THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Saturday, February 15, 1997 TAG: 9702150219
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 125 lines
Throughout Hampton Roads, work crews will be putting up First Coastal Bank signs at 15 bank branches this weekend.
But Virginia Beach Federal Savings Bank downplays the extent of its name change.
In advertisements and letters to customers, it is stressing that First Coastal has the same owners, the same management and same employees.
Still, the name change caps a wrenching readjustment for Virginia Beach Federal, which for years gathered loans and deposits from outside Hampton Roads.
Squeezed by a sluggish demand for home loans in Virginia Beach during the early 1980s, the savings bank sought business in booming areas of Colorado, Utah and other Western states. To fund these loans, it solicited deposits in distant markets like Florida and Chicago by paying above-average interest rates.
Within a few years, Virginia Federal was hamstrung by lawsuits and an abundance of foreclosed real estate.
The management quickly shifted its focus back to Hampton Roads and tried to cut costs. But dealing with the fallout of the 1980s took much longer than anyone expected, said John A.B. Davies, president and chief executive of the thrift and its parent company, Virginia Beach Federal Financial Corp.
The most difficult chore was shedding millions of dollars in foreclosed real estate. Unlike much bigger institutions like NationsBank, Virginia Beach Federal lacked the capital and resources to dump foreclosed properties in a fire sale.
``That was our obsession - getting rid of the troubled loans,'' said Davies, who joined Virginia Beach Federal in 1991. ``It's a tremendous headache behind us.''
Removing the burden of soured assets from its books enabled Davies and other managers to concentrate on other issues: opening additional branches, installing automated teller machines and offering a broader range of financial services.
To gather lower-cost funds for its loans, Virginia Beach Federal has concentrated on opening checking accounts for consumers and small businesses in the region. That's one reason for installing branches in supermarkets, Davies said.
The locations in Harris Teeter stores provide greater visibility and higher traffic than Virginia Beach Federal could generate at its traditional stand-alone branches, he said.
Last year, it opened branches at Harris Teeter stores in Virginia Beach and Chesapeake. This year, another is scheduled to open at a Harris Teeter supermarket in Newport News.
The emphasis on attracting local customers and their checking accounts already has paid off by reducing Virginia Beach Federal's cost of funds, said Dennis R. Stewart, the chief financial officer. Since early 1995, the number of checking accounts has climbed by 50 percent to 6,000, while the number of savings accounts has risen 25 percent to 8,900.
Choosing a new name was part of this drive to gather local deposits and loans. But before settling on a name, Virginia Beach Federal solicited ideas from employees, consultants and consumers.
``A focus group in Newport News told us, `Don't give me a fancy computer-generated name, and if you want me to bank with you, don't use Virginia Beach in the name,' '' Davies said.
So far, customers have responded favorably to the First Coastal Bank name, he said.
The name of the savings bank's parent company, Virginia Beach Federal Financial Corp., will remain the same. So will the company's stock ticker symbol, VABF, in the Nasdaq National Market System.
Virginia Beach Federal is making the name change in the wake of improved financial results.
Without a one-time payment of $3.3 million last year to help strengthen the deposit insurance fund for savings banks, the parent company would have earned $2.7 million. That would have been its best results in five years.
Special payments were imposed by the Federal Deposit Insurance Corp. last year on all savings banks and commercial banks that had bought savings-bank deposits.
Virginia Beach Federal evolved from a savings and loan association whose powers were largely restricted to residential lending. Over the years, S&Ls and savings banks gained broader powers, and today most compete with commercial banks for consumer, commercial and real estate loans.
As part of its turnaround effort, Virginia Beach Federal has sought to attract small-business borrowers by offering loans, equipment leases, and cash-management services.
But with the rebound in commercial banking since the early 1990s, lending to small businesses has become highly competitive and presents plenty of risk.
Virginia Beach Federal has the personnel and internal controls to protect itself from the sorts of lending disasters it suffered in the past, said John M. Chattleton, executive vice president for retail administration.
``Today we have an early-warning system in place,'' he said. ``Loans are still going to go bad, but we have the documentation in place and the credit people.''
Facing stiffer competition from large residential lenders and narrower profit margins on home loans, Virginia Beach Federal has to broaden its lending activity, said David West, a bank analyst with the brokerage firm Davenport & Co. of Virginia.
But after years of erratic earnings, Virginia Beach Federal still has to prove itself to prospective investors. In recent months, the company has had some success getting the attention of securities analysts.
``Their numbers are improving, and they should continue to report sequentially better earnings each quarter this year,'' said Vernon Plack, a bank analyst with Scott & Stringfellow Inc.
But if the improvements aren't sustained, Virginia Beach Federal's management eventually will be under pressure to find a buyer, Plack said.
Davies doesn't rule out the possibility that Virginia Beach Federal could be acquired some day. But preparing for that has not been a priority, he said.
``I'm absolutely focused, as is the board, on getting this company to where we want it to be - a Hampton Roads community bank.'' ILLUSTRATION: HEADQUARTERS: Virginia Beach
BRANCHES: 15
EMPLOYEES: 205
ASSETS AT YEAR END 1996: $606.14 million
SHAREHOLDERS' EQUITY: $40.83 million
D. KEVIN ELLIOTT
The Virginian-Pilot
John A.B. Davies, president and chief executive of First Coastal
Bank and its parent company, joined Virginia Beach Federal in 1991.
RECOVERY AT VIRGINIA BEACH FEDERAL
SOURCE: Virginia Beach Federal Savings Bank
The Virginian-Pilot
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