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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-13599
Omega Financial Corporation
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1420888
-------------------------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
or incorporation of organization)
366 Walker Drive
State College, Pennsylvania 16801
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(814) 231-7680
-----------------------------
Registrant's Telephone Number,
Including Area Code
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 twelve months (or for such shorter period that the registrant was
requested to file such reports), and (2) has been subject to such filing
requirements for the past sixty days. Yes __X__ No ____
The number of shares outstanding of each of the Registrant's
classes of common stock as of August 9, 2000:
Common Stock, $5.00 par value - 8,694,557 shares
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
----------- -----------
Cash and due from banks $ 40,843 $ 36,580
Interest bearing deposits with other banks 818 872
Federal funds sold 30,650 1,975
Investment securities held to maturity
(Market value:
$5,008 and $4,951, respectively) 5,008 4,951
Investment securities available for sale 251,384 267,718
Total loans 723,343 705,241
Less: Unearned discount (194) (293)
Allowance for loan losses (11,986) (11,865)
----------- -----------
Net loans 711,163 693,083
Premises and equipment, net 14,307 14,644
Other assets 36,303 33,580
=========== ===========
TOTAL ASSETS $ 1,090,476 $ 1,053,403
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 131,805 $ 119,391
Interest bearing 742,614 732,204
----------- -----------
Total deposits 874,419 851,595
Short-term borrowings 40,006 28,527
Other liabilities 12,432 10,919
ESOP debt 3,492 3,611
Long-term debt 7,000 7,000
Other interest bearing liabilities 596 600
----------- -----------
TOTAL LIABILITIES 937,945 902,252
Preferred stock, par value $5.00 per share:
Authorized - 5,000,000 shares;
Issued and outstanding -
219,781 shares Series A Convertible 5,000 5,000
Unearned compensation related to ESOP debt (2,502) (2,625)
Common stock, par value $5.00 per share:
Authorized - 25,000,000 shares
Issued -
9,315,372 shares at June 30, 2000;
9,259,782 shares at December 31, 1999
Outstanding -
8,734,757 shares at June 30, 2000;
8,774,507 shares at December 31, 1999 46,577 46,299
Capital surplus 5,744 4,825
Retained earnings 116,796 113,204
Accumulated other comprehensive (loss) income (374) 817
Cost of common stock in treasury
580,615 shares at June 30, 2000;
485,275 shares at December 31, 1999 (18,710) (16,369)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 152,531 151,151
=========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,090,476 $ 1,053,403
=========== ===========
<PAGE>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 14,969 $ 14,584 $ 29,571 $ 29,932
Interest and dividends on
investment securities 3,599 3,447 7,175 6,900
Other interest income 412 475 603 680
-------- -------- -------- --------
TOTAL INTEREST INCOME 18,980 18,506 37,349 37,512
INTEREST EXPENSE:
Interest on deposits 6,898 6,561 13,553 13,048
Interest on short-term borrowings 570 285 981 473
Interest on long-term debt and
other interest bearing liabilities 128 72 246 142
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 7,596 6,918 14,780 13,663
-------- -------- -------- --------
NET INTEREST INCOME 11,384 11,588 22,569 23,849
Provision for loan losses 142 340 285 605
-------- -------- -------- --------
INCOME FROM CREDIT ACTIVITIES 11,242 11,248 22,284 23,244
OTHER INCOME:
Service fees on deposit accounts 907 881 1,784 1,721
Trust fees 710 767 1,613 1,526
Gain on sale of loans and other assets (6) 1,509 (35) 1,511
Net gains on investment securities 194 (97) 194 104
Other 1,342 947 2,484 1,765
-------- -------- -------- --------
TOTAL OTHER INCOME 3,147 4,007 6,040 6,627
OTHER EXPENSE:
Salaries and employee benefits 4,769 4,634 9,516 9,248
Net occupancy expense 523 555 1,077 1,142
Equipment expense 561 546 1,128 1,060
Data processing service 365 390 728 771
Other 2,433 2,221 4,784 4,382
-------- -------- -------- --------
TOTAL OTHER EXPENSE 8,651 8,346 17,233 16,603
-------- -------- -------- --------
Income before taxes 5,738 6,909 11,091 13,268
Income tax expense 1,476 1,969 2,855 3,849
-------- -------- -------- --------
NET INCOME $ 4,262 $ 4,940 $ 8,236 $ 9,419
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
Basic $ 0.47 $ 0.55 $ 0.91 $ 1.04
Diluted $ 0.46 $ 0.53 $ 0.89 $ 1.00
WEIGHTED AVERAGE SHARES AND EQUIVALENTS:
Basic 8,802,849 8,840,120 8,796,001 8,896,632
Diluted 9,204,097 9,342,334 9,209,119 9,411,412
</TABLE>
<PAGE>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 8,236 $ 9,419
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,093 1,174
Provision for loan losses 285 605
Gain on sale of investment securities (194) (104)
Gain on sale of fixed assets
and other property owned (2) (2)
Loss (gain) on sale of loans 37 (99)
Gain on sale of branch -- (1,410)
Increase in deferred tax asset (168) (355)
Increase in cash surrender value of
bank owned life insurance (480) --
Decrease (Increase) in interest
receivable and other assets (1,483) 1,758
Decrease in interest payable (1,076) (75)
Increase (decrease) in taxes payable 678 (402)
Amortization of deferred net loan fees 57 224
Deferral of net loan fees (costs) 32 (282)
Increase in accounts payable
and accrued expenses 1,816 6,038
-------- --------
Total adjustments 595 7,070
-------- --------
Net cash provided by operating activities 8,831 16,489
Cash flows from investing activities:
Proceeds from the sale or maturity of:
Interest bearing deposits with other banks 16,818 17,340
Investment securities available for sale 49,702 29,520
Investment securities held to maturity -- 10,486
Purchase of:
Interest bearing deposits with other banks (16,764) (23,564)
Commercial paper -- (4,856)
Investment securities held to maturity (62) (1,212)
Investment securities available for sale (35,118) (63,205)
Increase in loans (18,544) (4,303)
Gross proceeds from sale of loans 53 22,725
Proceeds from sale of branch -- 1,000
Capital expenditures (630) (546)
Sale of fixed assets and other property owned 46 164
Increase in federal funds sold (28,675) (16,200)
-------- --------
Net cash used in investing activities (33,174) (32,651)
Cash flows from financing activities:
Increase in deposits, net 22,824 9,699
Increase in short-term borrowings, net 11,479 11,197
Issuance of long term debt -- 2,000
Net change in other interest bearing liabilities (4) (39)
Dividends paid (4,590) (4,141)
Tax benefit from preferred stock dividend
and stock option activity 41 229
Issuance of common stock 1,197 2,085
Acquisition of treasury stock (2,341) (8,672)
-------- --------
Net cash provided by financing activities 28,606 12,358
======== ========
Net increase (decrease) in cash and due from banks $ 4,263 $ (3,804)
======== ========
Cash and due from banks at beginning of period $ 36,580 $ 40,066
Cash and due from banks at end of period 40,843 36,262
======== ========
Net increase (decrease) in cash and due from banks $ 4,263 $ (3,804)
======== ========
Interest paid $ 15,856 $ 13,738
Income taxes paid 2,305 4,090
<PAGE>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
A. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, including normal
recurring accruals, considered necessary for a fair presentation have been
included. Operating results for the six months and three months ended June
30, 2000 are not necessarily indicative of the results that may be
experienced for the year ending December 31, 2000 or any other interim
period. For further information, refer to the Consolidated Financial
Statements and Footnotes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
The accompanying Consolidated Financial Statements include Omega Financial
Corporation (Omega), a bank holding company, and the combined results of
its wholly owned banking and non-banking subsidiaries.
B. Commitments and Contingent Liabilities:
In the ordinary course of business, Omega and its subsidiaries make
commitments to extend credit to their customers. At June 30, 2000 and
December 31, 1999 standby letters of credit issued and outstanding amounted
to $16,979,000 and $17,022,000, respectively. These letters of credit are
not reflected in the accompanying financial statements. Management does not
anticipate any significant losses as a result of these transactions.
At June 30, 2000, the Corporation had $151,350,000 outstanding in unused
lines of credit commitments extended to its customers. Of this amount,
$37,743,000, or 24.9%, are commitments to consumers for home equity and
other lines of credit. The remainder, $113,607,000, are commercial
commitments.
C. Comprehensive Income:
Components of comprehensive income (loss) consist of the following:
Six Months Ended June 30, 2000
-----------------------------------
Before Tax Expense
Tax or Net-of-Tax
Amount (Benefit) Amount
-------- -------- --------
Net income $ 11,091 $ 2,855 $ 8,236
Other comprehensive income:
Unrealized gains on available
for sale securities:
Unrealized holding losses arising
during the period (1,638) (573) (1,065)
Less reclassification adjustment
for gains included in net income (194) (68) (126)
-------- -------- --------
Other comprehensive income (loss) (1,832) (641) (1,191)
-------- -------- --------
Total comprehensive income $ 9,259 $ 2,214 $ 7,045
======== ======== ========
D. Earnings Per Share Data:
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. On a diluted basis, both earnings and shares outstanding are
adjusted to assume the conversion of all potentially dilutive securities
into common stock.
<PAGE>
Computations of Earnings per Share
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Six Months Ended June 30, 1999
----------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
Numerator Denominator Amount Numerator Denominator Amount
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $8,236 $9,419
Less: Preferred stock dividends (198) (198)
BASIC EPS
Income available to common
shareholders 8,038 8,796 $0.91 9,221 8,897 $1.04
EFFECT OF DILUTIVE SECURITIES
Impact of:
Assumed conversion of preferred
to common stock 346 346
Assumed exercises of outstanding
options 67 168
Preferred stock dividends
available to common
shareholders 198 198
Elimination of tax benefit of
allocated preferred dividends (33) (29)
Additional expense required to fund
ESOP debt, net of tax impact (14) (25)
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $8,189 9,209 $0.89 $9,365 9,411 $1.00
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Three Months Ended June 30, 1999
----------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
Numerator Denominator Amount Numerator Denominator Amount
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $4,262 $4,940
Less: Preferred stock dividends (99) (99)
BASIC EPS
Income available to common
shareholders 4,163 8,803 $0.47 4,841 8,840 $0.55
EFFECT OF DILUTIVE SECURITIES
Impact of:
Assumed conversion of preferred
to common stock 346 346
Assumed exercises of outstanding
options 55 156
Preferred stock dividends
available to common
shareholders 99 99
Elimination of tax benefit of
allocated preferred dividends (17) (15)
Additional expense required to fund
ESOP debt, net of tax impact (6) (10)
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $4,239 9,204 $0.46 $4,915 9,342 $0.53
</TABLE>
<PAGE>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Investment Considerations
In analyzing whether to make, or to continue to make, an investment in
Omega, investors should consider, among other factors, certain
investment considerations more particularly described in "Item 1:
Business - Investment Considerations" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. A copy of this report
can be obtained from David N. Thiel, Senior Vice President, Omega
Financial Corporation, 366 Walker Drive, State College, Pennsylvania
16801.
Forward Looking Statements
The information in this Report on Form 10-Q contains forward looking
statements (as such term is defined in the Securities Exchange Act of
1934 and the regulations thereunder), including without limitation,
statements as to the future loan and deposit volumes, the allowance and
provision for possible loan losses, future interest rates and their
effect on Omega's financial condition or results of operations, the
classification of Omega's investment portfolio, statements concerning
other risks or as to trends or management's beliefs, expectations or
opinions and other statements other than historical facts. Such forward
looking statements are subject to risks and uncertainties and may be
affected by various factors which may cause actual results to differ
materially from those in the forward looking statements. In addition to
the factors discussed in this report, certain risks, uncertainties and
other factors, including without limitation, risks arising from economic
conditions and related uncertainties, changes in interest rates, federal
and state regulation, competition, the adequacy of the allowance and
provision for loan losses, and other risks are discussed in this Report
on Form 10-Q, Omega's 1999 Annual Report or in Omega's Annual Report on
Form 10-K for the year ended December 31, 1999. Copies of these reports
may be obtained from Omega upon request and without charge (except for
the exhibits thereto) as described above.
--------------------------------------------------------------------------------
1. Comparison of the Six and Three Months Ended June 30, 2000 and 1999
Operations Overview
A. Six months ended June 2000 and 1999
For the first six months of 2000, income before taxes decreased by
$2,177,000, or 16.4%, compared to the same period in 1999. Income from
credit activities decreased $960,000, or 4.1%. Non-interest income
decreased $587,000 or 8.9% while non-interest expense increased
$630,000, or 3.8%. Several significant non-recurring events took place
in 1999 that must be considered when comparing financial results between
the two periods. They are:
o The sale of a branch office in June 1999 resulting in a total
pre-tax gain of $1,410,000.
o The sale of a block of mortgage loans in June 1999 with a pre-tax
gain of $106,000, and total impact of $206,000.
o The collection of $450,000 of interest on long-time non-accrual
loans in January 1999.
Detailed analysis of the impact of these events are included in the
discussion following.
The tax provision for the first six months of 2000 decreased by
$994,000, or 25.8% when compared to the first six months of 1999. The
effective tax rate fell to 25.7% in 2000 from 29.0% in 1999, as a result
of an increase in tax-exempt income due in part to higher levels of
tax-exempt investments in 2000 than in 1999. Net income decreased by
$1,183,000, or 12.6%, in the first six months of 2000 as compared to the
<PAGE>
same period in 1999. Excluding the non-recurring items listed above, net
income in 2000 would compare favorably to 1999 by $165,000, or 2.0%.
B. Three months ended June 30, 2000 and 1999
The second quarter's income before income taxes decreased $1,171,000, or
17.0%, when compared to the same period in 1999. Non-interest income
decreased $860,000, or 21.5% and non-interest expense increased by
$305,000, or 3.7%.
After the income tax provision (which decreased by $493,000, or 25.0%
compared to the same period in 1999) was deducted from earnings, net
income was $678,000, or 13.7%, lower than the second quarter of 1999.
The effective tax rate for the second quarter of 2000 was 25.7%, as
compared to the second quarter of 1999 of 28.5%.
Exclusive of the gains recorded from the sales of a branch office and a
block of mortgage loans in the second quarter of 1999, net income in the
second quarter of 2000 exceeded net income in the second quarter of 1999
by $372,000, or 9.7%.
Following are selected key ratios for the period:
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
2000 1999 2000 1999
-------- -------- -------- -------
Return on average assets (annualized).. 1.58% 1.85% 1.54% 1.78%
Return on average equity (annualized).. 11.10 12.88 10.73 12.19
Dividend payout ratio (common)......... 53.66 42.83 54.48 43.37
Average equity to average assets....... 14.25 14.33 14.38 14.58
--------------------------------------------------------------------------------
Net Interest Income
A. Six months ended June 30, 2000 and 1999
Omega's net interest income for the first six months of 2000 declined by
$1,280,000, or 5.4%. Average earning assets decreased by $5,491,000 when
compared to June 1999. It must be noted that the average earning assets
through June of 1999 included loans of approximately $34,000,000 which
were sold as part of the branch or mortgage sales completed in June of
1999. Since that time, average loans outstanding have grown to within
$5,000,000 of the pre-sale levels. New volumes of commercial loans have
replaced the residential and other consumer loans that were sold. Also
affecting average earning assets in 2000 is a $20,000,000 investment in
a Bank Owned Life Insurance (BOLI) plan. This reduces the excess funds
available to invest in securities or money market instruments, and
earnings from the BOLI are reported as non-interest income. Of the
$1,280,000 reduction in net interest income in 2000 compared to 1999,
$562,000 is due to volume changes or reductions (loan sales and BOLI),
while the remainder is due to rate differences. In 1999, $450,000 of
previously unaccrued interest was collected, inflating the composite
rate on earning assets by 9 basis points. See the chart below for a
comparison of the components of the net interest margin.
B. Three months ended June 30, 2000 and 1999
The net interest margin, at 4.52% for the second quarter of 2000, was 5
basis points lower than the second quarter of 1999, with a $6,641,000 or
0.7% decrease in average earning assets resulting in a 1.8% decrease in
net interest income. Yield on earning assets in the second quarter of
2000 declined by 25 basis points when compared to 1999's second quarter,
while cost of funding increased by 30 basis points.
<PAGE>
Following are key net interest margin ratios (annualized):
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ ---------------
2000 1999 2000 1999
-------- ------- ------ -------
Yield on average earning assets......... 7.55% 7.30% 7.50% 7.50%
Cost to fund earning assets............. 3.03 2.73 2.98 2.74
Net interest margin..................... 4.52 4.57 4.52 4.76
Net interest margin - tax equivalent.... 4.79 4.82 4.79 5.01
--------------------------------------------------------------------------------
At June 30, 2000, Omega had $385,923,000 of earning assets scheduled to
reprice over the next twelve months as compared to $490,629,000 in
interest bearing liabilities, resulting in a negative gap of
$104,706,000, or 9.6% of assets. In order to predict net interest income
at risk over the next twelve months based on hypothetical rate
movements, a rate shock simulation was performed on the balance sheet.
In the event that interest rates would decrease immediately by 100 basis
points, results of the rate shock simulation suggest that Omega's net
interest income over the next twelve months would decrease by
approximately 1.1%, or $482,000. Conversely, the results of a rate shock
simulation of an immediate 100 basis point increase in interest rates
indicates an increase in net interest income of approximately $488,000,
or 1.1% over a twelve-month period.
These simulations assume no volume or mix changes in the balance sheet.
Other Income and Expense
A. Six months ended June 30, 2000 and 1999
Other income decreased $587,000, or 8.9% in the first six months of 2000
as compared to the same period in 1999. Excluding gains resulting from
sales of investment securities and other assets, normal operating
non-interest income rose by $869,000, or 17.3%. This represents
increases in service fees on deposits, loans and trust relationships. In
the fourth quarter of 1999, a BOLI was purchased. Proceeds from this
policy are being used to fund supplemental retirement plans for certain
key executives. Earnings on the cash surrender value of the BOLI, which
totaled $597,000 through June 30, accounted for 69% of the increased
non-interest income. The gains resulting from the sale of a branch
office and a block of mortgage loans in 1999 inflated earnings from
prior year, causing a negative variance in 2000 of $1,521,000 in gains
on the sale of loans and other assets. Investment security gains in 2000
exceeded those in 1999 by $90,000, or 86.5%.
As a percentage of average assets, annualized other income net of
security gains and losses was 1.10% for the first six months of 2000 as
compared to 1.23 % in 1999. Exclusive of the gains resulting from the
sale of the branch office, this ratio would have been .96% in 1999.
Other expenses were $630,000, or 3.8% higher for the first six months of
2000 than for the same period in 1999. Salaries and employee benefits
were $268,000, or 2.9% higher in 2000 than in 1999. Occupancy and
equipment expenses have remained the same in 2000 as in 1999. Other
expense increased by $402,000, or 9.1% in the first six months of 2000
as compared to 1999. This is due in part to legal expense and increased
life insurance claims.
As a percentage of average assets, annualized expenses for the period
ended June 30, 2000 were 3.23% and were 3.13% for the
same period in 1999.
B. Three months ended June 30, 2000 and 1999
Other income decreased $860,000, or 21.5% in the second quarter of 2000
as compared to the same period in 1999. Exclusive of the $1,521,000 gain
on the sale of the branch office and loans in 1999, other income for the
quarter would have increased by $661,000. Service fees on deposit
accounts increased by 2.95% while trust fees declined by 7.4%. Earnings
on the cash surrender value of the BOLI were $346,000 during the second
quarter of 2000.
<PAGE>
As a percentage of average assets, annualized other income net of
security gains and losses was 1.10% for the second quarter of 2000 as
compared to 1.53 % in 1999. Exclusive of the gains resulting from the
sale of the branch office, this ratio would have been 1.00% in the
second quarter of 1999.
Other expenses were $305,000, or 3.7% higher for the second quarter of
2000 than for the same period in 1999. Salaries and employee benefits
were $135,000, or 2.9% higher in 2000 than in 1999. Occupancy and
equipment expenses have remained flat.
Other non-interest expenses have increased by 9.5%.
As a percentage of average assets, annualized expenses for the quarter
ended June 30, 2000 were 3.21% and were 3.12% for the same period in
1999.
<PAGE>
2. Investment Securities
Management of the investment portfolio entails evaluation and
realignment of the size and mix of the portfolio in order to balance
various characteristics of the balance sheet, including asset quality,
liquidity, yield relationships, maturity and tax planning. The following
schedule details characteristics of the investment portfolio as of June
30, 2000 and December 31, 1999.
Securities Classified as Available for Sale
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 2000 Cost Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S. Govern-
ment agencies and corporations $108,695 $ 20 ($ 953) $107,762
Obligations of state and
political subdivisions 78,544 36 (1,307) 77,273
Corporate securities
Mortgage backed securities
Equity securities 13,518 18 (135) 13,401
7,043 2,650 (528) 9,165
-------------------------------------------------------------
Total $251,970 $2,743 ($3,329) $251,384
=============================================================
Securities Classified as Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 2000 Cost Gains Losses Value
-------------------------------------------------------------
Investment in low-income housing $649 -- -- $ 649
Equity securities (non-marketable) -- --
4,359 4,359
-------------------------------------------------------------
Total $5,008 $ -- $ -- $ 5,008
=============================================================
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
-------------------------------------------------------------
-------------------------------------------------------------
U.S. Treasury securities and
obligations of other U.S. Govern-
ment agencies and corporations $119,737 $ 12 ($1,003) $118,746
Obligations of state and
political subdivisions 80,381 68 (1,234) 79,215
Corporate securities 47,135 69 (431) 46,773
Mortgage backed securities 12,454 18 12,422
Equity securities 6,766 3,998 (202) 10,562
-------------------------------------------------------------
Total $266,473 $4,165 ($2,920) $267,718
=============================================================
Securities Classified as Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
-------------------------------------------------------------
Investment in low-income housing $592 -- -- $ 592
Equity securities (non-marketable) -- --
4,359 4,359
-------------------------------------------------------------
Total $4,951 $ -- $ -- $ 4,951
=============================================================
</TABLE>
Total investment securities as a percentage of total assets at June 30,
2000 and December 31, 1999 were 23.5% and 25.9%, respectively.
Securities maturing or repricing in one year or less comprised 28.2% of
the total investment securities of $256,392,000 as of June 30, 2000, as
compared to 26.9% of total investment securities of $272,669,000 as of
December 31, 1999. There was $215,000 in investments in instruments of
foreign countries on June 30, 2000.
<PAGE>
3. Interest Bearing Deposits with Other Financial Institutions
As of June 30, 2000, Omega had $818,000 in interest bearing deposits
with other banks. There were no investments in instruments issued by
U.S. branches of banks of foreign countries or deposits in banks of
foreign countries included in the June 30, 2000 consolidated balance
sheet.
4. Loans
Net loans in the first six months of 2000 increased by $18,080,000, or
2.6% from the balance at December 31, 1999, bringing the total to
$711,163,000 at June 30, 2000. Of the increase, $14,463,000, or 80% is
commercial loans, $2,170,000, or 12.0% is residential mortgages and the
remainder is personal consumer loans.
Changes in the allowance for loan losses for the six months ended June
30, 2000 and 1999 were as follows (in thousands):
--------------------------------------------------------------------------------
2000 1999
------- -------
Balance at January 1.................. $11,865 $11,772
Charge-offs........................... (258) (764)
Recoveries............................ 94 63
------- -------
Net charge-offs................... (164) (701)
Provision for loan losses............. 285 605
------- -------
Balance at June 30.................... $11,986 $11,676
======= =======
--------------------------------------------------------------------------------
The allowance for loan losses is considered adequate by management to
cover probable uncollectible loans, as shown in the following table
depicting non-performing loans. Management is also of the opinion that
the level of loan loss provision is adequate to maintain the allowance
at an acceptable level. The allowance for loan losses at June 30, 2000
and 1999 represented 1.66% and 1.69%, respectively, of the total loans
outstanding, net of unearned interest.
Set forth below is an analysis of Omega's non-performing loans as of
June 30, 2000 as compared to December 31, 1999.
--------------------------------------------------------------------------------
Non-performing Loans
(In thousands)
June 30, December 31,
2000 1999
------- -------
Non-accrual loans.............................. $1,898 $2,640
Accruing loans past due 90 days or more........ 349 619
Restructured loans............................. 69 184
------- -------
Total non-performing loans..................... $2,316 $3,443
======= =======
Non-performing loans as percent of allowance... 19.3% 29.0%
--------------------------------------------------------------------------------
The decrease in non-performing loans from December 31, 1999 to June 30,
2000 is primarily due to the significant recovery of principal on
several non-accrual loans and a 43.6% reduction in delinquent loans.
5. Deposits and Other Sources of Funds
Deposits provide the primary source of funding for loans and investment
securities. As June 30, 2000, total deposits increased by $22,824,000 or
2.7%, as compared to December 31, 1999. Of the increase, 54% was
non-interest bearing, while the remaining 46% was interest-bearing
deposits.
<PAGE>
6. Regulatory Capital Compliance
Risk-based capital standards are issued by bank regulatory authorities
in the United States. These capital standards relate a banking company's
capital to the risk profile of its assets and provide the basis by which
all banking companies and banks are evaluated in terms of capital
adequacy. The risk-based capital standards require all banks to have
Tier 1 capital of at least 4% and total capital, including Tier 1
capital of at least 8% of risk-adjusted assets. Tier 1 capital includes
common stockholders' equity and qualifying perpetual preferred stock
together with related surpluses and retained earnings. Total capital is
comprised of Tier 1 capital, limited life preferred stock, qualifying
debt instruments, and the reserves for possible loan losses. Banking
regulators have also issued leverage ratio requirements. The leverage
ratio requirement is measured as the ratio of Tier 1 capital to adjusted
average assets. The table below provides a comparison of Omega's and its
bank subsidiaries' risk-based capital ratios and leverage ratio to the
minimum regulatory requirements for the periods indicated.
<TABLE>
<CAPTION>
MINIMUM REQUIREMENT MINIMUM REGULATORY
FOR CAPITAL REQUIREMENTS TO BE
ACTUAL ADEQUACY PURPOSES "WELL CAPITALIZED"
------------------------ ------------------------ -----------------------
OMEGA FINANCIAL CORPORATION AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ---------- ----------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000:
Total Capital 164,212 22.9% $57,355 8.0% $71,694 10.0%
(to Risk Weighted Assets)
Tier I Capital 155,209 21.6% 28,677 4.0% 43,016 6.0%
(to Risk Weighted Assets)
Tier I Capital 155,209 14.5% 42,704 4.0% 53,380 5.0%
(to Average Assets)
As of December 31, 1999:
Total Capital 158,528 22.5% $56,420 8.0% $70,525 10.0%
(to Risk Weighted Assets)
Tier I Capital 149,671 21.2% 28,210 4.0% 42,315 6.0%
(to Risk Weighted Assets)
Tier I Capital 149,671 14.1% 42,508 4.0% 53,135 5.0%
(to Average Assets)
OMEGA BANK
As of June 30, 2000:
Total Capital 86,969 21.3% $32,669 8.0% $40,837 10.0%
(to Risk Weighted Assets)
Tier I Capital 81,857 20.0% 16,335 4.0% 24,502 6.0%
(to Risk Weighted Assets)
Tier I Capital 81,857 13.8% 23,707 4.0% 29,634 5.0%
(to Average Assets)
As of December 31, 1999:
Total Capital 85,099 21.3% $31,976 8.0% $39,970 10.0%
(to Risk Weighted Assets)
Tier I Capital 80,097 20.0% 15,988 4.0% 23,982 6.0%
(to Risk Weighted Assets)
Tier I Capital 80,097 13.6% 23,536 4.0% 29,420 5.0%
(to Average Assets)
HOLLIDAYSBURG TRUST COMPANY
As of June 30, 2000:
Total Capital 38,585 21.1% $14,635 8.0% $18,293 10.0%
(to Risk Weighted Assets)
Tier I Capital 36,285 19.8% 7,317 4.0% 10,976 6.0%
(to Risk Weighted Assets)
Tier I Capital 36,285 13.2% 10,957 4.0% 13,696 5.0%
(to Average Assets)
As of December 31, 1999:
Total Capital 37,171 20.5% $14,536 8.0% $18,170 10.0%
(to Risk Weighted Assets)
Tier I Capital 34,885 19.2% 7,268 4.0% 10,902 6.0%
(to Risk Weighted Assets)
Tier I Capital 34,885 12.9% 10,780 4.0% 13,476 5.0%
(to Average Assets)
PENN CENTRAL NATIONAL BANK
As of June 30, 2000:
Total Capital 25,440 23.6% $8,636 8.0% $10,795 10.0%
(to Risk Weighted Assets)
Tier I Capital 24,072 22.3% 4,318 4.0% 6,477 6.0%
(to Risk Weighted Assets)
Tier I Capital 24,072 13.2% 7,287 4.0% 9,109 5.0%
(to Average Assets)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINIMUM REQUIREMENT MINIMUM REGULATORY
FOR CAPITAL REQUIREMENTS TO BE
ACTUAL ADEQUACY PURPOSES "WELL CAPITALIZED"
------------------------ ------------------------ -----------------------
OMEGA FINANCIAL CORPORATION AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ---------- ----------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital 25,452 24.0% $8,502 8.0% $10,627 10.0%
(to Risk Weighted Assets)
Tier I Capital 24,105 22.7% 4,251 4.0% 6,376 6.0%
(to Risk Weighted Assets)
Tier I Capital 24,105 13.1% 7,349 4.0% 9,186 5.0%
(to Average Assets)
</TABLE>
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the FDIC has issued a rule that sets the capital level
for each of the five capital categories established in FDICIA. As
required by FDICIA, the regulations specify the levels at which an
insured institution would be considered "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", or
"critically undercapitalized". At June 30, 2000, Omega and each of its
banking subsidiaries met the regulatory definition of a "well
capitalized" financial institution, i.e., a leverage ratio exceeding 5%,
Tier 1 capital exceeding 6% and total capital exceeding 10%.
7. Share Repurchase Program
During the second quarter of 2000, Omega announced a board-approved
share repurchase program. Omega is authorized to buy back up to 5% of
its common stock over a twelve-month period. The program may be
discontinued at any time. On May 23, 2000, when the repurchase program
was initiated, there were 8,817,427 common shares outstanding, with
440,871 shares eligible to be repurchased through this program. As of
June 30, 2000, 83,040 shares had been repurchased under this program,
representing 19% of the approved level.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omega is impacted by market risks, and has procedures in place to
evaluate and mitigate these risks. These market risks and Omega's
procedures are described in the Management's Discussion and Analysis
section of the 1999 Annual Report to Shareholders. There have been no
material changes in the market risks that impact Omega or their
procedures relative to these risks, since December 31, 1999.
PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Omega was held on April 24, 2000.
At the Annual Meeting, the shareholders elected a class of directors
for a term of three years, as described below.
-----------------------------------------------------------------------
Name For Withhold Authority
-----------------------------------------------------------------------
Raymond F. Agostinelli 7,236,697 102,547
-----------------------------------------------------------------------
Merle K. Evey 7,249,040 90,204
-----------------------------------------------------------------------
David B. Lee 6,960,705 378,539
-----------------------------------------------------------------------
The terms of the following directors continued after the annual
meeting:
Robert N. Oliver, Stanton R. Sheetz, Robert A. Szeyller, Robert T.
Gentry, Philip E. Gingerich, D. Stephen Martz, and James W. Powers, Sr.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OMEGA FINANCIAL CORPORATION
--------------------------------
(Registrant)
By:
---------------------- --------------------------------
Date David B. Lee
Chairman and
Chief Executive Officer
---------------------- --------------------------------
Date JoAnn N. McMinn
Senior Vice President and
Controller
(Principal Accounting Officer)
