial Officer

                             9