SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                      -------------------------------------

                                    FORM 10-K
                                   (Mark One)

[root]

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 (Fee Required)

                     For fiscal year ended December 31, 1997

                                       OR

[ ]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 (No Fee Required)

        Transition Period:                     To
                           -------------------     ---------------------

                         Commission File Number: 0-19398

                  VIRGINIA BEACH FEDERAL FINANCIAL CORPORATION
             (Exact name of Registrant as Specified in its Charter)

        Virginia                                         54-1534067
(State or other  jurisdiction of              (IRS Employer Identification No.)
incorporation or organization)                    

2101 Parks Avenue, Virginia Beach, Virginia                        23451
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:            (757) 428-9331
Securities registered pursuant to Section 12(b) of the Act:         None
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                                (Title of Class)

        Indicate by check mark whether the  registrant (1) has filed all 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 by check mark if disclosure of  delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

        The  aggregate  value of the Common Stock held by  nonaffiliates  of the
registrant  as of March 13, 1998,  computed by reference to the closing price of
such stock on the Nasdaq Stock Market on that date, was $74,467,076.  Solely for
purposes  of this  calculation,  the term  "affiliate"  is deemed to include all
executive  officers and directors of the registrant.  As of March 13, 1998 there
were issued and outstanding 4,981,874 shares of the Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.      Portions  of Annual  Report to  Stockholders  for the Fiscal  Year Ended
        December 31, 1997. (Parts II and IV)

2.      Portions of Proxy  Statement  for 1998 Annual  Meeting of  Stockholders.
        (Part III)



<PAGE>



                                     PART I
Item  1.  Business


General.

        The Company.  Virginia Beach Federal Financial Corporation (the Company)
was  incorporated  under the laws of the  Commonwealth  of  Virginia in February
1989, for the purpose of becoming a savings and loan holding  company and owning
all of the issued and outstanding Common Stock of First Coastal Bank (the Bank),
which was chartered as Virginia Beach Federal Savings Bank at that time. On June
28, 1991, the Company  acquired all of the outstanding  Common Stock of the Bank
pursuant to the Amended and Restated Agreement and Plan of Reorganization of the
Bank in connection with the  reorganization  of the Bank into a savings and loan
holding  company  structure  (the   Reorganization).   The   Reorganization  had
originally been approved by the  stockholders  of the Bank in 1989.  Because the
Reorganization  was not  consummated  within  one  year  from  the  date of such
approval,  however,  the  Reorganization was reauthorized at the April 24, 1991,
annual meeting of the Bank's stockholders.

        Prior to the  Reorganization,  the Company had no assets or  liabilities
and  engaged  in  no  significant   business   activities.   Subsequent  to  the
Reorganization,  the Company has engaged in no significant activities other than
the  ownership  of the Common  Stock of the Bank and  operating as a savings and
loan  holding  company  for the Bank.  Accordingly,  the  information  presented
herein,  including  financial  statements and related data, relates primarily to
the Bank and its subsidiaries.  References throughout this Report to the Company
include the Bank and its subsidiaries, unless the context otherwise requires.

        The  Company's  principal  executive  offices  are located at 2101 Parks
Avenue, Virginia Beach, Virginia 23451, and its telephone number at that address
is (757) 428-9331.

        The Bank.  First  Coastal  Bank was  originally  chartered  in 1935 as a
federal  mutual  savings and loan  association.  Since that time,  it has been a
member of the Federal Home Loan Bank (FHLB)  System,  and its deposits have been
federally  insured  up to  applicable  limits.  On  August  29,  1980,  the Bank
converted from mutual to stock form. In November 1996, the Bank changed its name
from Virginia  Beach Federal  Savings Bank to First Coastal Bank.  The principal
executive offices of the Bank are located at 2101 Parks Avenue,  Virginia Beach,
Virginia 23451 and its telephone number at that address is (757) 428-9331.

        The  Bank's  primary  businesses  are those of  lending  to real  estate
developers and owners,  small businesses and consumers,  and accepting  deposits
from small  businesses  and the general  public through its network of 14 branch
locations.  The  Bank  conducts  its  business  in the  Hampton  Roads  area  of
southeastern  Virginia  and its markets  comprise  the  communities  of Virginia
Beach, Chesapeake, Norfolk, Hampton, Newport News, York County and Williamsburg.

Lending Activities

        General.  The Bank  originates  loans  directly and through its mortgage
banking subsidiary,  First Coastal Mortgage Corp (First Coastal Mortgage), which
was known as Beach Fed Mortgage Corp until November 1996.

        The types and amounts of loans which may be made by First  Coastal  Bank
are  prescribed  by federal law. The Bank is authorized to make loans secured by
first liens on  residential  property  and by junior liens on  residential  real
estate.  Subject  to  certain  limits,  the Bank also  engages  in  secured  and
unsecured consumer, commercial, corporate and business lending activities.

                                        1

<PAGE>



        Loans  Receivable  Held for  Investment.  Set forth below is information
concerning loans receivable held for investment at the specified  periods.  This
information does not include mortgage-backed securities. Other than as disclosed
below,  there  were no  concentrations  of loans at  December  31,  1997,  which
exceeded 10% of total loans.

<TABLE>
<CAPTION>

                                                               At December 31,
                            --------------------------------------------------------------------------------------
                                 1997             1996              1995            1994              1993
                            --------------------------------------------------------------------------------------
                            Amount  Percent  Amount  Percent   Amount  Percent  Amount  Percent  Amount  Percent
                            ======================================================================================
Type of Loan                                               (Dollars in Thousands)
<S>                        <C>      <C>     <C>      <C>     <C>      <C>     <C>       <C>     <C>      <C>   
Conventional real 
 estate loans
   Loans on existing 
    property (1)           $373,884  82.27% $398,219  89.48% $395,917  91.32% $413,920   97.52% $370,637  95.73%
   Interim construction                                                                         
    loans                    41,045   9.03    25,374   5.70    26,824   6.18     8,795    2.07    10,408   2.68
Commercial                   24,789   5.45    10,731   2.41     4,343   1.00     1,059    0.25     1,826   0.47
Consumer loans                                                                                  
   Deposit account                                                                              
    loans                       847   0.19       725   0.16     1,030   0.24       878    0.21     1,484   0.38
   Home improvement and                                                                         
     consumer loans          14,489   3.19    12,698   2.85     8,864   2.04     4,966    1.17     7,790   2.02
   Equity line of credit      5,102   1.12     3,232   0.73     2,572   0.59     1,726    0.41     1,424   0.37
Less                                                                                            
   Discounts and other        1,382   0.30     1,534   0.34     2,020   0.47     2,581    0.61     2,225   0.57
   Loan loss reserve          4,297   0.95     4,390   0.99     3,968   0.90     4,328    1.02     4,173   1.08
                           ------------------------------------------------------------------------------------
     Total                 $454,477 100.00  $445,055 100.00% $433,562 100.00% $424,435  100.00% $387,171 100.00%
                           ====================================================================================
Type of Security                                                                                
Residential real estate                                                                         
   1-to-4 family           $315,477  69.41% $322,032  72.36% $332,358  76.66% $336,802   79.35% $297,833  76.92%
   Other dwelling units      17,491   3.85    19,940   4.48     5,797   1.33    13,116    3.09    10,010   2.59
Commercial or industrial                                                                        
   real estate               87,063  19.16    84,783  19.05    87,158  20.10    74,523   17.56    74,626  19.28
Commercial                   24,789   5.45    10,731   2.41     4,343   1.00     1,059    0.25     1,826   0.47
Deposits                        847   0.19       725   0.16     1,030   0.24       878    0.21     1,484   0.38
Other                        14,489   3.19    12,768   2.87     8,864   2.04     4,966    1.17     7,790   2.01
Less                                                                                            
   Discounts and other        1,382   0.30     1,534   0.34     2,020   0.47     2,581    0.61     2,225   0.57
   Loan loss reserve          4,297   0.95     4,390   0.99     3,968   0.90     4,328    1.02     4,173   1.08
                           ------------------------------------------------------------------------------------
     Total                 $454,477 100.00  $445,055 100.00% $433,562 100.00% $424,435  100.00% $387,171 100.00%
                           ====================================================================================
</TABLE>

(1) Includes construction loans converted to permanent loans.



                                        2

<PAGE>



        Residential  Mortgages.  The Bank offers  various  types of  residential
mortgage  loans in addition to traditional  long-term,  fixed-rate  loans.  Such
loans  include 30 and  15-year  amortizing  mortgage  loans with fixed  rates of
interest,  fixed-rate  mortgage loans with terms of 30 years but subject to call
after five,  seven or ten years at the option of the Bank and  several  types of
adjustable-rate mortgage loans.

        Adjustable-rate  mortgage loans vary with respect to maturity,  interest
rate adjustment  periods and basis for adjustment.  These loans generally have a
fixed rate for an initial one or three year period and then have  interest  rate
adjustments based on the yield on United States Treasury securities, adjusted to
a constant one-year maturity.  The adjustment rates have been generally 2.75% to
3.50%  above the  index.  The loans  have  annual  and  lifetime  limits on rate
increases of 1 to 2 and 3 to 6 percentage points, respectively.

        Commercial Real Estate, Construction, Acquisition and Development Loans.
The Bank's  permanent loans secured by commercial  real estate have  customarily
been  15-year to  20-year  amortizing  loans with  principal  and  interest  due
monthly.  These loans typically provide for an interest rate reset or call after
five,  seven or ten  years at the  option of the  Bank.  Currently,  the Bank is
offering  adjustable  rate commercial real estate loans with interest rates that
typically  adjust  every  one,  three  or  five  years  based  on the  one-year,
three-year or five-year  United States Treasury rate. The initial  interest rate
is a market rate. The Bank's  policies  permit loans to be made for up to 75% of
the appraised value of the commercial real estate securing the loans. The Bank's
commercial real estate loans are secured  primarily by office  buildings,  strip
shopping centers, motels, warehouses and apartment buildings. As of December 31,
1997, the Bank's commercial real estate loans ranged in size up to $2.3 million.

        The  Bank  makes  construction  loans  for  residential   properties  to
individuals  and builders.  Loans to individuals are made for six to nine months
at a fixed interest rate of up to two  percentage  points above the Bank's prime
rate at the time of the loan.  Loans to builders  are made up to two  percentage
points above the Bank's prime rate, adjusted monthly.  Residential  construction
loans  are  made  at up to  80%  loan-to-value  ratios.  Construction  loans  on
commercial  real  estate  are  made  generally  for a term of one  year at rates
between the Bank's prime rate and up to two  percentage  points above the Bank's
prime rate, adjusted monthly.  Such loans are made with loan-to-value  ratios of
up to 75%.

        The Bank makes land  acquisition  and  development  loans on  properties
intended for future development. The Bank lends up to 75% of the appraised value
of the property.  Such loans are made for specified  periods on an interest only
basis. These periods may be extended,  subject to negotiation and the payment of
an extension fee. The Bank's  current policy is to make such loans  generally at
one to two percentage  points above the Bank's prevailing prime rate at the time
the loan is made with interest rates adjusted monthly thereafter.

        Commercial real estate and commercial land  acquisition and construction
lending are  generally  considered to involve a higher level of credit risk than
one-to four-family  residential lending due to the concentration of principal in
a limited number of loans and borrowers and the  potentially  adverse effects of
general economic  conditions on real estate developers and managers.  The Bank's
risk of loss on a  construction  loan is dependent  largely upon the accuracy of
the initial  estimate of the property's  sell-out  value upon  completion of the
project,  the estimated cost of the project and the time to complete and/or sell
the project.  If the estimated cost of construction or development  proves to be
inaccurate,  the Bank may be  compelled  to  advance  funds  beyond  the  amount
originally  committed to permit  completion  of the project.  If the estimate of
value proves to be inaccurate,  the Bank may be  confronted,  at or prior to the
maturity  of the  loan,  with a  project  the  value of which  may  appear to be
insufficient to assure full repayment.  When loan payments become due, borrowers
may experience cash flow from the project which is not adequate to service total
debt.  This cash flow shortage may result in the failure to make loan  payments.
In such cases,  the Bank may be  compelled  to modify the terms of the loan.  In
addition,  the  nature  of these  loans is such  that  they are  generally  less
predictable and more difficult to evaluate and monitor.

                                        3

<PAGE>




        Commercial  Loans.  The Bank makes fixed and  variable  rate  commercial
loans to individuals,  corporations and small businesses.  Fixed rate loans bear
interest  rates  generally  between 175 and 350 basis points above the like term
United  States  Treasury  securities  and  have  maturities  of up to 10  years.
Variable rate loans are originated at market rates with adjustments based on the
Bank's  prime  rate  plus 100 to 250 basis  points.  These  loans are  generally
secured by business  property  such as fixed  assets,  accounts  receivable  and
inventory.

        Consumer  Loans.  The Bank makes  available a variety of direct consumer
loans.  The Bank originates  property  improvement  loans through  contacts with
contractors  and through its branches.  It also makes loans secured by deposits.
The Bank also offers home equity lines of credit,  automobile  loans, boat loans
and unsecured personal loans. Such loans are made at market rates and terms.

        Loan Maturity and Repricing Information.  The following table sets forth
certain  information at December 31, 1997,  regarding the dollar amount of loans
maturing  or  repricing  in  the  Bank's  loan  and  mortgage-backed  securities
portfolios based on their maturity or repricing date. Demand loans, loans having
no  stated  schedule  of  repayments  and no  stated  maturity,  overdrafts  and
delinquent loans maturing prior to December 31, 1998, are reported as due in one
year or less.  At  December  31,  1997,  scheduled  payments of  principal,  and
expected  prepayments  of  principal  which  are  based  on  consensus  expected
prepayment  speeds  obtained  from  dealers or other  sources  which  management
believes to be reliable,  are shown in the period  during  which such  principal
reduction is expected to occur.


                                    Due 1/1/98    Due 1/1/99 -     Due After
                                    - 12/31/98     12/31/2002      12/31/2002
                                    =========================================
                                                 (In Thousands)
Held or Available-for-sale
    Real estate mortgage loans ...   $    304       $    180       $  7,986
    Mortgage-backed securities ...     43,359         25,849         15,026
                                     --------------------------------------  
                                       43,663         26,029         23,012
                                     -------------------------------------- 

Held-for-investment                                               
    Real estate mortgage loans ...    186,966        125,333         53,895
    Real estate construction loans     48,630             --             --
    Mortgage-backed securities ...      3,019          9,352         11,771
    Commercial ...................     13,618         10,787            384
    Consumer loans ...............      8,073          8,354          4,011
                                     --------------------------------------   
                                                                  
                                      260,306        153,826         70,061
                                     --------------------------------------   
                                                                  
Total ............................   $303,969       $179,855       $ 93,073
                                     ======================================





                                        4

<PAGE>



        The  table  below  sets  forth  the  dollar  amount  of  all  loans  and
mortgage-backed  securities  at December 31, 1997,  that mature or reprice after
December 31, 1998 which have  predetermined  interest rates and have floating or
adjustable interest rates.

                                  Predetermined      Floating or
                                      Rates         Adjustable Rate
                                  ==================================
                                            (In Thousands)
Held or Available-for-sale
    Real estate mortgage loans       $  7,986           $    180
    Mortgage-backed securities         40,875                 --
                                     ---------------------------
                                       48,861                180
                                     ---------------------------
Held-for-investment                                   
    Real estate mortgage loans        126,263             52,965
    Mortgage-backed securities         21,123                 --
    Commercial ...............         11,171                 --
    Consumer loans ...........         12,365                 --
                                     ---------------------------
                                      170,922             52,965
                                     ---------------------------
                                                      
   Total .....................       $219,783           $ 53,145
                                     ===========================   

        Loan  Commitments.  The Bank issues  commitments  to originate  loans to
prospective borrowers. At December 31, 1997, the Bank had committed to originate
$40,314,000 in loans, not including loans in process,  the majority of which are
secured  by  property  located  in its  local  market  area.  Making  relatively
long-term  commitments  involves the risk that the interest  rate to be received
will be below the market rate at the time the loan is originated.

        The Bank's  loan  commitments  also  include  $15,081,000  in 1-4 family
residential  loans that are intended to be sold into the secondary  market.  The
period of time between issuance of a loan commitment and closing and sale of the
loan generally ranges from 60 to 120 days. In the event that interest rates rise
between the time of a loan  commitment and closing and the sale of the loan, the
Bank may be unable to sell the loans without incurring a loss. The Bank attempts
to protect  itself from adverse  changes in interest  rates through a variety of
means  including  the purchase of best  efforts  forward  delivery  commitments,
whereby the Bank commits to sell a loan at the time the  borrower  commits to an
interest  rate  with the  intent  that  interest  rate risk on the loan has been
assumed by the buyer.

        The Bank also purchases mandatory forward delivery commitments and sells
mortgage-backed  securities in order to attempt to insulate  itself from adverse
interest rate  movements.  These  agreements  are  fundamentally  different from
optional forward delivery commitments due to the fact that the Bank will incur a
loss on the settlement of these agreements if interest rates have fallen and the
Bank fails to deliver the loan or mortgage-backed  security committed.  See Note
17 of Notes to  Consolidated  Financial  Statements in the 1997 Annual Report to
Stockholders  which is attached hereto as Exhibit 13 and incorporated  herein by
reference.

        Collection  Procedures  and  Loan  Quality.   Collection  procedures  on
delinquent  loans  serviced by the Bank  provide  that when a loan payment is 30
days overdue,  the borrower will be contacted by mail and payment requested.  If
the delinquency continues, subsequent efforts are made to contact the delinquent
borrower.  In certain instances after considering the ability of the borrower to
repay,  the nature of the property and the proposed  interest rate, the Bank may
modify the loan or grant a limited  moratorium  on loan  payments  to enable the
borrower to reorganize his or her financial affairs.  If the loan continues in a
delinquent  status for 90 days,  the Bank  generally  will initiate  foreclosure
proceedings.  Any property acquired by the Bank as a result of foreclosure or by
deed in lieu of foreclosure is listed for sale

                                        5

<PAGE>



to attempt to recover all or part of the Bank's  investment and is classified as
real estate owned until such time as it is sold. When such property is acquired,
it is  recorded  on the books of the Bank at the lower of the  unpaid  principal
balance of the related loan or its fair value less its estimated  costs of sale.
Any further write-down of the property is charged to the allowance for losses on
foreclosed  real estate.  With respect to loans  subserviced  for the Bank,  the
subservicer has been instructed to follow the same procedures as the Bank and is
contacted by the Bank when any loan is 60 days  delinquent in order to determine
the status of action being taken.

        Impaired  Loans and  Non-performing  Assets.  The  Company  has  adopted
Statement of Financial  Accounting  Standards No. 114 (FAS 114),  "Accounting by
Creditors  for  Impairment  of a Loan," and  Statement of  Financial  Accounting
Standards No. 118 (FAS 118),  "Accounting  by Creditors for Impairment of a Loan
Income Recognition and Disclosures."  Management periodically reviews its entire
loan portfolio,  particularly each of its classified assets,  which includes all
non-performing and loans contractually  delinquent 90 days or more, to determine
whether  such  loans  are  impaired  in  accordance  with FAS  114.  Each of the
Company's  impaired  loans has been  measured  based on the value of the  loan's
collateral.  An allowance for possible loan losses has been  established for any
shortfall  between the Company's  investment in impaired  loans and the impaired
loans' collateral values.


                                        6

<PAGE>




        The following  table sets forth  information  with respect to the Bank's
non-performing assets at the periods indicated.

<TABLE>
<CAPTION>
                                                                               At December 31,
                                                              ----------------------------------------------
                                                               1997      1996      1995      1994      1993
                                                              ==============================================
                                                                            (Dollars in Thousands)
<S>                                                           <C>       <C>       <C>       <C>       <C>   
Loans accounted for on a non-accrual basis (1):
   Commercial real estate .................................   $   90    $   95    $   99    $2,076    $3,817
   Consumer ...............................................       --        --       125       250        --
                                                              ---------------------------------------------- 

                                                                  90        95       224     2,326     3,817
                                                              ---------------------------------------------- 
Loans which are contractually past due 90 days or more (2):
   Real Estate:
    Residential ...........................................    4,397     4,009     3,553     3,507     4,460
    Commercial ............................................    1,693        --        --       194       267
   Land ...................................................       20        --        --        --        --
   Consumer ...............................................       47        22        18        77        --
                                                              ---------------------------------------------- 

                                                               6,157     4,031     3,571     3,778     4,727
                                                              ---------------------------------------------- 
   Total of non-accrual and
    90-days past due loans ................................   $6,247    $4,126    $3,795    $6,104    $8,544
                                                              ==============================================
Non-accrual and 90-days past
  due loans as a percentage
  of total loans receivable, net ..........................     1.37%     0.93%     0.88%     1.44%     2.21%
                                                              ==============================================

Other non-performing assets (3) ...........................   $2,382    $2,047    $5,767    $6,828    $9,798
                                                              ==============================================
</TABLE>



-------------------------
(1)  Non-accrual  status  denotes loans on which,  in the opinion of management,
     the collection of additional  interest is unlikely.  Payments received on a
     non-accrual loan are either applied to the outstanding principal balance or
     the allowance for  delinquent  interest,  depending on an assessment of the
     collectibility of the loan.

(2)  The Bank fully reserves  against the interest on all accruing loans 90 days
     past due.

(3)  Other  non-performing  assets  represents  property  acquired  by the  Bank
     through foreclosure or repossession.  This property is initially carried at
     the lower of its  estimated  fair  value  less cost of  disposition  or the
     carrying value of the related loan at the time of foreclosure.


        See Note 5 of Notes to  Consolidated  Financial  Statements  in the 1997
Annual  Report  to  Stockholders  which is  attached  hereto as  Exhibit  13 and
incorporated  herein by reference for information  regarding  interest income on
non-accrual loans.

        As of December  31,  1997,  there are no loans not included in the table
above, other than as disclosed  elsewhere herein,  where known information about
possible credit problems of the borrower caused  management to have doubts as to
the ability of the borrower to comply with the present loan repayment terms. See
" -- Impaired Loans" and -- "Regulatory Loan Classification."


                                        7

<PAGE>



        Impaired  Loans.  At  December  31, 1997 and 1996,  nonperforming  loans
included $1,783,000 and $113,000,  respectively,  of loans which were considered
impaired.  The  allowance  for possible  loan losses as of December 31, 1997 and
1996 included $305,000 and $70,000, respectively, related to loans considered to
be impaired.

        Other  non-performing  assets comprise  properties  acquired by the Bank
through  foreclosure  or  repossession  (collectively  REO).  An analysis of the
activity in REO for the periods shown is set forth below.

                        Year Ended December 31,
                      ------------------------------
                       1997       1996       1995
                      ==============================
                             (In Thousands)

Beginning balance .   $ 2,047    $ 5,767    $ 6,828
Foreclosures ......     2,244      1,316      3,649
Other additions (1)       136         62      1,325
Provision .........      (100)      (484)      (200)
Dispositions, net .    (1,945)    (4,614)    (5,835)
                      ------------------------------

Ending balance ....   $ 2,382    $ 2,047    $ 5,767
                      ==============================


---------------------
(1)  Consists of  improvements  and  advances in an effort to make the  projects
     more saleable.


        Real  Estate  Owned  (REO).  At  December  31,  1997 the REO  properties
comprised  Condominium  Campsites,  described  below,  with a carrying  value of
$1,487,000  and  eleven  additional  residential  properties  with an  aggregate
carrying value of $895,000 and no individual value greater than $150,000.

        Condominium  Campsites,  Virginia  Beach,  Virginia.  In 1989,  the Bank
originated a loan for the purchase of a 254 campsite  campground located on over
62 acres of land in the  Sandbridge  section of Virginia  Beach,  Virginia.  The
campsites were then divided into condominium  units by the borrower and marketed
on an individual basis.  Prior to the foreclosure by the Bank in 1991, 53 of 254
campsites had been sold. During the third quarter of 1993, the Bank entered into
an agreement with a company which  specializes in the development and management
of recreational  vehicle parks to develop and market the Bank's interest in this
property.  Development  of the  property  was  completed  during  1996 and major
improvements  to the amenities were  completed  during 1997. A total of 101 lots
have  been  sold.  The Bank  anticipates  continued  marketing  of the sites for
several years. No assurance can be given, however, that the property can be sold
for an amount equal to or greater than the carrying value.

        Regulatory  Loan  Classification.  Federal  regulations  require savings
associations  to  review  and  classify  their  assets on a  regular  basis.  In
addition,  in connection with examinations of savings  associations,  regulatory
examiners  have  authority  to identify  problem  assets  and,  if  appropriate,
classify them. The regulation provides for three asset classification categories
(i.e.,  substandard,  doubtful  and loss).  The  regulations  also provide for a
special mention  category,  described as assets which do not currently  expose a
savings association to a sufficient degree of risk to warrant classification but
do possess credit deficiencies or potential  weaknesses  deserving  management's
close attention. Loans classified as substandard or doubtful require the savings
association to establish a specific  valuation  allowance or a general valuation
allowance for loan losses.  If an asset or portion  thereof is classified  loss,
the savings  association must either establish a specific valuation allowance in
the amount of 100% of the portion of the asset  classified  loss,  or charge off
such amount.  General valuation allowances  established to cover possible losses
related  to  loans  classified  substandard  or  doubtful  may  be  included  in
determining a

                                        8

<PAGE>



savings association's risk-based capital, subject to certain limitations,  while
specific valuation  allowances do not qualify as risk-based  capital.  Examiners
may  disagree  with  the  savings  association's   classifications  and  amounts
reserved.  At December 31, 1997, the Bank had $1,844,000 in assets classified as
special mention,  $10,052,000  classified as substandard,  $63,000 classified as
doubtful and $331,000 classified as loss. Substandard assets include non-accrual
and impaired loans,  foreclosed real estate,  and certain performing loans which
management has classified as substandard.

        Allowances  for  Possible   Losses  on  Loans  and  Real  Estate  Owned.
Management  of the Bank  assesses  the adequacy of the  allowances  for possible
losses on loans and foreclosed real estate on a quarterly  basis,  and additions
to the allowances  for losses on loans and foreclosed  real estate are made when
deemed  necessary.  The Bank's Board of Directors  reviews the reserves for loan
and  foreclosed  real estate losses  quarterly.  An allowance for loan losses is
provided when  collectibility  of specific real estate loans is in doubt and the
value of the security  property has declined below the outstanding  principal of
the related loan.  The Bank also  provides  allowances  for accrued  interest on
delinquent  loans  and for  estimated  losses  against  the  carrying  value  of
foreclosed real estate when management  determines  that  collectibility  of the
interest  is in doubt or a  decline  in the fair  value of the  foreclosed  real
estate  has  occurred.  Additions  to the  allowances  for  losses  on loans and
foreclosed  real  estate are charged to  earnings  through a provision  for loan
losses or a provision for losses on foreclosed  real estate.  The allowances are
reduced when a loss  actually is incurred or such  allowance is  charged-off  in
accordance  with the  accounting  principles set forth in FAS 114. See "Impaired
Loans and Non-performing Assets" herein. In certain instances, reserves may also
be reduced  when the  assumptions  under  which the  reserves  were  established
indicate that all or a portion of the reserve is no longer necessary.

        During the fiscal year ended  December 31, 1997, the Bank added $225,000
and $100,000,  respectively,  to its allowances for possible loan and foreclosed
real estate losses.  As of December 31, 1997, the Bank had a total of $4,632,000
in allowances for possible loan and foreclosed real estate losses. Approximately
$635,000 of the loss reserves are general  unallocated  loan loss reserves.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and Notes 5 and 6 of Notes to Consolidated  Financial  Statements in
the 1997 Annual Report to  Stockholders  which is attached  hereto as Exhibit 13
and incorporated herein by reference.


                                        9

<PAGE>




        The following  table sets forth an analysis of the Bank's  allowance for
possible loan losses for the periods indicated.
<TABLE>
<CAPTION>

                                                        Year Ended December 31,
                                        --------------------------------------------------------
                                         1997        1996       1995        1994        1993
                                        ========================================================
                                                        (Dollars in Thousands)

<S>                                     <C>         <C>        <C>         <C>         <C>    
Balance at beginning of year ........   $ 4,390     $ 3,968    $ 4,328     $ 4,173     $ 4,651

Net loans (charged-off) recovered:
  Real estate-mortgage ..............      (226)        272       (535)       (120)     (1,188)
  Real estate- construction .........        --          --         --          --         110
  Consumer ..........................       (92)         --         --          --          --
                                        ------------------------------------------------------

Net (charge-offs) recoveries ........      (318)        272       (535)       (120)     (1,078)
Provision for loan losses ...........       225         150        175         275         600
                                        ------------------------------------------------------

Balance at end of year ..............   $ 4,297     $ 4,390    $ 3,968     $ 4,328     $ 4,173
                                        =======================================================
Rates of net (charge-offs) recoveries
  during the year to average loans
  outstanding during the year .......     (0.07%)      0.06%     (0.12%)     (0.03%)     (0.26%)
                                        =======================================================
</TABLE>

         Beginning in 1997, the Bank's evaluation  methodologies  were performed
on a loan category  basis.  Within each loan type,  allowances for possible loan
losses  are  developed  on a pooled  basis for the lowest  risk  loans  based on
historical and expected loss experience for those pools.  In addition,  reserves
for all  classified  and  non-performing  loans are developed on a  case-by-case
basis, or on a pooled basis for loans with common  characteristics  and balances
less than $400,000 individually, with allowances generally in the 0% to 5% range
for special mention assets,  5% to 25% for  substandard  assets,  40% to 60% for
doubtful assets,  and 100% for loss assets.  These  percentages are increased or
decreased  based on  management's  review of the  borrower's  overall  financial
condition,  type of collateral,  loan payment history,  economic  conditions and
trends,  guarantors,  historical  loss experience on similar loans and any other
relevant information.

        Prior to 1997, management's evaluation methodologies did not include the
allocation of general  reserves to specific loan  categories.  Accordingly,  the
amounts assigned to loan categories in the table below for periods prior to 1997
represent only specific  allowances  applicable to doubtful or loss assets which
were determined on a case-by-case basis.

        The unallocated portion of the allowance for loan losses is management's
estimation of the losses in excess of those  estimated by using the  methodology
described above, that may be realized over the life of the loans included in its
portfolio at December 31, 1997.  Management  is unable to estimate the timing or
the amount of related future charge-offs.



                                       10

<PAGE>



        The  following  table sets forth the  breakdown  for the  allowance  for
possible loan losses by loan category at the periods indicated.

<TABLE>
<CAPTION>
                                                              At December 31,
                   --------------------------------------------------------------------------------------------------------------
                           1997                1996                 1995                 1994                   1993
                   ==============================================================================================================
                               Percent              Percent             Percent               Percent               Percent
                              of loans              of loans            of loans              of loans               of loans
                               in each              in each             in each               in each               in each
                              category              ategory             category              category               category
                              to total              to total            to total              to total               to total
                      Amount    loans      Amount    loans    Amount     loans      Amount     loans      Amount      loans
                   ==============================================================================================================
                                               (Dollars in Thousands)

<S>                 <C>         <C>      <C>        <C>       <C>       <C>         <C>       <C>         <C>        <C>    
Unallocated.......  $    635    (.14%)   $   4,390  (0.98%)   $ 3,865   (0.92%)     $ 3,652   (0.86)%     $ 3,923    (1.01)%
Real estate
   mortgage:
  Residential.....     1,108     61.98          --    70.42        --     74.04          --     80.90          --      76.24
  Commercial......     1,570     14.64          --    18.42        --     16.69         426     16.39         250      19.23
Real estate-
   Construction...       388     10.58          --     6.03        --      6.32          --      2.01          --       2.68
   Land...........       119      3.24          --       --        --        --          --        --          --         --
Commercial........       371      5.23          --     2.40        --      0.99         ---      0.25         ---       0.47
Consumer..........       106      4.47          --     3.71       103      2.86         250      1.31         ---       2.39
                   -----------------------------------------------------------------------------------------------------------
Total Allowances
   for Loan
   Losses.........  $  4,297    100.00%  $   4,390   100.00%  $ 3,968    100.00%    $ 4,328    100.00%    $ 4,173     100.00%
                   ===========================================================================================================

</TABLE>

        Investment  Activities.  Federal  savings  banks have the  authority  to
invest in certain types of securities and other  investments  subject to various
restrictions  largely  related to  limitations  on the type of  investments as a
percentage of total assets.  The Bank's  investment  activities  are within such
restrictions.

        The Bank's investment securities,  excluding mortgage-backed and related
securities,  are described in Note 3 to the Consolidated Financial Statements in
the 1997 Annual Report to  Stockholders  which is attached  hereto as Exhibit 13
and  incorporated  herein by  reference.  Debt  securities  of  certain  federal
agencies, securities issued by the United States Treasury and federal funds sold
amounting to  $8,050,000 at December 31, 1997 are retained to satisfy the Bank's
liquidity  requirements.  For more information regarding liquidity  requirements
see "Management's  Discussion and Analysis of Financial Condition and Results of
Operations."  See  "Regulation"  for further  information  regarding  the Bank's
regulatory capital requirements.



                                       11

<PAGE>



        The  carrying  value of the Bank's  investment  securities  portfolio at
December 31, 1997, by maturity is as follows:

                                                                      Weighted
                                         Amortized    Estimated        Average
Remaining Maturity                         Cost       Fair Value        Rate
===============================================================================
                                                 (Dollars in Thousands)
Within one year
        U. S. Treasuries ...........      $ 2,000      $ 2,000          5.13%
        Federal Agencies ...........        5,018        4,796          4.05
                                          ----------------------------------
                                            7,018        6,796          4.35
                                          ----------------------------------
After one year but within 5 years                                   
        U. S. Treasuries ...........        2,987        2,990          5.29
        Federal Agencies ...........        2,000        2,003          6.99
                                           ----------------------------------
                                            4,987        4,993          5.97
                                           ----------------------------------
No stated maturity                                                  
        Federal Home Loan Bank stock        7,404        7,404          7.25
                                          ----------------------------------
                                                                    
                                          $19,409      $19,193          5.87%
                                          ==================================

        The Bank also invests in mortgage-backed and related securities, subject
to regulations affecting such activities.  Federal associations such as the Bank
have no limitations on the purchase of mortgage-backed and related securities if
such  securities  are  issued by GNMA,  FNMA or FHLMC or qualify  under  section
3(a)(41) of the Securities  Exchange Act of 1934, as amended,  commonly referred
to as Secondary Mortgage Market Enhancement Act or "SMMEA" securities.  See Note
4 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to
Stockholders  which is attached hereto as Exhibit 13 and incorporated  herein by
reference  for  further  information   regarding   mortgage-backed  and  related
securities.

        It is the  Bank's  practice  to  purchase  mortgage-backed  and  related
securities to  supplement  its loan  portfolio and to make  efficient use of the
Bank's  capital.  The Bank may  purchase  securities  for a short period of time
under  agreements to resell those same  securities  at a given date.  The Bank's
risk-based capital  requirements  assign the Bank's  mortgage-backed and related
securities to a 20% risk-weighted category.

        At  December  31,  1997,  1996 and  1995,  the  Bank  had  $110,939,000,
$106,621,000 and  $137,743,000,  respectively,  in  mortgage-backed  and related
securities, at amortized cost.

         High Risk Securities.  The Company periodically measures its securities
individually  to  determine  if they  are  "high  risk" in  accordance  with OTS
regulations. At December 31, 1997 the Company had two mortgage-backed securities
in the amount of $3,974,000  which was deemed high risk in accordance with these
regulations.

Source of Funds

         Deposits.  The primary source of funds for the Bank's lending and other
investment  activities has been deposits  solicited from the general public. The
Bank  solicits  retail  deposits in its local  market area and offers  remaining
customers  outside its local market,  with maturing  deposits,  renewal rates no
higher than those offered to customers in the Bank's local  markets.  Currently,
the Bank uses alternate sources,

                                       12

<PAGE>



such as advances  from the FHLB of Atlanta and brokered  deposits,  for its long
term funds if retail deposit rates are judged by management to be unattractive.

Deposit activity is set forth as follows:
<TABLE>
<CAPTION>

                             Retail Deposits               Brokered
                              Local Area       Other       Deposits      Total
                               =================================================
                                            (Dollars in Thousands)
<S>                            <C>           <C>          <C>          <C>      
Year Ended December 31, 1997
Beginning balance ..........   $ 297,583     $  39,533    $  86,273    $ 423,389
Deposits purchased .........        --            --         20,000       20,000
Net cash inflow (outflow) ..      13,386        (9,886)     (53,365)     (49,865)
Interest credited ..........      10,439         3,480         --         13,919
                               -------------------------------------------------
                                            
         Total .............   $ 321,408     $  33,127    $  52,908    $ 407,443
                               =================================================
                                            
Year Ended December 31, 1996                
Beginning balance ..........   $ 289,162     $  44,587    $ 159,222    $ 492,971
Deposits purchased .........          --            --           80           80
Net cash inflow (outflow) ..         494        (7,617)     (73,029)     (80,152)
Interest credited ..........       7,927         2,563           --       10,490
                               -------------------------------------------------
                                            
         Total .............   $ 297,583     $  39,533    $  86,273    $ 423,389
                               =================================================
                                            
Year Ended December 31, 1995                
Beginning balance ..........   $ 268,488     $  59,541    $ 177,041    $ 505,070
Deposits purchased .........          --            --       71,350       71,350
Net cash inflow (outflow) ..      10,807       (18,336)     (89,169)     (96,698)
Interest credited ..........       9,867         3,382           --       13,249
                               -------------------------------------------------
                                            
         Total .............   $ 289,162     $  44,587    $ 159,222    $ 492,971
                               =================================================
</TABLE>




A  summary  of time  deposits  $100,000  or  greater  by  maturity  follows  (in
thousands):

            Remaining Maturity                       Balance
         ===================================================
         
         Within three months ......                  $ 6,500
         Three months to six months                    6,147
         Six months to one year ...                    9,432
         One year to two years ....                    4,535
         Two to three years .......                    1,537
         Over three years .........                    1,738
                                                     -------
                                           
         Total ....................                  $29,889
                                                     =======
                            


                                       13

<PAGE>



         Borrowings.  As a member  of the  FHLB  System,  the  Bank  may  obtain
additional  funds through  loans,  which are called  advances,  from the FHLB of
Atlanta.  Advances  are secured by a blanket  floating  lien on  qualifying  1-4
family first mortgage loans and certain  mortgage-backed and related securities.
At December 31, 1997,  fixed-rate  advances totaled  $96,084,000 with a weighted
average  maturity  of 15  months,  and had a  weighted  average  cost of  6.07%.
Variable rate advances  totaled  $47,000,000 and had a weighted average maturity
of 9 months and a weighted  average  cost of 5.74%.  The  interest  rates on the
variable rate advances are based on either 1-month  LIBOR,  3-month LIBOR or the
Federal funds rate and adjust daily, monthly or quarterly.

         The Bank periodically  uses repurchase  agreements to assist in meeting
short-term cash-flow needs.  Repurchase  agreements involve a borrowing pursuant
to which the lender  agrees to return to the Bank the same  securities  given as
collateral.  The Bank  enters into  repurchase  agreements  for a limited  term,
usually  30, 60 or 90 days,  or due on demand.  The  repurchase  agreements  are
repaid by the Bank when excess cash is available. At December 31, 1997, the Bank
had $17,033,000 repurchase agreements  outstanding,  all of which matured within
90 days. See Note 11 of Notes to Consolidated  Financial  Statements in the 1997
Annual  Report  to  Stockholders  which is  attached  hereto as  Exhibit  13 and
incorporated herein by reference.

         Repurchase  agreements  have  certain  risks.  An  increase  in  market
interest  rates could  decrease the market value of the  securities  used by the
Bank as collateral in these transactions,  and thus the amount of funds that the
Bank could  obtain  through  such  transactions  would  decrease  if  additional
collateral is not available.  In addition, if the Bank sells securities pursuant
to a repurchase agreement to an entity which subsequently becomes insolvent, the
Bank may  experience  difficulty  obtaining the return of such  securities.  The
borrowing   represented   by  a  repurchase   agreement   is   generally   over-
collateralized,  i.e., the market value of the securities  involved  exceeds the
price at which the Bank agrees to sell and repurchase the  securities.  Thus, if
the Bank has difficulty  obtaining the return of the  securities,  it could lose
the amount of such  difference.  In order to seek to reduce such risks, the Bank
transacts all of its repurchase  agreement  borrowings  with primary  dealers or
regional banks, the financial conditions of which it reviews periodically.

Subsidiary Activities

         First  Coastal Bank is permitted to invest an amount equal to 2% of its
assets in service corporations.  An additional investment of 1% of assets may be
made where such  investment is primarily for community,  inner-city or community
development  purposes.  In addition,  the Bank can  designate a subsidiary as an
operating  subsidiary if it engages only in activities that would be permissible
for the Bank to engage  in. The Bank has four  first  tier  subsidiaries,  First
Coastal Mortgage,  VBF Financial Services Corp. (VBFFSC),  Princess Anne Service
Corporation (PASC), and Eighth Princess Anne Properties, Inc.
(8thPA).

         First Coastal  Mortgage is a wholly owned  operating  subsidiary of the
Bank,  and was formed in 1987 for the purpose of  engaging  in mortgage  banking
activities.  First Coastal  Mortgage  solicits loan  applicants for a variety of
conventional  and government  insured mortgage loans secured by residential real
estate.  During 1992 through 1994,  First Coastal had expended its operations to
include loan production  offices through central and northern  Virginia and into
Maryland. Late in 1995 the Company sold five of its loan production branches and
presently has three branches operating in the Hampton Roads market contiguous to
the Company's retail banking operations.

         Princess Anne Service  Corporation and its  subsidiaries  (collectively
PASC) are service corporations and were formed throughout the 1980s to invest in
a variety of real estate development

                                       14

<PAGE>



projects,  and to hold title to or operate certain real estate properties of the
Bank which had been  acquired  through  foreclosure.  PASC is a  "non-includable
subsidiary"  for  purpose  of  compliance  with the  Bank's  regulatory  capital
requirements.  See "Regulation -- Regulatory Capital  Requirements." At December
31, 1997, the Bank had $34,100 of investment in and advances to PASC.

         The Bank is presently  winding down the activities of PASC. At December
31, 1997, PASC's assets consist of a partnership  investment  holding one parcel
of undeveloped  commercial  real estate.  At the present time, the Bank does not
intend to make  additional  investments  in PASC and  expects  that its  present
investment will be recovered over the next several years.

         Eighth Princess Anne  Properties,  Inc.  (8thPA) was acquired from PASC
during 1994 in order to hold a certain piece of foreclosed  real estate  located
in Virginia Beach,  VA. The foreclosed real estate held by 8thPA was sold during
1995. At December 31, 1997, the Bank had $11,600 of net advances due from 8thPA.

         VBF Financial Services Corp. is a wholly owned operating  subsidiary of
the Bank and was formed in April 1992 to sell fixed-rate  annuities,  a range of
mutual funds and tax-advantaged investments on an agency basis for a commission.
At December 31, 1997, the Bank had $195,000 of investment in and advances to VBF
Financial Services Corp.

Competition

         First  Coastal  Bank faces  strong  competition  in the  attraction  of
deposits,  its primary source of lendable funds,  and in the origination of real
estate  loans.  The Bank  competes  for  deposits by offering a wide  variety of
accounts,  competitive  rates and numerous customer  services,  and competes for
loans  principally  through the interest  rates and loan fees it charges and the
availability  of  funds  to  make  loan  commitments.  The  Bank's  most  direct
competition for savings  deposits has historically  come from commercial  banks,
other  thrift  institutions  and credit  unions in the Hampton  Roads area.  The
Bank's  competition  for real estate  loans comes  principally  from  commercial
banks, other thrift  institutions,  mortgage banking  companies,  life insurance
companies and other institutional lenders.

Personnel

         As of December 31, 1997, the Company had 211 full-time employees and 15
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining agreement.  The Company believes relationships with its employees are
satisfactory.

Regulation

         General. As a federally chartered,  Savings Association  Insurance Fund
(SAIF) insured savings association,  the Bank is subject to extensive regulation
by the Office of Thrift  Supervision (the OTS) and the Federal Deposit Insurance
Corporation  (the FDIC).  Lending  activities and other  investments must comply
with various  federal  statutory and regulatory  requirements.  The Bank is also
subject to certain  reserve  requirements  promulgated  by the  Federal  Reserve
Board.

         The OTS, in conjunction with the FDIC,  regularly examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
law,  especially  in such matters as the  ownership of savings  accounts and the
form and content of the Bank's mortgage documents.

                                       15

<PAGE>




         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the  protection of the SAIF and depositors
of the Bank.  The regulatory  structure  also gives the  regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of assets and the  establishment  of adequate loan loss reserves
for regulatory purposes. Any change in such regulations, whether by the OTS, the
FDIC or the U. S. Congress could have a material  adverse impact on the Company,
the Bank and their  operations.  The Company is also  required  to file  certain
reports with, and otherwise  comply with,  the rules and  regulations of the OTS
and the Securities and Exchange Commission (SEC).

         Set forth below is a brief  description of certain laws which relate to
the regulation of the Bank and the Company.  The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.

         Insurance of Deposit Accounts.  The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured  member (as defined by law
and regulation).  The FDIC has the authority,  should it initiate proceedings to
terminate an institution's  deposit  insurance,  to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying  intangible assets, the FDIC cannot
suspend deposit  insurance unless capital declines  materially,  the institution
fails to enter into and remain in  compliance  with an approved  capital plan or
the institution is operating in an unsafe or unsound manner.

         Regardless of an institution's capital level, insurance of deposits may
be  terminated  by the FDIC upon a finding that the  institution  has engaged in
unsafe or unsound  practices,  is in an unsafe or unsound  condition to continue
operations  or has violated  any  applicable  law,  regulation,  rule,  order or
condition  imposed  by the  FDIC or the  institution's  primary  regulator.  The
management of the Bank is unaware of any practice,  condition or violation  that
might lead to termination of its deposit insurance.

         The FDIC  charges an annual  assessment  for the  insurance of deposits
based on the risk a particular  institution poses to its deposit insurance fund.
This  risk  classification  is  based  on an  institution's  capital  group  and
supervisory subgroup assignment. In addition, the FDIC is authorized to increase
such deposit insurance rates, on a semi-annual basis, if it determines that such
action is  necessary  to cause the  balance in the SAIF to reach the  designated
reserve  ratio of 1.25% of  SAIF-insured  deposits.  In  addition,  the FDIC may
impose special  assessments  on SAIF members to repay amounts  borrowed from the
U.S.  Treasury or for any other reason deemed  necessary by the FDIC. The Bank's
federal deposit  insurance premium expense for the year ended December 31, 1997,
amounted to approximately $333,000.

         Prior to September 30, 1996,  savings  associations paid within a range
of .23% to .31% of domestic deposits and the SAIF was substantially underfunded.
By comparison,  prior to September 30, 1996,  members of the Bank Insurance Fund
(BIF), predominantly commercial banks, were required to pay substantially lower,
or virtually no, federal deposit  insurance  premiums.  Effective  September 30,
1996,  federal law was revised to mandate a one-time special  assessment on SAIF
members  such as the Savings  Bank of  approximately  .657% of deposits  held on
March 31, 1995. The Savings Bank recorded a $3,311,000  pre-tax expense for this
assessment at September 30, 1996.  Beginning January 1, 1997,  deposit insurance
assessments for SAIF members were reduced to approximately  .064% of deposits on
an annual  basis;  this rate may continue  through the end of 1999.  During this
same  period,  BIF members are  expected to be assessed  approximately  .013% of
deposits. Thereafter, assessments for BIF and SAIF

                                       16

<PAGE>



members  should be the same and the SAIF and BIF may be merged.  It is  expected
that these continuing  assessments for both SAIF and BIF members will be used to
repay outstanding Financing  Corporation bond obligations.  As a result of these
changes,  beginning January 1, 1997, the rate of deposit insurance  assessed the
Bank decreased by approximately  70% from rates in effect prior to September 30,
1996.

         Examination  Fees. In addition to federal deposit  insurance  premiums,
savings  institutions,  like the Bank,  are required by OTS  regulations  to pay
assessments to the OTS to fund the operations of the OTS. The general assessment
is paid on a  semi-annual  basis and is  computed  based on total  assets of the
institution,  including subsidiaries.  The Bank's OTS assessment expense for the
year ended December 31, 1997 totalled approximately $135,000.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted  assets and (3) a risk-based  capital  requirement
equal to 8.0% of total risk-weighted  assets. The Bank exceeded all three of its
minimum capital requirements at December 1997.

         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 interest rate risk 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.

        Please  refer to  "Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations"  and to Note 15 of Notes to  Consolidated
Financial Statements in the 1997 Annual Report to Stockholders which is attached
hereto as Exhibit 13 and  incorporated  herein by reference for more information
about the Bank's regulatory capital at December 31, 1997.

        Dividend and Other Capital  Distribution  Limitations.  OTS  regulations
require  the  Bank to give  the OTS 30  days'  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to prohibit the payment of  dividends  to the  Company.  OTS
regulations  impose  limitations  upon  all  capital  distributions  by  savings
institutions,  such as cash  dividends,  payments  to  repurchase  or  otherwise
acquire  its  shares,  payments  to  shareholders  of another  institution  in a
cash-out  merger  and other  distributions  charged  against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements   before  and  after  a  proposed  capital   distribution  (Tier  1
institution) and has not been advised by the OTS that it is in need of more than
the normal  supervision  can, after prior notice but without the approval of the
OTS, make capital  distributions  during a calendar year equal to the greater of
(i) 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus  capital  ratio" (the excess  capital over
its fully phased-in capital requirements) at the beginning of the calendar year,
or (ii) 75% of its net income  over the most  recent four  quarter  period.  Any
additional capital distributions require prior regulatory approval. In the event
the  Bank's  capital  fell  below its  fully  phased-in  requirement  or the OTS
notified  it that it was in need of more than  normal  supervision,  the  Bank's
ability to make capital distributions could be restricted.  In addition, the OTS
could prohibit a proposed capital  distribution by any institution,  which would
otherwise  be  permitted  by the  regulation,  if the OTS  determines  that such
distribution would constitute an unsafe or unsound practice.  As of December 31,
1997, the Bank was a Tier 1 institution. However, there can be no assurance that
the OTS will not prohibit any capital distribution by the Bank to the Company.


                                       17

<PAGE>



        In January 1998, the OTS proposed  amendments to its current regulations
with  respect  to  capital  distributions  by  savings  associations.  Under the
proposed regulation,  savings associations that would remain at least adequately
capitalized  following the capital  distribution  and that meet other  specified
requirements,  would not be required to file a notice or application for capital
distributions (such as cash dividends)  declared below specified amounts.  Under
the proposed  regulation,  savings associations which are eligible for expedited
treatment  under current OTS regulations are not required to file a notice or an
application  with the OTS if (i) the savings  association  would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
the  capital  distribution  does not  exceed  an  amount  equal  to the  savings
association's  net income for that year to date, plus the savings  association's
retained  net  income  for the  previous  two years.  Thus,  under the  proposed
regulation,  only  undistributed  net  income  for the  prior  two  years may be
distributed in addition to the current year's  undistributed  net income without
the filing of an application  with the OTS.  Savings  associations  which do not
qualify for expedited  treatment or which desire to make a capital  distribution
in excess of the specified amount, must file an application with, and obtain the
approval  of,  the  OTS  prior  to  making  the  capital  distribution.  Savings
associations  that are  subsidiaries of holding  companies,  like the Bank, will
continue  to be  required  to file a notice with OTS prior to making the capital
distribution.  The OTS proposed limitations on capital distributions are similar
to the limitations  imposed upon national  banks.  The Bank is unable to predict
whether or when the proposed regulation will become effective.

        Qualified  Thrift  Lender  Test.  The Home  Owners' Loan Act, as amended
(HOLA),  requires  savings  institutions to meet a qualified thrift lender (QTL)
test. The required  percentage of qualified thrift  investments (QTIs) is 65% of
portfolio assets (defined as all assets minus intangible  assets,  property used
by the  institution in conducting its business and liquid assets equal to 10% of
total assets).  Certain assets are subject to a percentage  limitation of 20% of
portfolio assets. In addition,  savings associations may include shares of stock
of the FHLBs as qualifying  QTIs.  Compliance with the QTL test is measured on a
monthly basis.  As of December 31, 1997, the Bank was in compliance with its QTL
requirement with 77.0% of its assets invested in QTIs.

        Loans-to-One Borrower.  Under the HOLA, savings institutions are subject
to the national bank limits on loans-to-one borrower. With respect to the dollar
amount of credit  that  savings  institutions  may extend to a single or related
group of borrowers,  savings  associations are subject,  since 1989, to the same
limits as those  applicable  to national  banks,  which  under  current law have
lending  limits in an amount equal to 15% of unimpaired  capital and  unimpaired
surplus  on an  unsecured  basis  and  an  additional  amount  equal  to  10% of
unimpaired  capital  and  unimpaired  surplus  if the loan is secured by readily
marketable  collateral,  which is  defined  to include  certain  securities  and
bullion,  but generally does not include real estate.  At December 31, 1997, the
Bank's lending limit to one borrower was $7.14 million.  Current  lending limits
to one  borrower  may  adversely  affect  the  Bank's  ability  to  conduct  its
operations,  particularly  its  ability  to make  real  estate  development  and
construction  loans which typically carry large balances.  At December 31, 1997,
the Bank's  largest  aggregate  loans and  commitments to one borrower was $7.10
million, of which $5.0 million was actually funded as of such date.

        Liquidity  Requirements.   All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At December 31, 1997,  the required  liquid
asset ratio was 4%. The Bank's liquidity ratio at December 31, 1997 was 5.38%.

        Federal  Home  Loan  Bank  System.  The Bank is a member  of the FHLB of
Atlanta,  which is one of 12 regional FHLBs that  administers the home financing
credit function of savings associations. Each

                                       18

<PAGE>



FHLB  serves as a reserve or central  bank for its members  within its  assigned
region.  It  is  funded  primarily  from  proceeds  derived  from  the  sale  of
consolidated  obligations  of the FHLB System.  It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.

        As a member,  the Bank is required to purchase and maintain stock in the
FHLB of Atlanta in an amount equal to the greater of 5% of outstanding  advances
or at least 1% of its aggregate unpaid residential mortgage loans, home purchase
contracts or similar  obligations at the beginning of each year. At December 31,
1997, the Bank had $7.4 million in FHLB stock, which was in compliance with this
requirement.  Dividends paid to the Bank on FHLB stock totalled $565,000 for the
year ended December 31, 1997.

        Federal  Reserve   System.   The  Federal  Reserve  Board  requires  all
depository institutions to maintain  non-interest-bearing  reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the  liquidity  requirements  that are imposed by the OTS. The Bank's
reserve requirement at December 31, 1997 was $25,000.

        Holding Company  Regulation.  General.  The Company is a unitary savings
and loan holding  company  subject to regulatory  oversight by the OTS. As such,
the Company is required to register and file reports with the OTS and is subject
to regulation and  examination by the OTS. In addition,  the OTS has enforcement
authority over the Company and its non-savings  association  subsidiaries.  This
regulation  and  oversight  is  intended  primarily  for the  protection  of the
depositors of the Bank and not for the benefit of stockholders of the Company.

        As a unitary savings and loan holding company,  the Company generally is
not be subject to activity  restrictions,  provided the Bank  satisfies  the QTL
test.  If the  Company  acquires  control of another  savings  association  as a
separate  subsidiary,  it  would  become a  multiple  savings  and loan  holding
company,  and the activities of the Company and any of its  subsidiaries  (other
than  the Bank or any  other  SAIF-insured  savings  association)  would  become
subject to restrictions  applicable to bank holding  companies unless such other
associations  each also  qualify  as a QTL and were  acquired  in a  supervisory
acquisition.

        The Company must obtain approval from the OTS before  acquiring  control
of  any  other  SAIF-  insured  association.  Such  acquisitions  are  generally
prohibited  if they  result  in a  multiple  savings  and loan  holding  company
controlling  savings  associations  in  more  than  one  state.   However,  such
interstate  acquisitions are permitted based on specific state  authorization or
in a supervisory acquisition of a failing savings association.

        Federal law  generally  provides  that no "person,"  acting  directly or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a federally  insured
savings  institution  without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. The
Federal  Reserve Board may approve an application  by a bank holding  company to
acquire control of a savings association. A bank holding company that controls a
savings  association  may merge or consolidate the assets and liabilities of the
savings  association with, or transfer assets and liabilities to, any subsidiary
bank which is a member of the BIF with the approval of the  appropriate  federal
banking agency and the Federal Reserve Board.  Federal savings  associations are
permitted to acquire or be acquired by any insured

                                       19

<PAGE>



depository  institution.  As a result  of these  provisions,  there  have been a
number of  acquisitions of savings  associations  by bank holding  companies and
other financial institutions in recent years.

        A bill has been  introduced  to the House Banking  Committee  that would
consolidate  the OTS with the Office of the  Comptroller  of the  Currency.  The
resulting  agency would regulate all federally  chartered  commercial  banks and
thrift institutions.  In addition,  the bill would abolish the current authority
of a unitary savings and loan holding company (i.e., a holding company with only
one thrift  institution  subsidiary)  that has a thrift  institution  subsidiary
which meets the qualified  thrift lender test from investing in activities other
than those permitted for bank holding companies.  Under current  regulations,  a
savings and loan holding company, such as the Company, which has only one thrift
subsidiary  which meets the qualified  thrift lender test, such as the Bank, has
broad investment authority.  The proposed limitation on investment activities by
unitary  savings and loan  holding  companies,  if enacted,  would  restrict the
ability  of the  Company  to engage in certain  non-banking  and other  business
activities. As of December 31, 1997, the Company was not engaged in any material
amount of such activities.

Executive Officers of the Registrant

         Set  forth  below  is  current  information  concerning  the  Company's
executive officers.

<TABLE>
<CAPTION>

Name                            Position                                         Age
=====================================================================================

<S>                             <C>                                              <C>
John A.B. Davies, Jr.           President and Chief Executive Officer            46
Dennis R. Stewart               Executive Vice President                         48
John M. Chattleton              Executive Vice President of the Bank             49
John M. Reddecliff              Executive Vice President of the Bank             36
</TABLE>


        John A. B.  Davies,  Jr.  has served as Chief  Executive  Officer of the
Company and the Bank since June 1991.  Previously,  he was  employed  with First
American Bank of Virginia as a Senior Vice President/Retail Administration.

         Dennis R. Stewart has served as Chief Financial  Officer of the Company
since  April  1990.  He is  responsible  for the  accounting,  regulatory,  tax,
treasury,  investment,  interest rate risk  management and financial  management
activities of the Company and the Bank.

         John M. Chattleton has served as Chief Retail Officer of the Bank since
he joined the Bank in August 1992. From 1990 to 1992, Mr.  Chattleton was Senior
Vice President of Small  Business and Consumer  Lending at the Bank of Maryland,
in Baltimore, Maryland.

         John M.  Reddecliff  has  served as Chief  Lending  Officer of the Bank
since 1997.  Prior thereto he was head of the commercial  lending  activities at
the Bank since 1992. Previously he was employed by NationsBank in the commercial
real estate lending area.


Item 2.      Properties

             The Bank  engages in its  business  from its home office and branch
offices,  which are located  throughout the Hampton Roads area in Virginia.  The
Bank's principal executive office contains  approximately 40,000 square feet and
is leased for a term of ten years,  with two  five-year  renewal  options.  This
office is located at 2101 Parks Avenue,  Virginia  Beach,  Virginia  23451.  For
further

                                       20

<PAGE>



information  regarding the Company's locations,  refer to the outside back cover
of the 1997 Annual Report to Stockholders which is attached hereto as Exhibit 13
and incorporated herein by reference.

Item 3.      Legal Proceedings

             The Company is not engaged in any legal  proceedings  of a material
nature at the present time.  From time to time,  the Company is a party to legal
proceedings incident to its business, including foreclosures.

Item 4. Submission of Matters to a Vote of Security Holders

             No matters were submitted to a vote of security  holders during the
fourth quarter of the fiscal year ended December 31, 1997.



                                     PART II

Item 5. Market for the  Registrant's  Common Stock and Related  Security  Holder
Matters

         The  information  contained  under  the  section  captioned  "Corporate
Information--Common Stock" on the inside back cover of the 1997 Annual Report to
Stockholders  which is attached hereto as Exhibit 13 and is incorporated  herein
by reference.

Item 6.  Selected Financial Data

         The information contained in the section captioned "Five Year Financial
Summary" on page 11 of the 1997 Annual Report to Stockholders  which is attached
hereto as Exhibit 13 and is incorporated herein by reference.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

         The  information  contained  in  the  section  captioned  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  on
pages 12 through 20 of the 1997 Annual Report to Stockholders  which is attached
hereto as Exhibit 13 and is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

         The financial  statements together with the report thereon of KPMG Peat
Marwick LLP dated January 30, 1998 appear on pages 21 to 46 of the  accompanying
1997 Annual Report to Stockholders which is attached hereto as Exhibit 13 and is
incorporated herein by reference.

Item  9.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

         The registrant has not had any  disagreements  with its  accountants on
any  matter  of  accounting  principles  or  practices  or  financial  statement
disclosure.





                                       21

<PAGE>


Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations


Item 10.         Directors and Executive Officers of the Registrant

         The  information  contained  under the section  captioned  "Election of
Directors"  in the  Company's  definitive  proxy  statement  for the 1998 Annual
Meeting  of  Stockholders  (the  Proxy  Statement)  is  incorporated  herein  by
reference.  Information regarding executive officers is contained in the section
captioned  "Executive  Officers  of the  Registrant"  under Part I hereof and is
incorporated herein by reference.

Item 11.         Executive Compensation

         The  information  contained  under the section  captioned  "Election of
Directors" in the Proxy Statement is incorporated herein by reference.

Item 12.         Security Ownership of Certain Beneficial Owners and Management

         (a)     Security Ownership of Certain Beneficial Owners

                 Information  required  by this item is  incorporated  herein by
                 reference  to the  section  captioned  "Voting  Securities  and
                 Principal Holders Thereof" in the Proxy Statement.


         (b)     Security Ownership by Management

                 Information  required  by this item is  incorporated  herein by
                 reference to the section captioned  "Election of Directors" and
                 "Voting Securities and Principal Holders Thereof" in the Proxy
                 Statement.

         (c)     Changes in Control

                 Management of the Company knows of no  arrangements,  including
                 any  pledge by any person of  securities  of the  Company,  the
                 operation of which may at a subsequent  date result in a change
                 in control of the registrant.

Item 13.         Certain Relationships and Related Transactions

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Certain   Relationships  and  Related
Transactions" in the Proxy Statement.


                                       22

<PAGE>



                                     PART IV


Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<TABLE>
<CAPTION>
                                                                                                                         Page in
                                                                                                                          Annual
                                                                                                                         Report*

                                                                                                                        ----------
<S>       <C>                                                                                                            <C>   

(a)      The following documents are filed as part of this report.

         1.    Consolidated Financial Statements

               Report of Independent Auditors ..........................................................                      21

               Virginia Beach Federal Financial Corporation

               o   Consolidated Statement of Financial Condition
                  December 31, 1997 and 1996............................................................                      22

               o   Consolidated Statement of Operations for the three years ended
                  December 31, 1997, 1996 and 1995......................................................                      23

               o   Consolidated Statement of Cash Flows for the three years ended
                  December 31, 1997, 1996 and 1995......................................................                 24 - 25

               o   Consolidated Statement of Stockholders' Equity for the three years ended
                  December 31, 1997, 1996 and 1995......................................................                      26

              o   Notes to Consolidated Financial Statements............................................                 27 - 46
</TABLE>


         *  Incorporated  by  reference  from  the  indicated  pages of the 1997
            Annual Report to Stockholders.

         2. Financial Statement Schedules
            (None)

            All  schedules  have been omitted as they are not  applicable or the
            required information is shown in the Notes to Consolidated Financial
            Statements.

            Exhibits

            (3.1)          Restated  Articles of Incorporation of Virginia Beach
                           Federal   Financial   Corporation   (Incorporated  by
                           reference to  Post-Effective  Amendment  No. 1 to the
                           Registrant's  Form S-4  Registration  Statement dated
                           March 21, 1991, File No. 33-27398).

            (3.2)          Bylaws   of   Virginia   Beach   Federal    Financial
                           Corporation    (Incorporated    by    reference    to
                           Post-Effective  Amendment  No. 1 to the  Registrant's
                           Annual  Report  on Form  S-4  Registration  Statement
                           dated March 21, 1991, File No. 33-27398).

            (10.1)         Virginia  Beach Federal  Financial  Corporation  1981
                           Stock  Option  Plan,  as  amended   (Incorporated  by
                           reference to the  Registrant's  Annual Report on Form
                           10-K for the Fiscal Year Ended December 31, 1984).


                                       23

<PAGE>





            (10.2)         Lease between the Runnymede  Corporation and Virginia
                           Beach  Federal  Savings  Bank,  dated  April 20, 1989
                           (Incorporated by reference to the Registrant's Annual
                           Report  on  Form  10-K  for  the  Fiscal  Year  Ended
                           December 31, 1989).

            (10.3)         Virginia Beach Federal  Financial  Corporation - 1991
                           Stock Option Plan  (Incorporated  by reference to the
                           Registrant's  Annual  Report  on  Form  10-K  for the
                           Fiscal Year Ended December 31, 1990).

            (10.4)         Amended   and   Restated   Agreement   and   Plan  of
                           Reorganization,  dated  February  21,  1991,  by  and
                           between Virginia Beach Federal Savings Bank, Virginia
                           Beach  Federal  Financial  Corporation  and  Virginia
                           Beach Federal Interim Savings Bank  (Incorporated  by
                           reference to  Post-Effective  Amendment  No. 1 to the
                           Registrant's  Form S-4  Registration  Statement dated
                           March 21, 1991, File No. 33-27398).

            (10.5)         Employment  Agreement  with John A. B.  Davies,  Jr.,
                           President   and  Chief   Executive   Officer  of  the
                           Corporation,   Dennis  R.  Stewart,   Executive  Vice
                           President   and  Chief   Financial   Officer  of  the
                           Corporation,  John  M.  Chattleton,   Executive  Vice
                           President  of  the  Bank  and  John  M.   Reddecliff,
                           Executive Vice President of the Bank.

            (10.6)         Employee  Stock  Purchase  Plan.   (Incorporated   by
                           reference to the  Registrant's  Annual Report on Form
                           10-K for the fiscal year ended December 31, 1995).

            (10.7)         Virginia  Beach Federal  Financial  Corporation  1997
                           Directors Stock Compensation Plan.

            (13)           Virginia  Beach Federal  Financial  Corporation  1997
                           Annual  Report  to  Stockholders.  Except  for  those
                           portions  of  the  Annual  Report   incorporated   by
                           reference in this Form 10-K, such Annual Report shall
                           not be deemed to be filed with the SEC.

            (21)           Subsidiaries.

            (23.1)         Consent of  Independent  Auditors - KPMG Peat Marwick
                           LLP

            (99.1)         Annual  Report on Form 11-K for the fiscal year ended
                           December 31, 1997.



(b)      Reports on Form 8-K

         During the quarter ended  December 31, 1997,  the  Registrant  filed no
         current reports on Form 8-K.

(c)      The exhibits set forth above are either filed herewith or  incorporated
         by reference herein.

(d)      All schedules  have been omitted as the required  information is either
         inapplicable  or  included  in  the  Notes  to  Consolidated  Financial
         Statements.





                                       24

<PAGE>



                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) 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
<TABLE>
<CAPTION>

<S>                                                  <C>
Dated:                March 25, 1998                 By:   /s/ John A. B. Davies, Jr.
              -------------------------------             -------------------------------------------------------------------
                                                           John A. B. Davies, Jr.
                                                           President and Chief Executive Officer
                                                           (Duly Authorized Representative)



         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


By:          /s/ John A. B. Davies, Jr.              By:   /s/ Charles P. Fletcher
           -----------------------------------           --------------------------------------------------
             John A. B. Davies, Jr.                        Charles P. Fletcher
             President and Director                        Chairman of the Board
             (Principal Executive
             Officer)

Date:        March 25,1998                           Date:   March 25,1998

By:          /s/ Dennis R. Stewart                   By:   /s/ Floyd E. Kellam, Jr.
           -----------------------------------           --------------------------------------------------
             Dennis R. Stewart                             Floyd E. Kellam, Jr.
             Executive Vice President/                     Vice Chairman of the Board
             Chief Financial Officer
             (Principal Financial
             Officer)

Date:        March 25,1998                           Date:   March 25,1998

By:          /s/ Edward E. Brickell                  By:   /s/ Robert H. DeFord, Jr.
           -----------------------------------           --------------------------------------------------
             Edward E. Brickell                            Robert H. DeFord, Jr.
             Director                                      Director

Date:        March 25,1998                           Date:   March 25,1998

By:          /s/ Betty Anne Huey                     By:   /s/ Rufus S. Kight, Jr.
           -----------------------------------           --------------------------------------------------
             Betty Anne Huey                               Rufus S. Kight, Jr.
             Director                                      Director

Date:        March 25,1998                           Date:   March 25,1998

By:          /s/ Ivan D. Mapp                        By:   /s/ George R. C. McGuire
           -----------------------------------           --------------------------------------------------
             Ivan D. Mapp                                  George R. C. McGuire
             Director                                      Director

Date:        March 25,1998                           Date:   March 25,1998

</TABLE>

                                       25

<PAGE>






                                INDEX TO EXHIBITS

EXHIBITS


(3.1)           Restated  Articles of  Incorporation  of Virginia  Beach Federal
                Financial    Corporation    (Incorporated    by   reference   to
                Post-Effective  Amendment  No.  1 to the  Registrant's  Form S-4
                Registration Statement dated March 21, 1991, File No. 33-27398).

(3.2)           Bylaws  of  Virginia   Beach   Federal   Financial   Corporation
                (Incorporated by reference to Post-Effective  Amendment No. 1 to
                the Registrant's Form S-4 Registration Statement dated March 21,
                1991, File No. 33-27398).

(10.1)          Virginia Beach Federal  Financial  Corporation 1981 Stock Option
                Plan, as amended  (Incorporated by reference to the Registrant's
                Annual  Report on Form 10-K for the Fiscal  Year Ended  December
                31, 1984).

(10.2)          Lease  between the  Runnymede  Corporation  and  Virginia  Beach
                Federal  Savings  Bank,  dated April 20, 1989  (incorporated  by
                reference to the Registrant's Annual Report on Form 10-K for the
                Fiscal Year Ended December 31, 1989).

(10.3)          Virginia Beach Federal Financial Corporation - 1991 Stock Option
                Plan  (Incorporated  by  reference  to the  Registrant's  Annual
                Report on Form  10-K for the  Fiscal  Year  Ended  December  31,
                1990).

(10.4)          Amended and Restated Agreement and Plan of Reorganization, dated
                February 21, 1991, by and between Virginia Beach Federal Savings
                Bank, Virginia Beach Federal Financial  Corporation and Virginia
                Beach Federal Interim Savings Bank (Incorporated by reference to
                Post-Effective  Amendment  No.  1 to the  Registrant's  Form S-4
                Registration Statement dated March 21, 1991, File No. 33-27398).

(10.5)          Employment  Agreement with John A. B. Davies, Jr., President and
                Chief Executive  Officer of the Corporation,  Dennis R. Stewart,
                Executive  Vice  President  and Chief  Financial  Officer of the
                Corporation, John M. Chattleton, Executive Vice President of the
                Bank and John M.  Reddecliff,  Executive  Vice  President of the
                Bank.

(10.6)          Employee Stock Purchase Plan.  (Incorporated by reference to the
                Registrant's  Annual  Report  on Form 10-K for the  fiscal  year
                ended December 31, 1995)

(10.7)          Virginia  Beach Federal  Financial  Corporation  1997  Directors
                Stock Compensation Plan.

(13)            Virginia Beach Federal Financial  Corporation 1997 Annual Report
                to Stockholders.  Except for those portions of the Annual Report
                incorporated  by reference in this Form 10-K, such Annual Report
                shall not be deemed to be filed with the SEC.

(21)            Subsidiaries.

(23.1)          Consents of Independent Auditors - KPMG Peat Marwick LLP

(99.1)          Annual  Report on Form 11-K for the Fiscal  Year Ended  December
                31, 1997.



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