Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For the fiscal year ended:                           Commission File
     June 30, 1997                                    Number: 0-28408


                      Virginia First Financial Corporation
             (Exact name of registrant as specified in its charter)


             Virginia                                    54-1678497
   (State or other jurisdiction                       (I.R.S. Employer
 of incorporation or organization)                 Identification Number)


     Franklin and Adams Streets
       Petersburg, Virginia                             23804 - 2009
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:  (804) 733-0333
                                                     (804) 748-5847


           Securities registered pursuant to Section 12(b) of the Act:
                                 Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $1.00 par value
                         Preferred Stock Purchase Rights
                                (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 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 (Section 229.405 of this chapter) 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.

As of August 31,  1997,  the  aggregate  market value of the Common Stock of the
Registrant  outstanding  on such date,  excluding  1,717,515  shares held by all
directors and executive  officers of the Registrant as a group, was $98,231,000.
This figure was  calculated  using the closing  price of $24.00 per common share
quoted on the  NASDAQ  National  Market  System on August 31,  1997.  There were
5,810,962 shares of Common Stock outstanding as of August 31, 1997.


                                        1

<PAGE>




                       Documents Incorporated by Reference



List hereunder the following documents if incorporated by reference and the Part
of Form 10-K into which the documents are incorporated:

(1)      Part II incorporates  by reference  information  from the  Registrant's
         Annual Report to Stockholders for the fiscal year ended June 30, 1997.

(2)      Part III  incorporates by reference  information  from the Registrant's
         Proxy  Statement  for its  Annual  Meeting  of  Stockholders  currently
         scheduled for November 26, 1997.



The exhibit index is located on page 23.




                                        2

<PAGE>




Part I.


Item I.  Business


                                     General


         Virginia First Financial  Corporation  (the "Company") was incorporated
in Virginia in 1993 to serve as the holding  company for Virginia  First Savings
Bank, F.S.B. (the "Savings Bank"). The stockholders of the Savings Bank approved
the Plan of  Reorganization  at the Annual Meeting on November 10, 1993, and the
reorganization  was  consummated  on  January  14,  1994 with the  Savings  Bank
becoming  a  wholly-owned  subsidiary  of the  Company.  The  Savings  Bank is a
federally  chartered  capital  stock  savings  bank with  principal  offices  in
Petersburg,  Virginia.  The Savings  Bank,  incorporated  in 1888, is one of the
oldest financial institutions in the Commonwealth of Virginia.

         At June 30,  1997,  the  Company  had  total  assets  of  $858,403,000,
deposits of $600,205,000, and net worth of $66,492,000.

         The  Company's  principal  business  activities,  which  are  conducted
through the Savings Bank, are attracting  checking and savings deposits from the
general public through its retail banking  offices and  originating,  servicing,
investing in and selling loans secured by first mortgage liens on  single-family
dwellings,  including  condominium  units. All of the retail banking offices are
located in Virginia, while the mortgage loan origination offices are in Virginia
and Maryland.  The Company also lends funds to retail banking customers by means
of home equity and installment  loans, and originates  residential  construction
loans and loans  secured by  commercial  property,  multi-family  dwellings  and
manufactured  housing units. The Company invests in certain U.S.  Government and
agency  obligations  and other  investments  permitted  by  applicable  laws and
regulations.  The operating  results of the Company are highly  dependent on net
interest  income,  the difference  between  interest  income earned on loans and
investments and the cost of checking and savings deposits and borrowed funds.

         Deposit accounts up to $100,000 are insured by the Savings  Association
Insurance  Fund  ("SAIF")   administered  by  the  Federal   Deposit   Insurance
Corporation (the "FDIC").  The Savings Bank is a member of the Federal Home Loan
Bank  ("FHLB") of Atlanta.  The Company and the Savings  Bank are subject to the
supervision, regulation and examination of the Office of Thrift Supervision (the
"OTS") and the FDIC. The Company is also subject to the regulations of the Board
of Governors of the Federal  Reserve System  governing  reserves  required to be
maintained against deposits.

         The  Company's  only  direct  subsidiary  is the  Savings  Bank and the
Company  has no  material  assets or  liabilities,  except  for the stock of the
Savings Bank. The Savings Bank has three active subsidiaries:  one is engaged in
real estate  development,  one is a title insurance agency, and one is a company
that originates residential mortgage loans via the Internet.

         The  Company  operates   twenty-four  full  service  retail  facilities
throughout  southside,  central and  southwestern  Virginia.  In  addition,  the
Company  operates  twelve loan  origination  centers in  southside,  central and
southwestern  Virginia,  in northern  Virginia and southern  Maryland  under the
trade name Virginia First Mortgage.

         The results of  operations  for the fiscal  years ended June 30,  1997,
1996 and 1995  ("fiscal  year 1997",  "fiscal year 1996" and "fiscal year 1995",
respectively)  reflect the  Company's  strategies  of  expanding  its  community
banking and mortgage banking operations.





                                        3

<PAGE>



                     Pending Acquisition by BB&T Corporation

         On May 6, 1997, the Company,  Southern National  Corporation (now known
as BB&T Corporation),  a North Carolina  corporation ("SNC"), and BB&T Financial
Corporation of Virginia, a Virginia  corporation and wholly-owned  subsidiary of
SNC ("BB&T"), entered into an Agreement and Plan of Reorganization and a related
Plan of Merger (the "Merger  Agreement"),  pursuant to which the Company will be
merged  with and into BB&T,  with BB&T as the  surviving  corporate  entity (the
"Merger").

         Under the terms of the Merger  Agreement,  each share of the  Company's
common stock ("VFFC Common Stock") issued and outstanding  immediately  prior to
the  consummation  of the Merger will be converted  into and will  represent the
right to receive both shares of the common stock of SNC ("SNC Common Stock") and
cash  (collectively,  the  "Merger  Consideration").  Based upon  certain  price
protection   features  in  the  Merger  Agreement,   the  value  of  the  Merger
Consideration  (based on the Closing Value of SNC Common Stock,  as that term is
defined in the Merger  Agreement)  will not be less than  $22.50 and will not be
more than $25.00.  If the Closing Value of SNC Common Stock is less than $30.00,
the Company can elect to receive Merger Consideration with a value (based on the
Closing  Value of SNC Common  Stock) less than $22.50 or to terminate the Merger
Agreement. In addition, 30% of the Merger Consideration will be cash, and 70% of
the  Merger  Consideration  will  be  shares  of SNC  Common  Stock,  with  such
percentages  being  subject to adjustment in the event that the Closing Value of
SNC  Common  Stock is less than  $33.75.  On May 5,  1997,  the day  before  the
announcement of the Merger,  the closing price of SNC Common Stock was $40.83. A
copy of the  Merger  Agreement  is filed as an  exhibit  to this  report  and is
incorporated herein by reference.

         Also on May 6, 1997,  the Company and SNC entered  into a Stock  Option
Agreement  (the" Stock Option  Agreement").  Under the terms of the Stock Option
Agreement,  the Company  granted to SNC an option to purchase up to 19.9% of the
total  shares of VFFC  Common  Stock  currently  outstanding.  The Stock  Option
Agreement is exercisable only under certain  circumstances.  A copy of the Stock
Option  Agreement is also filed as an exhibit to this report and is incorporated
herein by reference.

         The Merger Agreement and Stock Option  Agreement,  and the transactions
contemplated  therein,  were  approved by the Boards of Directors of the Company
and SNC and are subject to, among other things, the approval of the shareholders
of the Company and the  approvals of federal and state banking  regulators.  The
Merger will be accounted for as a purchase and is expected to be  consummated by
year end 1997.

         See "Management's  Discussion and Analysis" of operations and financial
condition, included as part of the Annual Report to Stockholders, for a detailed
discussion of certain aspects of the Company's business.


                               Lending Activities

Residential Mortgage Lending

         The  Company's  lending  policy is  generally  to lend up to 95% of the
appraised  value  of  residential  property  subject  to  the  Company's  normal
requirement of insurance from private mortgage insurance  companies (approved by
the Federal National Mortgage  Association ("FNMA") and/or the Federal Home Loan
Mortgage  Corporation  ("FHLMC"))  on loans  over 80% of  property  value.  This
insurance effectively reduces the loan to value ratio to no more than 76% of the
appraised value of the property.

         The Company also offers  competitive fixed rate second mortgages at 80%
of appraised value for a term not to exceed fifteen years, as well as no closing
costs  for  equity  lines  over  $15,000  with a ten year  term,  also at 80% of
appraised value.

         The Company's  existing loan contracts  generally provide for repayment
of  residential  mortgage  loans  over  periods  ranging  from  15 to 30  years,
depending upon the age, physical condition and type of property.

                                        4

<PAGE>



However, such loans normally have remained outstanding for substantially shorter
periods of time, as borrowers  often refinance or prepay their loans through the
sale of their homes.

         Most of the Company's  residential  fixed-rate  mortgage  loans include
"due on sale"  clauses,  which  give the  creditor  the right to  declare a loan
immediately  due and  payable  in the  event  the  borrower  sells or  otherwise
disposes of the real property subject to the mortgage loan without  repayment of
the loan.  The  Company's  adjustable  mortgage loan products are assumable by a
qualified borrower. The borrower must qualify under the FNMA/FHLMC  underwriting
guidelines which the Company employs.  The assumability feature of the Company's
adjustable rate products is intended to help the Company  maximize the retention
of its existing adjustable mortgage loan portfolio.

         Mortgage  loans  exceeding  $350,000 but not  exceeding  the greater of
$1,000,000  or one quarter of one  percent  (.25%) of assets must be approved by
the  Chairman  of the  Board  of  Directors  and one  other  member  of the Loan
Committee established by the Board of Directors.  Loans exceeding the greater of
$1,000,000  or one quarter of one  percent  (.25%) of assets must be approved by
the full  Board of  Directors  or by the  Executive  Committee  of the  Board of
Directors.

         The Company's basic residential  adjustable  product is rate indexed at
287.5 basis points over the average yield on United States  Treasury  securities
adjusted to a constant maturity of one year. An adjustment  limitation (increase
or  decrease)  of 2% per  annum or 6% over  the  life of the  loan is  included.
Additionally, the Company offers a three year adjustable rate loan product. This
product is indexed at 295 basis points over the average  yield on United  States
Treasury  securities  adjusted  to  a  constant  maturity  of  three  years.  An
adjustment  limitation of 2% per three year  anniversary and 6% over the life of
the loan applies to this product.

         All of the Company's  mortgage  lending is subject to loan  origination
procedures  prescribed  by the Board of  Directors.  Property  valuations by fee
appraisers  approved by the  Company's  Board of Directors  are  required.  Loan
applications  are  obtained  to  determine  the  borrower's  ability  to  repay.
Significant  items on the  applications  are verified  through the use of credit
reports,  financial statements and confirmations.  To comply with FHLMC and FNMA
requirements  all  applications,  appraisals and other items are reviewed by the
Underwriting  Department of the Mortgage Banking  Division,  for all residential
loans originated up to $207,000.  Loans exceeding  $207,000 but not in excess of
$350,000  require  the  approval  of an  underwriter  and any member of the Loan
Committee.

         It is the  Company's  policy to require  title  insurance  on all first
mortgage  loans  and to  require  that  fire and  casualty  insurance  (extended
coverage) be  maintained  on all property  standing as security for its loans in
amounts equal to the amount of the outstanding  principal  balance of the loans.
Borrowers must also obtain hazard insurance  policies prior to closing and flood
insurance  policies  when  required  by the  Department  of  Housing  and  Urban
Development. Borrowers are required to advance funds on a monthly basis together
with each payment of principal  and interest to a mortgage  escrow  account from
which the  Company  makes  disbursements  for items such as real  estate  taxes,
hazard insurance premiums,  and private mortgage insurance premiums as they fall
due.

         Federal regulations allow the Company to originate loans on real estate
within the State of Virginia and, within limits, to originate and purchase loans
or loan participation's secured by real estate located in any part of the United
States.  During  fiscal  year 1997 the  Company's  primary  lending  areas  were
southside,  central  and  southwestern  Virginia,  plus  northern  Virginia  and
southern Maryland.

         The  Company's  loan  originations  come  from  a  number  of  sources.
Residential  loan   originations  can  be  attributed  to  depositors,   walk-in
customers, and referrals of real estate brokers.  Construction loan originations
are  primarily  obtained  from  referrals of real estate  brokers and  builders.
Commercial loan  originations  are obtained by direct  solicitation and mortgage
broker referrals.

         Loans may be purchased  from other lenders for amounts  greater or less
than their par value.  Any amount  paid in excess of the par value is known as a
premium and is amortized against income over the life of the loan. The excess of
the par  value of a loan over its  purchase  price is known as a  discount.  Any
discount  received is deferred and  accreted  into income under the same methods
used for excess loan origination fees.

                                        5

<PAGE>



         Under federal regulations the aggregate loans that the Company may make
to any one borrower, including related entities, is the same that are applicable
to a national bank. This requirement is generally that loans to one borrower may
not exceed 15% of unimpaired capital and unimpaired  surplus.  At June 30, 1997,
the Company's regulatory limit on loans to one borrower was $11.4 million.

         In addition to interest earned on loans,  the Company  receives fees in
connection  with  real  estate  loan  originations,  loan  modifications,   late
payments,  prepayments and miscellaneous  services related to its loans.  Income
from these  activities  varies from period to period depending on the volume and
type of loans made.

         The Company  receives  income  related to existing  loans where monthly
payments are delinquent but are later paid. These fees are commonly  referred to
as late charges and are not a significant portion of the Company's income.

Construction and Commercial Real Estate Lending

         The Company  makes  construction  loans for periods of one month to one
year on  residential  property and  eighteen  months on  commercial  real estate
property,  to provide  interim  financing  on property  during the  construction
period.  At June 30, 1997,  outstanding  construction  loans (net of undisbursed
funds)  amounted  to  $141,982,000  or 20.7%  of the  Company's  loans  held for
investment.  This compares to $121,375,000 or 19.4% of loans held for investment
as of June 30,  1996.  These  loans  are  generally  made for 80% or less of the
appraised  value of the property upon  completion.  Construction  loan funds are
disbursed   periodically  at  pre-specified  stages  of  completion,   after  an
inspection  by the  Company's  staff  inspector or a qualified  independent  fee
appraiser.  Mortgage loans may also be made on commercial  and  industrial  real
estate based on Company-established underwriting standards.

         The Company makes commitments to builders and developers to provide for
the permanent financing of individual residential units and residential units in
condominium projects. Commitments are also issued for construction loans and for
permanent  mortgages on commercial  projects.  Such  commitments,  for which the
Company  charges a standby or commitment  fee of 1% or more of the dollar amount
of such commitment,  are generally to originate  mortgage loans at a date in the
future at the then prevailing interest rate.

         Loans  on  commercial  properties,   apartment  buildings,   and  other
multi-family  dwellings are typically made at 75% to 80% of the appraised value.
Such loans totaled  $46,796,000 or 6.8% of loans held for investment at June 30,
1997,  compared to  $48,722,000 or 7.8% of loans held for investment at June 30,
1996.

         Commercial real estate and construction lending entails additional risk
as compared with  residential  mortgage  lending.  Commercial  real estate loans
typically  involve larger loan balances  concentrated  with single  borrowers or
groups of related  borrowers.  In  addition,  the  payment  experience  on loans
secured by income producing  properties is typically dependent on the successful
operation  of the  related  real estate  project  and thus may be subject,  to a
greater  extent,  to  adverse  conditions  in the real  estate  market or in the
economy  generally.  Construction  loans involve additional risk attributable to
the fact that loan funds are  advanced  upon the  security of a project or house
under construction.  Construction  delays, cost overruns or the inability of the
contractor  to sell the finished  product add an  additional  element of risk to
such lending.


Consumer Lending

         The Company also offers other types of loans in addition to real estate
mortgage and construction  loans. Such loans accounted for 12.5% and 9.7% of the
Company's  loans held for  investment  at June 30, 1997 and 1996,  respectively.
Depositors are currently  permitted to borrow up to 90% of their deposit account
balance  at a rate of  interest  which is set at 3% above  the rate of  interest
currently paid on such savings accounts,  the loan being secured by the account.
The Company also makes fixed rate loans for the purchase of  automobiles,  boats
and manufactured housing units, as well as secured and unsecured personal loans.
The terms  generally do not exceed 15 years on  manufactured  housing  units and
five years on other consumer loans.


                                        6

<PAGE>



                                   Investments

Mortgage-Backed Securities

         The  Company  invests  in  mortgage-backed  securities.  A  substantial
portion of this  portfolio  consists of  securities  that are either  insured or
guaranteed  by  FHLMC or  FNMA.  Guaranteed  securities  are  more  liquid  than
individual  mortgage loans and may be used to collateralize  borrowings or other
obligations  of the Company.  At June 30, 1997,  the  Company's  mortgage-backed
securities  portfolio  had a  carrying  value  of  $12,551,000  or 1.5% of total
assets, compared to $15,694,000 or 2.1% of total assets at June 30, 1996. Due to
repayments and  prepayments of the underlying  loans,  the actual  maturities of
mortgage-backed  securities  are  expected  to be  substantially  less  than the
scheduled maturities.





Investment Activities

         Under OTS regulations, the Savings Bank is required to maintain certain
liquidity  ratios  and does so by  investing  in certain  obligations  and other
securities   which  qualify  as  liquid  assets  under  OTS   regulations.   See
"Regulation".  As  a  federally  chartered  savings  bank,  the  Savings  Bank's
investment  authority  is limited by federal law which  permits  investment  in,
among other things,  certain certificates of deposit issued by commercial banks,
banker's acceptances, loans to commercial banks for Federal Funds, United States
government and agency  obligations  and  obligations of state  governments,  and
corporate bonds.

         The Company had $6,226,000  and  $6,278,000  invested in municipal bond
investments  at  June  30,  1997  and  1996,  respectively.   These  investments
represented approximately 0.7% and 0.8% of total assets at those dates.

         The Company's investment  committee,  which meets monthly,  follows OTS
guidelines  with  respect  to  portfolio  investment  and  accounting.  Such OTS
guidelines state that insured  institutions must account for securities held for
investment, sale and/or trading in accordance with generally accepted accounting
principles.  The  Company  maintains  a written  investment  policy to set forth
investment  portfolio  composition  and  investment  strategy.   The  investment
portfolio  composition  policy  considers,  among other  factors,  the financial
condition of the institution, the types of securities, amounts of investments in
those  securities  and safety and  soundness  considerations  pertaining  to the
institution.  The investment strategy considers,  among other factors,  interest
rate risk, anticipated maturity of each type of investment and the intent of the
institution with respect to each investment.


                                Sources of Funds

General

         Savings  accounts and other types of deposits have  traditionally  been
the  principal  source of the  Company's  funds for use in lending and for other
general business purposes. In addition to savings deposits,  the Company derives
funds from loan repayments,  FHLB advances,  agreements to repurchase securities
sold and from whole loan and loan participation sales. Borrowings may be used on
a short-term basis to compensate for seasonal or other reductions in deposits or
inflows  at less than  projected  levels,  as well as on a longer  term basis to
support expanded lending activities.






                                        7

<PAGE>



Savings Activities

         The Company,  in its continuing effort to remain a competitive force in
its  markets,  offers a wide variety of savings  programs and deposit  services,
with varied  maturities,  minimum-balance  requirements  and  market-  sensitive
interest  rates that are  attractive to all types of  depositors.  The Company's
deposit products include passbook savings  accounts,  checking  accounts,  money
market  deposit  accounts,   certificates  of  deposit  ranging  in  terms  from
ninety-one days to ten years and jumbo  certificates of deposit.  Included among
these savings programs are Individual  Retirement Accounts.  The Company is able
to offer a broad  array  of  products  that  are  consistent  with  current  OTS
regulations,  and as a major result, the Company's deposit portfolio is, for the
most part, sensitive to general market fluctuations.

         The following table sets forth the various types of accounts offered by
the Company at June 30, 1997:

<TABLE>
<CAPTION>

                                                       Minimum    Amount
                                                       Balance      in          % of
         Type of Account                     Term      Deposit   Thousands      Total
         ---------------                     ----      -------   ---------      -----

<S>                                          <C>       <C>       <C>             <C> 
Checking Accounts                            none      $  --     $ 30,979        5.2%
Interest Checking Accounts                   none         --       34,359        5.7
Savings Accounts                             none         --       67,317       11.2
Money Market
   Deposit Accounts                          none         --       63,477       10.6
Certificates with remaining maturities of:
    1 to 30 days                             various   various     27,686        4.6
    31 to 90 days                            various   various     45,157        7.5
    91 to 180 days                           various   various     49,119        8.2
    181 days to 1 year                       various   various    149,782       25.0
    1 year to 2 years                        various   various     51,586        8.6
    2 years to 3 years                       various   various     48,911        8.1
    3 years to 5 years                       various   various     30,398        5.1
    Over 5 years                             various   various      1,434        0.2
                                                                 --------     ------
                                                                 $600,205     100.00%
</TABLE>

         The variety of savings  accounts  offered by the Company has  increased
the  Company's  ability  to  retain  deposits  and  has  allowed  it to be  more
competitive  in obtaining  new funds,  reducing the threat of  disintermediation
(the  flow of funds  away  from  savings  institutions  into  direct  investment
vehicles such as government and corporate securities).  As customers have become
more rate conscious and willing to move funds to higher yielding  accounts,  the
ability of the Company to attract and maintain  deposits and the Company's  cost
of funds have been,  and will  continue to be,  significantly  affected by money
market conditions.

         The following  table sets forth  information  relating to the Company's
deposit flows during the years indicated.
                                                Years Ended June 30
         (In thousands)                    1997         1996       1995
         --------------                  ---------    --------   --------

Increase (decrease) in deposits before
  interest credited                      $    (976)   $ 43,609   $ 26,405
Interest credited                           27,645      26,260     20,542
                                         ---------    --------   --------

Net increase in deposits                    26,669      69,869     46,947
                                         ---------    --------   --------

Total deposits at year end               $ 600,205    $573,536   $503,667
                                         =========    ========   ========


                                        8

<PAGE>



Borrowings

         The Company may obtain  advances from the FHLB upon the security of the
capital  stock it owns in that  bank and  certain  of its  home  mortgage  loans
provided  certain  standards  related  to  creditworthiness  have been met ( See
"Regulation").  Such advances may be made pursuant to several  different  credit
programs.  Each credit program has its own interest rate and range of maturities
and the FHLB  prescribes the acceptable  uses to which the advances  pursuant to
each program may be used, as well as  limitations  on the size of such advances.
Depending  on  the  program,  such  limitations  are  based  either  on a  fixed
percentage  of the  Company's  net  worth  or on the  FHLB's  assessment  of the
Company's   creditworthiness.   The  FHLB  is  required  to  review  its  credit
limitations  and  standards at least once every six months.  FHLB  advances have
from time to time been  available  to meet  seasonal  and other  withdrawals  of
savings accounts and to expand lending. Under current FHLB regulations there are
no  limitations  placed on the  amount of  borrowings  permitted  by an  insured
savings bank. The Company also obtains funds from sales of securities to primary
government  security  dealers and  institutional  investors under  agreements to
repurchase ("repurchase agreements"), which are considered borrowings.

         The following table sets forth certain  information as to the Company's
advances and other borrowings at the dates  indicated.  See Notes 8 and 9 to the
Consolidated  Financial  Statements,  included  as part of the Annual  Report to
Stockholders,  for  information as to rates,  maturities,  average  balances and
maximum amounts outstanding.

                                                        June 30
                                        ---------------------------------------
         (In thousands)                   1997            1996           1995
         --------------                 --------        --------       --------

         Advances from FHLB             $181,552        $102,052       $134,658
         Other borrowings                    611             639            557
                                       ---------       ---------       --------
                  Total borrowings      $182,163        $102,691       $135,215
                                        ========        ========       ========



                                   Employees

         The Company at June 30, 1997,  had 426 full-time  employees,  including
its executive officers.  None of these employees are represented by a collective
agent, and the Company believes its employee relations are excellent.


                                   Competition

         The Company  encounters  competition for both savings deposits and real
estate loans.  For savings  deposits,  competition  comes from other savings and
loan associations  and/or savings banks,  commercial banks,  mutual money market
funds,  credit  unions and various other  corporate and financial  institutions.
Competition also comes from interest paying obligations issued by various levels
of  government  and from a variety of securities  paying  dividends or interest.
Competition  for real estate loans comes  primarily  from other savings and loan
associations  and/or  savings  banks,  commercial  banks,  insurance  companies,
mortgage companies and other lending institutions.

         The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") eliminated many of the distinctions between commercial banks, savings
institutions  and holding  companies  thereof,  reinforced  certain  competitive
advantages of commercial banks over savings  institutions  (such as with respect
to insurance  premiums)  and allowed bank holding  companies to acquire  savings
institutions (See "Regulation - Financial  Institutions  Reform,  Recovery,  and
Enforcement Act of 1989").  FIRREA has increased the competition  encountered by
savings  institutions  and has  resulted  in a  decrease  in both the  number of
savings institutions and the aggregate size of the savings industry.



                                        9

<PAGE>



                                  Subsidiaries

         The  Company  was  incorporated  in  Virginia  in 1993 to  serve as the
holding company for the Savings Bank. The Savings Bank is a federally  chartered
capital stock savings bank with principal offices in Petersburg,  Virginia.  The
Savings Bank,  incorporated in 1888, is one of the oldest financial institutions
in the Commonwealth of Virginia.

         The  types  of  activities  and the  magnitude  of the  Savings  Bank's
activities  in its  investments  in service  corporations  are  restricted.  The
Savings Bank is permitted by current  federal  regulations to invest up to 3% of
its assets in the capital  stock of, and make  secured and  unsecured  loans to,
service  corporations  and subsidiaries  and under some  circumstances  may make
conforming  loans to service  corporations in greater amounts (See "Regulation -
Risk-Based Capital Requirement").


Service Corporation Activities

         At June  30,  1997,  the  Savings  Bank had  four  service  corporation
subsidiaries,  each of which is a Virginia corporation. The wholly-owned service
corporations  are operated by the Savings Bank's  officers and employees,  whose
time is billed to them as part of a management fee for services rendered.

         Southside Service  Corporation was chartered on January 25, 1972. It is
actively involved in appraisal services,  land development,  and financing.  The
Savings  Bank's  investment  at June 30, 1997  consisted  of stock  ownership of
$100,000,  additional  paid in capital of $852,000  and  accumulated  deficit of
$7,000. At June 30, 1997,  Southside's assets were $971,000 consisting primarily
of  investments  in real estate  projects of  $611,000,  and a loan and interest
receivable from the Savings Bank of $338,000, which is current.

         Virginia First  Investment  Corporation was chartered  January 4, 1971.
Prior to August 16, 1993 the  corporation's  name was "Virginia  First Financial
Corporation".  It is  currently  inactive;  previously  it marketed tax deferred
annuities.  The assets of the  corporation  at June 30,  1997,  were $14,000 and
consisted  primarily of cash.  The Savings  Bank's  investment at June 30, 1997,
consisted of stock ownership of $1,500,  additional  paid-in capital of $207,000
and accumulated deficit of $195,000.

         Colony Financial Corporation was chartered on April 14, 1977, by Colony
Savings and Loan  Association.  On April 1, 1982,  Colony Financial  Corporation
("Colony") was acquired as a wholly owned  subsidiary of the Company through the
acquisition of Colony Savings and Loan Association.  Colony has been involved in
real estate title insurance  activities,  but currently is inactive. At June 30,
1997, Colony had no assets.

         Century Title Insurance Agency,  Inc. was chartered on December 9, 1994
as a title insurance agency. It offers a full range of title insurance  products
to the general  public.  The assets of the  corporation  at June 30, 1997,  were
$58,000 and consisted  primarily of cash and unamortized  organizational  costs.
The Savings Bank's investment at June 30, 1997,  consisted of stock ownership of
$1,000, additional paid-in capital of $24,000 and retained earnings of $33,000.

         American Finance & Investment,  Inc. was acquired on December 19, 1996,
in a cash transaction  whereby the Company purchased a majority of the assets of
American Finance & Investment, Inc. ("AFI"). AFI is a provider of mortgage loans
through the Internet  and through mass media  advertising.  The  origination  of
mortgage  loans on an automated  basis  through a computer  network is presently
available to potential customers in forty-four states. Headquartered in Fairfax,
Virginia,  AFI had assets of $859,000 and capital consisting of $1,100 of common
stock, $1,115,190 of excess paid-in capital, and $362,691 of accumulated deficit
at June 30, 1997.





                                       10

<PAGE>



                          Federal Home Loan Bank System

         The  Savings  Bank is a member of the  Federal  Home Loan Bank  System,
which  consists of 12 regional  Federal  Home Loan Banks.  The Federal Home Loan
Bank System is regulated by the Federal Housing Finance Board ("FHFB"). The FHFB
is  composed  of five  members,  including  the  Secretary  of Housing and Urban
Development and four private citizens appointed by the President with the advice
and consent of the Senate for terms of seven years.  At least one director  must
be chosen from  organizations  with more than a two-year history of representing
consumer or community  interests on banking services,  credit needs,  housing or
financial consumer protections.

         The Savings  Bank,  as a member of the FHLB of Atlanta,  is required to
purchase  and  maintain  stock in its bank in an amount as if 30  percent of the
member's assets were home mortgage loans.

         The FHLB is required to adopt  regulations  establishing  standards  of
community  investment or service for members of the Federal Home Loan Banks as a
condition for continued  access to advances.  The  regulations  are to take into
account  the  record of  performance  of the  institution  under  the  Community
Reinvestment Act of 1977 and its record of lending to first time home buyers.

         In  addition,  new  collateral  requirements  for  advances  are  to be
established which will be designed to insure credit quality and marketability of
the collateral.


                                   Regulation

General

         Federally chartered thrift institutions,  such as the Savings Bank, are
members of the FHLB System and have their deposit  accounts insured by the SAIF,
which is  administered by the FDIC. By virtue of its federal charter and federal
insurance of accounts, the Company and the Savings Bank are subject to extensive
regulation by the OTS and the FDIC. SAIF-insured institutions may not enter into
certain  transactions  unless  certain  regulatory  tests are met or they obtain
prior  governmental  approval,  and they must file reports with these government
agencies  describing their activities and their financial  condition.  There are
periodic  examinations by federal  authorities to test compliance by the Company
with  various  regulatory  requirements.  This  supervision  and  regulation  is
intended  primarily  for the  protection  of the  depositors.  Certain  of these
regulatory requirements are referred to below or elsewhere in this document.


Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")

         On August 9, 1989,  FIRREA was enacted into law in order to restructure
the regulation of the thrift industry and to address the financial  condition of
the Federal Savings and Loan Insurance  Corporation  ("FSLIC").  The legislation
adversely affected the thrift industry in several ways, including higher deposit
insurance  premiums,   more  stringent  capital  requirements,   new  investment
limitations and  restrictions,  and a likely reduction in dividends  received on
FHLB stock as a significant  portion of the earnings of the FHLB system are used
to partially fund the resolution of regulatory enforcement power.



Insurance and Regulatory Structure

         Pursuant  to  the   provisions  of  FIRREA,   a  new  insurance   fund,
administered  by the FDIC and named the SAIF,  insures  the  deposits of savings
institutions  such as the  Savings  Bank.  The FDIC fund  existing  prior to the
enactment  of  FIRREA  is now  known  as the Bank  Insurance  Fund  ("BIF")  and
continues to insure the deposits of commercial banks and is also administered by
the FDIC.  Although the FDIC  administers both funds, the assets and liabilities
of the two funds are not commingled.  In addition,  FIRREA abolished the Federal
Home Loan 

                                       11

<PAGE>



Bank Board  ("FHLBB")  and  replaced  it with the OTS,  which is a bureau in the
Department  of the  Treasury.  The OTS is  headed  by a single  Director  who is
appointed by the President.

         FIRREA also mandated the  dissolution  of the FSLIC and the transfer of
all its assets and liabilities to the FSLIC  Resolution  Fund ("FRF"),  which is
managed by the FDIC and separately maintained.  No assets and liabilities of the
FRF will be commingled  with assets and  liabilities of the FDIC,  SAIF, or BIF.
The FRF will be dissolved upon satisfaction of all debts and liabilities and the
sale of all assets  acquired  in case  resolutions.  FIRREA  also  mandated  the
organization of the Resolution Trust Corporation ("RTC"). The purpose of the RTC
is to manage and resolve all institutions  previously insured by the FSLIC which
are placed in  receivership  or liquidating  conservatorship  within three years
after enactment of FIRREA.


Insurance of Deposits

         Under FIRREA,  savings institution deposits continue to be insured to a
maximum of $100,000  for each insured  account,  but are now insured by the SAIF
and backed by the full faith and credit of the United States Government. Deposit
insurance  premiums  paid by  savings  associations  and  banks  have  increased
significantly in the past three years. While deposit insurance premium rates for
banks have recently been reduced, there are no regulatory proposals for reducing
premium  rates for savings  associations  in the near future (See  "Regulation -
FDICIA - Deposit Insurance").

         An  insured   institution  is  subject  to  periodic   examination  and
regulators may revalue the assets of an institution,  based upon appraisals, and
require  establishment  of specific  reserves in amounts equal to the difference
between such  revaluation  and the book value of the assets.  SAIF  insurance of
deposits may be  terminated  by the FDIC,  after  notice and  hearing,  and upon
finding  by the FDIC  that a savings  institution  has  engaged  in an unsafe or
unsound  practices,  or  is  in an  unsafe  or  unsound  condition  to  continue
operations,  or has violated any  applicable  law,  regulation,  rule,  order or
condition imposed by the OTS or the FDIC. Management of the Company is not aware
of any practice,  condition or violation  that might lead to  termination of the
Savings Bank's deposit insurance.

Enforcement

         Other provisions of FIRREA include  substantial  changes to enforcement
powers  available to  regulators.  The OTS, as the primary  regulator of savings
institutions, is primarily responsible for enforcement action, but the FDIC also
has authority to impose enforcement action independently after following certain
procedures.

         FIRREA  provides  regulators  with far  greater  flexibility  to impose
enforcement  action on an  institution  that fails to comply with its regulatory
requirements,  particularly with respect to its capital  requirements.  Possible
enforcement  actions include the imposition of a capital plan and termination of
deposit  insurance.  The FDIC also may  recommend  that the Director of OTS take
enforcement action. If action is not taken by the Director,  the FDIC would have
authority to compel such action under certain circumstances.


Capital Standards

         FIRREA  substantially  changed the capital  requirements  applicable to
savings  institutions.  On November 8, 1989, the Director of the OTS promulgated
final capital regulations that are "no less stringent than the capital standards
applicable to national banks" as required by FIRREA. The new capital regulations
provide for a tangible  capital  requirement,  a core capital  requirement and a
risk-based  capital  requirement.  The final  regulations  became  effective  on
December 7, 1989.






                                       12

<PAGE>



Tangible Capital Requirement

         Each savings  institution  must maintain  tangible  capital equal to at
least 1.5% of its  adjusted  total  assets.  Tangible  capital  includes  common
stockholders'  equity (including  retained  earnings),  noncumulative  perpetual
preferred  stock and  related  surplus,  and  minority  interests  in the equity
accounts of fully consolidated  subsidiaries.  In calculating  tangible capital,
the following items are generally deducted from capital:  (a) 100% of intangible
assets (other than purchased mortgage servicing rights); (b) the amount by which
purchased mortgage servicing rights exceed the lower of 90% of determinable fair
market value,  90% of original cost, or current  amortized  book value;  and (c)
equity  and  debt   investments  in   subsidiaries   that  are  not  "includable
subsidiaries,"  which are defined as  subsidiaries  engaged solely in activities
permissible  for a national  bank,  engaged in  activities  impermissible  for a
national  bank but only as an agent  for its  customers,  or  engaged  solely in
mortgage-banking  activities.  With  respect  to  investments  in  nonincludable
subsidiaries  that were  engaged in  impermissible  activities  before April 12,
1989, 100% of the institution's  investments in and extensions of credit to such
a subsidiary as of April 12, 1989 or the date of calculation, whichever is less,
may be included in capital  prior to July 1, 1990;  thereafter,  the amount that
may be  included  is reduced  each year  until  July 1, 1994,  when none of such
investments  and  extensions  of credit may be included.  At June 30, 1997,  the
Savings  Bank had  investments  in or  extensions  of  credit  to  nonincludable
subsidiaries amounting to $908,000.

         In  calculating  adjusted total assets,  adjustments  are made to total
assets to give effect to the  exclusion  of certain  assets from  capital and to
appropriately  account for the  investments in and assets of both includable and
nonincludable subsidiaries.

         At June 30,  1997,  the Savings  Bank's  tangible  capital  amounted to
$63,218,000 or 7.38% of its adjusted total assets.


Core Capital Requirement

         Each savings  institution  must maintain core capital equal to at least
3% of its adjusted  total assets.  Core capital  includes  common  stockholders'
equity (including  retained earnings),  noncumulative  perpetual preferred stock
and related  surplus,  and minority  interests  in the equity  accounts of fully
consolidated subsidiaries.

         Intangible  assets are also subtracted  from core capital,  unless they
have an identifiable market value and may be sold separate from the institution,
in which event they are  required to be deducted  only to the extent they exceed
25% of core capital.  The other  adjustments  which are made to tangible capital
are also made to core capital. At June 30, 1997, the Savings Bank's core capital
amounted to $63,340,000 or 7.39% of its adjusted total assets.



Risk-Based Capital Requirement

         Each savings  institution must maintain total capital equal to at least
8.0% of  risk-weighted  assets.  Total  capital  consists of the sum of core and
supplementary  capital,  provided that supplementary  capital cannot exceed core
capital, as previously defined.

         Supplementary  capital includes (a) permanent capital  instruments such
as cumulative  perpetual  preferred  stock,  perpetual  subordinated  debt,  and
mandatory  convertible  subordinated debt, (b) maturing capital instruments such
as subordinated debt, intermediate-term preferred stock and mandatory redeemable
preferred stock, subject to an amortization  schedule, and (c) general valuation
loan and lease loss allowances up to 1.25% of risk-weighted assets.

         The risk-based capital regulation assigns each balance sheet asset held
by a savings  institution to one of five risk categories  based on the amount of
credit risk associated with that particular class of assets. Assets


                                       13

<PAGE>



not included for purposes of calculating capital are not included in calculating
risk-weighted  assets. The categories range from 0% for cash and U.S. Government
securities  that are backed by the full faith and credit of the U.S.  Government
to 100% for certain  assets  including  commercial  real estate loans,  consumer
loans and repossessed assets.  Qualifying  residential mortgage loans (including
multi-family mortgage loans) are assigned a 50% risk weight.

         The  book  value  of  assets  in each  category  is  multiplied  by the
weighting factor (from 0% to 100%) assigned to that category. These products are
then totaled to arrive at total  risk-weighted  assets.  Off-balance sheet items
are  included  in  risk-weighted  assets by  converting  them to an  approximate
balance sheet "credit equivalent amount" based on a conversion  schedule.  These
credit  equivalent  amounts  are then  assigned to risk  categories  in the same
manner as balance sheet assets and included in risk-weighted assets.

         At June 30, 1997, the Savings Bank's total risk-based  capital amounted
to $70,995,000 or 11.61% of its total risk-weighted assets.

         In  addition  to the  foregoing,  the  Director of the OTS is given the
authority to establish minimum capital requirements on a case-by-case basis.


Capital Distributions

         The  OTS  imposes  uniform   limitations  on  the  ability  of  savings
institutions  to engage in various  distributions  of capital such as dividends,
stock  repurchases and cash-out  mergers.  The OTS regulation  utilizes a tiered
approach which permits various levels of capital  distributions  based primarily
upon a savings institution's capital level.

         Generally in the first tier, a savings institution that has net capital
exceeding  its  fully  phased-in  capital   requirement  is  permitted  (without
application)  to make  aggregate  capital  distributions  during a year up to an
amount equal to 100% of its net income to date plus the amount that would reduce
by one-half its surplus  capital ratio at the beginning of the year, as adjusted
to  reflect  the  institution's  net  income to date  during  the year.  Capital
distributions  in excess of such amount  require  advance notice to the OTS with
the  opportunity  for  objection by the OTS. The Savings  Bank  currently  falls
within this tier.

         In the second tier, a savings  institution  with net capital  above its
regulatory   capital   requirement  but  below  its  fully   phased-in   capital
requirement, is authorized to make capital distributions without OTS approval in
limited situations.  Capital distributions in excess of these situations require
application to and approval of the OTS.

         In the third tier,  a savings  institution  with net capital  below its
regulatory   capital   requirement   is  not  authorized  to  make  any  capital
distributions  except under very limited  circumstances  and upon prior  written
approval of the OTS.

Federal Reserve System

         The Federal Reserve Board has adopted  regulations that require savings
institutions  to  maintain  non-interest-earning  reserves  against  transaction
accounts  (primarily  NOW  accounts,  Super NOW  accounts  and regular  checking
accounts).  Current  regulations of the Federal Reserve Board generally  require
that reserves of 3% must be maintained against aggregate transaction accounts of
$44.9   million  with  the  first  $4.4   million   being  exempt  from  reserve
calculations.  A 10%  reserve  requirement  is applied to that  portion of total
transaction accounts in excess of $44.9 million.

         Thrift  institutions  also have the  ability to borrow from the Federal
Reserve Bank "discount  window",  but Federal Reserve Board regulations  require
that  associations  exhaust all FHLB  sources  before  borrowing  from a Federal
Reserve  Bank.  For the  authority  to borrow from the discount  window,  thrift




                                       14

<PAGE>


institutions must have sufficient collateral pledged with the respective Federal
Reserve Bank and proper documentation signed.

Federal Deposit Insurance Corporation Improvement Act

         The  difficulties  encountered  nationwide  by  financial  institutions
during 1990 and 1991 prompted federal legislation designed to reform the banking
industry  and to  promote  the  viability  of the  industry  and of the  deposit
insurance system. The Federal Deposit Insurance  Corporation  Improvement Act of
1991  ("FDICIA"),  which became  effective  on December  19, 1991,  bolsters the
deposit insurance fund,  tightens bank and thrift regulation and trims the scope
of federal deposit insurance as summarized below.

         FDICIA requires each federal banking regulatory agency to prescribe, by
regulation,  standards for all insured  depository  institutions  and depository
institution  holding companies  relating to (i) internal  controls,  information
systems and audit systems;  (ii) loan documentation;  (iii) credit underwriting;
(iv)  interest rate  exposure;  (v) asset growth;  (vi)  compensation,  fees and
benefits;  and (vii) such other  operational  and  managerial  standards  as the
agency determines to be appropriate.  The compensation  standards would prohibit
employment contracts,  compensation or benefit arrangements, stock option plans,
fee  arrangements  or other  compensatory  arrangements  that provide  excessive
compensation,  fees or  benefits or could lead to material  financial  loss.  In
addition,  each federal banking  regulatory  agency must prescribe by regulation
standards  specifying (i) a maximum ratio of classified assets to capital;  (ii)
minimum earnings sufficient to absorb losses without impairing capital; (iii) to
the extent feasible,  a minimum ratio of market value to book value for publicly
traded shares of depository  institutions  and  depository  institution  holding
companies; and (iv) such other standards relating to asset quality, earnings and
valuation as the agency determines to be appropriate.  If an insured institution
fails  to  meet  any of the  standards  promulgated  by  regulation,  then  such
institution will be required to submit a plan to its federal  regulatory  agency
specifying the steps it will take to correct the deficiency.

         Prompt  corrective  action measures  adopted in FDICIA and which became
effective  on  December  19,  1992,  impose  significant  new  restrictions  and
requirements on depository  institutions that fail to meet their minimum capital
requirements.  Under new Section 38 of the Federal  Deposit  Insurance Act ("FDI
Act"), the federal banking  regulatory  agencies have developed a classification
system pursuant to which all depository institutions are placed into one of five
categories based on their capital levels and other  supervisory  criteria:  well
capitalized;    adequately    capitalized;    undercapitalized;    significantly
undercapitalized;  and critically undercapitalized.  The OTS's regulations which
implement  the prompt  corrective  action  provisions  of FDICIA  provide that a
savings  association is (i) well capitalized if it has total risk-based  capital
of 10% or  more,  Tier 1  risk-based  capital  (core  or  leveraged  capital  to
risk-weighted  assets)  of 6% or more,  and  core  capital  of 5% or more;  (ii)
adequately  capitalized if it has total risk-based capital of 8% or more, Tier 1
risk-based  capital  of 4% or  more,  and  core  capital  of 4% or  more;  (iii)
undercapitalized  if it has total  risk-based  capital  of less than 8%,  Tier 1
risk-based  capital  of less than 4%,  or core  capital  of less  than 4%;  (iv)
significantly  undercapitalized  if it has total risk-based capital of less than
6%, Tier 1 risk-based  capital of less than 3%, or core capital of less than 3%;
and (v) critically undercapitalized if it has tangible equity of less than 2%.

         The Savings Bank exceeded all of its  regulatory  capital  requirements
and  met  the   requirements  at  June  30,  1997  to  be  classified  as  "well
capitalized".  This  classification  is  determined  solely for the  purposes of
applying the prompt  corrective  action  regulations  and may not  constitute an
accurate representation of the Company's overall financial condition.

         An  undercapitalized  depository  institution  is  required to submit a
capital restoration plan to its principal federal regulator. The federal banking
agencies may not accept a capital plan without determining,  among other things,
that the plan is based on  realistic  assumptions  and is likely to  succeed  in
restoring the depository  institution's  capital and is guaranteed by the parent
holding company. If a depository institution fails to submit an acceptable plan,
it will be treated as if it were significantly undercapitalized.

         Unless its principal  federal  regulator has accepted its capital plan,
an  undercapitalized  bank may not  increase  its  average  total  assets in any
calendar quarter.  If an  undercapitalized  institution's  capital plan has been
accepted, asset growth will be permissible only if the growth is consistent with
the plan and the  institution's  ratio 


                                       15

<PAGE>

of tangible equity to assets  increases  during the quarter at a rate sufficient
to enable the institution to become adequately  capitalized  within a reasonable
time.

         An institution  that is  undercapitalized  may not solicit  deposits by
offering  rates of interest that are  significantly  higher than the  prevailing
rates on insured  deposits in the  institution's  normal  market areas or in the
market area in which the deposits would otherwise be accepted.

         An undercapitalized  institution may not branch, acquire an interest in
another  business  or  institution  or enter a new line of  business  unless its
capital plan has been accepted and its principal federal regulator  approves the
proposed action.

         An insured  depository  institution  may not pay management fees to any
person having control of the institution  nor may an  institution,  except under
certain  circumstances  and with prior  regulatory  approval,  make any  capital
distribution  if,  after making such payment or  distribution,  the  institution
would be undercapitalized.

         Significantly  undercapitalized  depository institutions may be subject
to  a  number  of  requirements  and  restrictions,  including  orders  to  sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and  cessation  of receipt of deposits  from  correspondent  banks.
Critically  undercapitalized  institutions  are  subject  to  appointment  of  a
receiver or conservator.

         If its  principal  federal  regulator  determines  that  an  adequately
capitalized  institution is in an unsafe or unsound  condition or is engaging in
an unsafe or  unsound  practice,  it may  require  the  institution  to submit a
corrective action plan,  restrict its asset growth and prohibit  branching,  new
acquisitions  and new lines of  business.  An  institution's  principal  federal
regulator  may deem it to be  engaging in an unsafe or unsound  practices  if it
receives a less than satisfactory rating for asset quality, management, earnings
or liquidity in its most recent examination.

         In addition, regulators must draft a new set of non-capital measures of
bank safety, such as loan underwriting standards and minimum earnings levels, to
take effect  December 1, 1993.  The  legislation  also  requires  regulators  to
perform annual on-site bank examinations, place limits on real estate lending by
banks and tightens auditing requirements.

                           Federal And State Taxation

General

         The following  discussion  of federal  taxation is a summary of certain
pertinent federal income tax matters as they pertain to the Company. For federal
income tax purposes,  the Company reports its income and expenses on the accrual
basis method of accounting  and uses a year ending June 30 for filing its income
tax returns.  The Company may carry back net  operating  losses to the preceding
three taxable years and forward to the succeeding fifteen taxable years.

         The  Commonwealth  of  Virginia  imposes an income tax on  corporations
domiciled  in the state.  The  Virginia  taxable  income is based on the federal
taxable  income with certain  adjustments  for  interest and dividend  income on
obligations  of securities of the United States and states other than  Virginia.
The tax rate is 6% of taxable income.

         See Note 10 to the Consolidated Financial Statements,  included as part
of the Annual Report to Stockholders,  for additional  information regarding the
income taxes of the Company.










                                       16

<PAGE>



Item 2.  Properties


Branch Offices and Other Material Property

         The following table sets forth certain information:

<TABLE>
<CAPTION>
                                              Owned                          Leased
                                              -----                          ------
                                                                                         Net Book Value
                                              Net Book          Lease                      of Leasehold
         (In thousands)                       Value at        Expiration                Improvements at
         Office Locations                   June 30, 1997        Date                      June 30, 1997
         ----------------                   -------------     ----------                ----------------
<S>                                            <C>               <C>                      <C> 
Main Office
Franklin and Adams Streets
Petersburg, Virginia                            $ 966                 -                     $   -  
                                                                                                   
2048 South Sycamore Street                                                                         
Petersburg, Virginia                               78                 -                         -  
                                                                                                   
Southside Regional Medical Center                                                                  
801 South Adams Street                                                                             
Petersburg, Virginia                                -              1998                         0  
                                                                                                   
2609 Boulevard                                                                                     
Colonial Heights, Virginia                        170                 -                         -  
                                                                                                   
105 North Main Street                                                                              
Hopewell, Virginia                                180                 -                         -  
                                                                                                   
North Main Street and Weaver Avenue                                                                
Emporia, Virginia                                 119                 -                         -  
                                                                                                   
1210 Westover Hills Boulevard                                                                      
Richmond, Virginia                                126                 -                         -  
                                                                                                   
Parham and Three Chopt Roads                                                                       
Richmond, Virginia                                  -              2002                         3  
                                                                                                   
4802 South Laburnum Avenue                                                                         
Richmond, Virginia                                271                 -                         -  
                                                                                                   
10051 Midlothian Turnpike                                                                          
Richmond, Virginia                                594                 -                         -  
                                                                                                   
1615 Willow Lawn Drive                                                                             
Richmond, Virginia                                  -              2000                        18  
                                                                                          
</TABLE>                                                          


                                       17

<PAGE>



<TABLE>
<CAPTION>


                                                      Owned                         Leased
                                                      -----                         ------
                                                                                          Net Book Value
                                                       Net Book          Lease              of Leasehold
         (In thousands)                                Value at        Expiration         Improvements at
         Office Locations                            June 30, 1997        Date             June 30, 1997
         ----------------                            -------------     ----------         ----------------

<S>                                                   <C>                 <C>                     <C>
         Ashland-Hanover Shopping Center
         Ashland, Virginia                              -                   2000                        7 
                                                                                                          
         Bermuda Square Shopping Center                                                                   
         Chester, Virginia                              -                   1998                       61 
                                                                                                          
         1620 Hershberger Road                                                                            
         Roanoke, Virginia                            226                      -                        - 
                                                                                                          
         316 South Jefferson Street                                                                       
         Roanoke, Virginia                              -                   2000                      139 
                                                                                                          
         3119 Chaparral Drive Southwest                                                                   
         Roanoke, Virginia                            772                      -                        - 
                                                                                                          
         203 Virginia Avenue                                                                              
         Vinton, Virginia                              65                      -                        - 
                                                                                                          
         303 East Burwell Street                                                                          
         Salem, Virginia                              409                      -                        - 
         3205 Plank Road                                                                                  
         Fredericksburg, Virginia                       -                   2010                       35 
                                                                                                          
         History Junction                                                                                 
         Appomattox, Virginia                         194                      -                        - 
                                                                                                          
         216 College Street                                                                               
         Rocky Mount, Virginia                        152                      -                        - 
                                                                                                          
         7114 Timberlake Road                                                                             
         Lynchburg, Virginia                          247                      -                        - 
                                                                                                          
         12451 Hedges Run Drive                                                                           
         Woodbridge, Virginia                         344                      -                        - 
                                                                                                          
         305 Garrisonville Rd                                                                             
         Stafford, Virginia                             -                   2002                       18 
                                                                                                          
         American Finance & Investment                                                                    
         10306 Easton Pl                                                                                  
         Fairfax, Virginia                                                                                
                                                                                                          
(1)      7331 Timberlake Road, Suite 306                                                                  
         Lynchburg, Virginia                            -                   1998                        - 
                                                                                                          
</TABLE>
                                       18

<PAGE>




<TABLE>
<CAPTION>

                                                        Owned                         Leased
                                                        -----                         ------
                                                                                                  Net Book Value
                                                       Net Book           Lease                    of Leasehold
         (In thousands)                                Value at        Expiration                  Improvements at
         Office Locations                            June 30, 1997        Date                      June 30, 1997
         ----------------                            -------------     ----------                ----------------

<S>                                                   <C>                   <C>                               <C>
(1)      1160 Pepsi Place, Suite 109
         Charlottesville, Virginia                           -              1998                               0

(1)      9200 Arboretum Parkway
         Suite 104
         Richmond, Virginia                                  -              2001                               0

(1)      1308 Devil's Reach Road, Suite 200
         Woodbridge, Virginia                            1,512                 -                               -

(1)      9515 Deeveco Rd.
         Timonium, Virginia                                  -           Monthly                               5

(1)      211 S. Jefferson St.
         Frederick, Virginia                                 -           Monthly                               7

(1)      10400 Eaton Pl.
         Fairfax, Virginia                                   -              2002                               0

(1)      6550 Rock Spring Dr.
         Bethesda, Maryland                                  -              2003                               0

(1)      8818 Centre Park Dr.
         Columbia, Maryland                                  -              1998                              13

(1)      139 North Main St.
         Bel Aire, Maryland                                  -              1998                               3

(1)      1401 Rockville Pike, Suite 110
         Rockville, Maryland                                 -              1996                               -
                                                        ------                                             -----

                                                        $6,425                                             $ 309
                                                        ======                                             =====
</TABLE>
(1)      Loan Production Centers only.


         At the termination of the above listed leases, it is expected that they
will be either renewed or replaced by leases on other properties.

         As of June 30,  1997,  the total  net book  value in the  premises  and
equipment owned by the Company was $9,644,000.


Item3.            Legal Proceedings

         There  are  no  material  proceedings,   other  than  ordinary  routine
litigation  incidental  to the  business,  to which  the  Company  or any of its
subsidiaries is a party or of which any of their property is subject.


                                       19

<PAGE>



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

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or otherwise.



                                       20

<PAGE>



Part II.


Item 5.           Market for Registrant's Common Equity and Related Stockholder
                  Matters


                  The  information  required herein is incorporated by reference
to "Comparative  Market Prices and Dividends"  contained in the definitive Proxy
Statement  for  the  Company's  1997  Annual  Meeting  of   Stockholders  to  be
subsequently filed.

                  At  August  31,  1997,  the  Company  had   approximately  951
stockholders of record.


Item 6.           Selected Financial Data


                  The  information  required herein is incorporated by reference
to page 9 of the Annual  Report to  Stockholders  for the fiscal year ended June
30, 1997.


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


                  The  information  required herein is incorporated by reference
to pages 10 to 29 of the Annual Report to Stockholders for the fiscal year ended
June 30, 1997.


Item 8.           Financial Statements and Supplementary Data


                  The  financial  statements  and  supplementary  data  required
herein are  incorporated  by reference to pages 30 to 53 of the Annual Report to
Stockholders for the fiscal year ended June 30, 1997.


Item 9.           Changes in Accountants and Disagreements with Accountants on 
                  Accounting and Financial Disclosure


                  None.




                                       21

<PAGE>



Part III.


Item 10.          Directors and Executive Officers of the Registrant


                  The  information  required herein is incorporated by reference
to  "Election  of  Directors;  Security  Ownership  of  Management  and  Certain
Beneficial  Owners-The  Board of  Directors",  "-Executive  Officers Who Are Not
Directors", "-Section 16(a) Beneficial Ownership Reporting Compliance" contained
in the  definitive  Proxy  Statement  for the Company's  1997 Annual  Meeting of
Stockholders to be subsequently filed.


Item 11.          Executive Compensation


                  The  information  required herein is incorporated by reference
to "Remuneration"  contained in the definitive Proxy Statement for the Company's
1997 Annual Meeting of Stockholders to be subsequently filed.


Item 12.          Security Ownership of Certain Beneficial Owners and Management


                  The  information  required herein is incorporated by reference
to  "Election  of  Directors;  Security  Ownership  of  Management  and  Certain
Beneficial  Owners-Security Ownership of Management" and "-Security Ownership of
Certain  Beneficial  Owners" contained in the definitive Proxy Statement for the
Company's 1997 Annual Meeting of Stockholders to be subsequently filed.


Item 13.          Certain Relationships and Related Transactions


                  The  information  required herein is incorporated by reference
to  "Remuneration-Indebtedness  of Management" contained in the definitive Proxy
Statement  for  the  Company's  1997  Annual  Meeting  of   Stockholders  to  be
subsequently filed.



                                       22

<PAGE>



Part IV.


Item 14.          Exhibits, Financial Statement Schedules, and Reports on Form 
                  8-K


         (a)      (1)      The following financial statements are incorporated
                           by reference into Item 8 hereof from Exhibit 13 
                           hereof:

                           Consolidated Statements of Financial Condition as of 
                           June 30, 1997 and 1996

                           Consolidated Statements of Earnings for each of the
                           years in the three year period ended June 30, 1997

                           Consolidated  Statements of Changes in Stockolders'
                           Equity for each of the years in the three year period
                           ended June 30, 1997

                           Consolidated Statements of Cash Flows for each of the
                           years in the three year period ended June 30, 1997

                           Notes to Consolidated Financial Statements for June 
                           30, 1997, 1996 and 1995

                           Independent Auditors' Report

         (a)      (2)      There are no financial statement schedules required 
                           to be filed herewith.

         (a)      (3)      The following  exhibits are filed as part of this
                           report  on Form  10-K,  and this  list  includes  the
                           Exhibit Index.

                                    Exhibits

                  3a       Amended and Restated Articles of Incorporation of the
                           Company,  attached as Exhibit 3.1 to the Registration
                           Statement  on Form S-4,  Registration  No.  33-67746,
                           filed with the  Commission  on August  20,  1993 (the
                           "Form S-4"), incorporated herein by reference.

                  3b       Articles   of    Amendment   of   the   Articles   of
                           Incorporation  of the Company  effective  November 6,
                           1995,  attached  as Exhibit  4.2 to the  registration
                           statement on Form 8-A, File No.  0-28408,  filed with
                           the  Commission  on April  30,1996  (the "Form 8-A"),
                           incorporated herein by reference.

                  3c       Articles of Amendment to the Articles of  Restatement
                           Amending and Restating the Articles of  Incorporation
                           of the  Company  dated  April 16,  1996,  attached as
                           Exhibit 4.3 to the Form 8-A,  incorporated  herein by
                           reference.

                  3d       Bylaws of the Company, attached as Exhibit 3.2 to the
                           Form S-4, incorporated herein by reference.

                  4a       Specimen Stock  Certificate  for common stock,  $1.00
                           par value, attached as Exhibit 4 to the Annual Report
                           on Form 10-K for the fiscal year ended June 30, 1994,
                           File No.  0-  28408,  filed  with the  Commission  on
                           October 11, 1994 (the"1994 Form 10-K"),  incorporated
                           herein by reference.


                                       23

<PAGE>



                  4b       Rights Agreement  between the Company and First Union
                           National  Bank of North  Carolina,  dated as of April
                           19,  1996,  attached  as Exhibit 4.5 to the Form 8-A,
                           incorporated herein by reference.

                  4c       First Amendment to the Rights  Agreement  between the
                           Company  and  First  Union  National  Bank  of  North
                           Carolina,  dated  as of  May  4,  1997,  attached  as
                           Exhibit 4.6 to Amendment  No. 1 to the Form 8-A, File
                           No.  0-28408,  filed with the  Commission  on June 4,
                           1997, incorporated herein by reference.

                  10a      Supplemental   Retirement   Benefit  Agreement  dated
                           September  9, 1993  between  Virginia  First  Savings
                           Bank,  F.S.B.  and  William A.  Patton,  attached  as
                           Exhibit  10a  to the  1994  Form  10-K,  incorporated
                           herein by reference.

                  10b      Supplemental Death Benefit Agreement dated October 1,
                           1993 between Virginia First Savings Bank,  F.S.B. and
                           William A.  Patton,  attached  as Exhibit  10b to the
                           1994 Form 10-K, incorporated herein by reference.

                  10c      1992 Incentive Plan, as amended,  attached as Exhibit
                           4.7  to  the  Registration  Statement  on  Form  S-8,
                           Registration No. 333-29215, filed with the Commission
                           on June 13, 1997, incorporated herein by reference.

                  10d      1986 Stock Compensation Program,  attached as Exhibit
                           4.3  to  the  Registration  Statement  on  Form  S-8,
                           Registration No. 33-78184,  filed with the Commission
                           on April 27, 1994, incorporated herein by reference.

                  10e      1984 Incentive Stock Option Plan, attached as Exhibit
                           4.3  to  the  Registration  Statement  on  Form  S-8,
                           Registration No. 33-78182,  filed with the Commission
                           on April 27, 1994, incorporated herein by reference.

                  10f      Trust  Agreement  for the  Incentive  Security  Plan,
                           attached   as   Exhibit   10.5  to  the   Form   S-4,
                           incorporated herein by reference.

                  10g      Employment Agreement,  dated January 1, 1996, between
                           the  Registrant  and William A.  Patton,  attached as
                           Exhibit 10g to the Annual Report on Form 10-K for the
                           fiscal year ended June 30,  1996,  File No.  0-28408,
                           filed  with the  Commission  on  September  30,  1996
                           (the"1996   Form  10-K"),   incorporated   herein  by
                           reference.

                  10h      Employment Agreement,  dated January 1, 1996, between
                           the  Registrant  and Charles A.  Patton,  attached as
                           Exhibit  10h  to the  1996  Form  10-K,  incorporated
                           herein by reference.

                  10i      Agreement and Plan of Reorganization, dated as of May
                           6,   1997,   among  the   Company,   BB&T   Financial
                           Corporation   of  Virginia  and   Southern   National
                           Corporation (now known as BB&T Corporation)  ("SNC"),
                           attached as Exhibit 2 to the  Current  Report on Form
                           8-K filed with the  Commission  on May 13,  1997 (the
                           "Form 8-K"), incorporated herein by reference.

                  10j      Stock Option  Agreement,  dated as of May 6, 1997, by
                           and between the Company and SNC,  attached as Exhibit
                           99.1  to  the  Form  8-K,   incorporated   herein  by
                           reference.

                  11       Statement   regarding   computation   of  per   share
                           earnings, incorporated herein by reference to Note 11
                           to the Consolidated Financial Statements, included as
                           part of the Annual  Report to  Stockholders,  for the
                           fiscal year ended June 30, 1997.

                  13       Annual  Report to  Stockholders  for the fiscal  year
                           ended June 30, 1997.

                                       24

<PAGE>



                  21       Subsidiaries of the Company, incorporated herein by
                           reference to Item 1, "Business-Subsidiaries."

                  23       Consent of KPMG Peat Marwick LLP.

         (b)      A Current  Report on Form 8-K, dated May 6, 1997, was filed on
                  May 13, 1997 and reported Item 5 to announce the merger of the
                  Company with and into BB&T Financial  Corporation of Virginia,
                  a Virginia corporation and wholly-owned subsidiary of Southern
                  National Corporation, a North Carolina corporation.

         (c)      See (a)(3)  above for all exhibits  filed  herewith and the 
                  Exhibit Index.

         (d)      Separate financial statements are not applicable.






                                       25

<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 FIRST FINANCIAL CORPORATION


         BY:  /S/ Charles A. Patton
             -------------------------------------  
             Date:  September 19, 1997
             Charles A. Patton
             President and Chief Executive Officer
         
         Pursuant to the  requirements  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 indicated on September 19, 1997

<TABLE>
<CAPTION>
                 Signature                                         Title
                 ---------                                         -----
<S>                                        <C>            <C>    
     /S/ William A. Patton                 9/19/97
     -------------------------------
     William A. Patton                     Date           Chairman of the Board, and Director


     /S/ Charles A. Patton                 9/19/97
     -------------------------------
     Charles A. Patton                     Date           President, Chief Executive
                                                          Officer, and Director

     /S/ William J. Vogt                   9/19/97
     -------------------------------
     William J. Vogt                       Date           Senior Vice President,
                                                          Chief Financial Officer

     /S/ Frasier W. Brickhouse             9/19/97
     -------------------------------
     Frasier W. Brickhouse                 Date           Director


     /S/ William L Eure, Jr.               9/19/97
     -------------------------------
     William L. Eure, Jr                   Date           Director


     /S/ Benjamin S. Gill                  9/19/97
     -------------------------------
     Benjamin S. Gill                      Date           Director



     -------------------------------
     Francis R. Payne, Jr.                 Date           Director


     /S/ George R. Mercer                  9/19/97
     -------------------------------
     George R. Mercer                      Date          Director


     /S/ John H. VanLandingham, Jr.        9/19/97
     -------------------------------
     John H. VanLandingham, Jr.            Date          Director


     /S/ Preston H. Cottrell               9/19/97
     -------------------------------
     Preston H. Cottrell                   Date           Director
</TABLE>


                                       26


<PAGE>

                                    Exhibit Index
                                    -------------

                  3a       Amended and Restated Articles of Incorporation of the
                           Company,  attached as Exhibit 3.1 to the Registration
                           Statement  on Form S-4,  Registration  No.  33-67746,
                           filed with the  Commission  on August  20,  1993 (the
                           "Form S-4"), incorporated herein by reference.

                  3b       Articles   of    Amendment   of   the   Articles   of
                           Incorporation  of the Company  effective  November 6,
                           1995,  attached  as Exhibit  4.2 to the  registration
                           statement on Form 8-A, File No.  0-28408,  filed with
                           the  Commission  on April  30,1996  (the "Form 8-A"),
                           incorporated herein by reference.

                  3c       Articles of Amendment to the Articles of  Restatement
                           Amending and Restating the Articles of  Incorporation
                           of the  Company  dated  April 16,  1996,  attached as
                           Exhibit 4.3 to the Form 8-A,  incorporated  herein by
                           reference.

                  3d       Bylaws of the Company, attached as Exhibit 3.2 to the
                           Form S-4, incorporated herein by reference.

                  4a       Specimen Stock  Certificate  for common stock,  $1.00
                           par value, attached as Exhibit 4 to the Annual Report
                           on Form 10-K for the fiscal year ended June 30, 1994,
                           File No.  0-  28408,  filed  with the  Commission  on
                           October 11, 1994 (the"1994 Form 10-K"),  incorporated
                           herein by reference.

                  4b       Rights Agreement  between the Company and First Union
                           National  Bank of North  Carolina,  dated as of April
                           19,  1996,  attached  as Exhibit 4.5 to the Form 8-A,
                           incorporated herein by reference.

                  4c       First Amendment to the Rights  Agreement  between the
                           Company  and  First  Union  National  Bank  of  North
                           Carolina,  dated  as of  May  4,  1997,  attached  as
                           Exhibit 4.6 to Amendment  No. 1 to the Form 8-A, File
                           No.  0-28408,  filed with the  Commission  on June 4,
                           1997, incorporated herein by reference.

                  10a      Supplemental   Retirement   Benefit  Agreement  dated
                           September  9, 1993  between  Virginia  First  Savings
                           Bank,  F.S.B.  and  William A.  Patton,  attached  as
                           Exhibit  10a  to the  1994  Form  10-K,  incorporated
                           herein by reference.

                  10b      Supplemental Death Benefit Agreement dated October 1,
                           1993 between Virginia First Savings Bank,  F.S.B. and
                           William A.  Patton,  attached  as Exhibit  10b to the
                           1994 Form 10-K, incorporated herein by reference.

                  10c      1992 Incentive Plan, as amended,  attached as Exhibit
                           4.7  to  the  Registration  Statement  on  Form  S-8,
                           Registration No. 333-29215, filed with the Commission
                           on June 13, 1997, incorporated herein by reference.

                  10d      1986 Stock Compensation Program,  attached as Exhibit
                           4.3  to  the  Registration  Statement  on  Form  S-8,
                           Registration No. 33-78184,  filed with the Commission
                           on April 27, 1994, incorporated herein by reference.

                  10e      1984 Incentive Stock Option Plan, attached as Exhibit
                           4.3  to  the  Registration  Statement  on  Form  S-8,
                           Registration No. 33-78182,  filed with the Commission
                           on April 27, 1994, incorporated herein by reference.

                  10f      Trust  Agreement  for the  Incentive  Security  Plan,
                           attached   as   Exhibit   10.5  to  the   Form   S-4,
                           incorporated herein by reference.

                  10g      Employment Agreement,  dated January 1, 1996, between
                           the  Registrant  and William A.  Patton,  attached as
                           Exhibit 10g to the Annual Report on Form 10-K for the
                           fiscal year ended June 30,  1996,  File No.  0-28408,
                           filed  with the  Commission  on  September  30,  1996
                           (the"1996   Form  10-K"),   incorporated   herein  by
                           reference.

                  10h      Employment Agreement,  dated January 1, 1996, between
                           the  Registrant  and Charles A.  Patton,  attached as
                           Exhibit  10h  to the  1996  Form  10-K,  incorporated
                           herein by reference.

                  10i      Agreement and Plan of Reorganization, dated as of May
                           6,   1997,   among  the   Company,   BB&T   Financial
                           Corporation   of  Virginia  and   Southern   National
                           Corporation (now known as BB&T Corporation)  ("SNC"),
                           attached as Exhibit 2 to the  Current  Report on Form
                           8-K filed with the  Commission  on May 13,  1997 (the
                           "Form 8-K"), incorporated herein by reference.

                  10j      Stock Option  Agreement,  dated as of May 6, 1997, by
                           and between the Company and SNC,  attached as Exhibit
                           99.1  to  the  Form  8-K,   incorporated   herein  by
                           reference.

                  11       Statement   regarding   computation   of  per   share
                           earnings, incorporated herein by reference to Note 11
                           to the Consolidated Financial Statements, included as
                           part of the Annual  Report to  Stockholders,  for the
                           fiscal year ended June 30, 1997.

                  13       Annual  Report to  Stockholders  for the fiscal  year
                           ended June 30, 1997.

                  21       Subsidiaries of the Company, incorporated herein by
                           reference to Item 1, "Business-Subsidiaries."

                  23       Consent of KPMG Peat Marwick LLP.

                  27       Financial Data Schedule (filed electronically only).