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 September 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
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1420888
------------------------------------------------ -------------------
(State or other jurisdiction or incorporation of (IRS Employer
organization) Identification No.)
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 ninety days. Yes __X__ No ____
The number of shares outstanding of each of the Registrant's
classes of common stock as of November 2, 2000:
Common Stock, $5.00 par value - 8,631,012 shares
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks .................................. $38,571 $36,580
Interest bearing deposits with other banks ............... 815 872
Federal funds sold ....................................... 7,150 1,975
Investment securities held to maturity
(Market value: $5,005 and $4,951, respectively) ....... 5,005 4,951
Investment securities available for sale ................. 249,548 267,718
Total loans .............................................. 745,780 705,241
Less: Unearned discount ................................ (158) (293)
Allowance for loan losses .................... (12,044) (11,865)
---------- ----------
Net loans ................................................ 733,578 693,083
Premises and equipment, net .............................. 14,163 14,644
Other assets ............................................. 35,584 33,580
---------- ----------
TOTAL ASSETS ............................................. $1,084,414 $1,053,403
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing ................................... $123,975 $119,391
Interest bearing ....................................... 740,016 732,204
---------- ----------
Total deposits ........................................... 863,991 851,595
Short-term borrowings .................................... 42,891 28,527
Other liabilities ........................................ 11,384 10,919
ESOP debt ................................................ 3,431 3,611
Long-term debt ........................................... 9,000 7,000
Other interest bearing liabilities ....................... 591 600
---------- ----------
TOTAL LIABILITIES ........................................ 931,288 902,252
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 ............... (2,439) (2,625)
Common stock, par value $5.00 per share:
Authorized - 25,000,000 shares
Issued -
9,326,511 shares at September 30, 2000;
9,259,782 shares at December 31, 1999
Outstanding -
8,643,639 shares at September 30, 2000;
8,774,507 shares at December 31, 1999 ................ 46,632 46,299
Capital surplus .......................................... 5,876 4,825
Retained earnings ........................................ 119,010 113,204
Accumulated other comprehensive income (loss) ............ 568 817
Cost of common stock in treasury
682,872 shares at September 30, 2000;
485,275 shares at December 31, 1999 .................. (21,521) (16,369)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ............................... 153,126 151,151
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $1,084,414 $1,053,403
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ............................ $15,849 $14,359 $45,420 $44,291
Interest and dividends on investment securities ....... 3,544 3,739 10,719 10,639
Other interest income ................................. 341 511 944 1,191
------- ------- ------- -------
TOTAL INTEREST INCOME. ................................ 19,734 18,609 57,083 56,121
INTEREST EXPENSE:
Interest on deposits .................................. 7,218 6,608 20,771 19,656
Interest on short-term borrowings ..................... 602 298 1,583 771
Interest on long-term debt and
other interest bearing liabilities .................. 137 107 383 249
------- ------- ------- -------
TOTAL INTEREST EXPENSE ................................ 7,957 7,013 22,737 20,676
------- ------- ------- -------
NET INTEREST INCOME ................................... 11,777 11,596 34,346 35,445
Provision for loan losses ............................. 143 265 428 870
------- ------- ------- -------
INCOME FROM CREDIT ACTIVITIES ......................... 11,634 11,331 33,918 34,575
OTHER INCOME:
Service fees on deposit accounts ...................... 919 930 2,703 2,651
Trust fees ............................................ 830 697 2,443 2,223
Gain (loss) on sale of loans and other assets (12) (35) 1,499
Net gains on investment securities .................... 68 156 262 260
Other ................................................. 1,080 929 3,564 2,694
------- ------- ------- -------
TOTAL OTHER INCOME .................................... 2,897 2,700 8,937 9,327
OTHER EXPENSE:
Salaries and employee benefits ........................ 4,810 4,656 14,326 13,904
Net occupancy expense ................................. 505 496 1,582 1,638
Equipment expense ..................................... 549 564 1,677 1,624
Data processing service ............................... 369 380 1,097 1,151
Other ................................................. 2,174 2,206 6,958 6,588
------- ------- ------- -------
TOTAL OTHER EXPENSE ................................... 8,407 8,302 25,640 24,905
------- ------- ------- -------
Income before taxes ................................... 6,124 5,729 17,215 18,997
Income tax expense .................................... 1,577 1,597 4,432 5,446
------- ------- ------- -------
NET INCOME ............................................ $4,547 $4,132 $12,783 $13,551
======= ======= ======= =======
NET INCOME PER COMMON SHARE:
Basic ............................................... $0.51 $0.46 $1.43 $1.50
Diluted ............................................. $0.50 $0.44 $1.39 $1.44
WEIGHTED AVERAGE SHARES AND EQUIVALENTS:
Basic ............................................... 8,690,548 8,790,224 8,760,594 8,860,773
Diluted ............................................. 9,122,060 9,268,325 9,176,835 9,340,578
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $12,783 $13,551
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................................... 1,589 1,662
Provision for loan losses ............................................... 428 870
Gain on sale of investment securities ................................... (262) (104)
Non-monetary exchange of cost-method investments -- (156)
(Gain) loss on sale of fixed assets
and other property owned .......................................... (8) 6
Loss (gain) on sale of loans ............................................ 43 (94)
Gain on sale of branch -- (1,410)
Increase in deferred tax asset .......................................... (244) (326)
Increase in cash surrender value of bank owned life insurance ........... (745) --
(Increase) decrease in interest receivable and other assets ............. (944) 1,488
Decrease in interest payable ............................................ (1,055) (50)
Increase (decrease) in taxes payable .................................... 730 (459)
Amortization of deferred net loan costs ................................. 80 250
Deferral of net loan fees (costs) ....................................... 99 (392)
Increase in accounts payable
and accrued expenses .............................................. 728 910
------- -------
Total adjustments ..................................................... 439 2,195
------- -------
Net cash provided by operating activities ................................... 13,222 15,746
Cash flows from investing activities: Proceeds from the sale or maturity of:
Interest bearing deposits with other banks .............................. 26,466 38,737
Investment securities available for sale ................................ 65,050 56,866
Investment securities held to maturity .................................. -- 10,486
Purchase of:
Interest bearing deposits with other banks .............................. (26,409) (37,706)
Commercial paper ........................................................ -- (4,855)
Investment securities available for sale ................................ (47,149) (97,579)
Investment securities held to maturity .................................. (62) (1,212)
Proceeds from sale of branch .............................................. -- 1,000
Increase in loans ......................................................... (41,197) (9,675)
Gross proceeds from sale of loans 53 22,814
Capital expenditures ...................................................... (933) (877)
Sale of fixed assets and other property owned ............................. 58 582
Decrease in federal funds sold ............................................ (5,175) 7,650
------- -------
Net cash used in investing activities ....................................... (29,298) (13,769)
Cash flows from financing activities:
Increase in deposits, net ................................................. 12,396 1,101
Increase in short-term borrowings, net .................................... 14,364 9,743
Issuance of long-term debt ................................................ 4,000 2,000
Principal payment on long-term debt ....................................... (2,000) --
Net change in other interest bearing liabilities .......................... (9) (44)
Dividends paid ............................................................ (6,976) (6,358)
Tax benefit from preferred stock dividend
and stock option activity ........................................ 60 296
Issuance of common stock .................................................. 1,384 2,127
Acquisition of treasury stock ............................................. (5,152) (10,312)
------- -------
Net cash used in financing activities ....................................... 18,067 (1,447)
------- -------
Net increase in cash and due from banks ..................................... $ 1,991 $ 530
======= =======
Cash and due from banks at beginning of period .............................. $36,580 $40,066
Cash and due from banks at end of period .................................... 38,571 40,596
------- -------
Net increase in cash and due from banks ..................................... $ 1,991 $ 530
======= =======
Interest paid ............................................................... $23,792 $20,726
Income taxes paid ........................................................... 3,812 5,647
</TABLE>
<PAGE>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NINE AND THREE MONTHS ENDED SEPTEMBER 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 nine months and three months ended
September 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 September 30, 2000 and
December 31, 1999 standby letters of credit issued and outstanding amounted
to $17,067,000 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 September 30, 2000, the Corporation had $136,747,000 outstanding in
unused lines of credit commitments extended to its customers. Of this
amount, $37,632,000, or 27.5%, are commitments to consumers for home equity
and other lines of credit. The remaining amount of $99,115,000, are
commercial commitments.
C. Comprehensive Income:
Components of other comprehensive income (loss) consist of the following:
Nine Months Ended September 30, 2000
Before Tax Expense
Tax or Net-of-Tax
Amount (Benefit) Amount
-------- --------- ----------
Net income ............................... $17,215 $4,432 $12,783
Other comprehensive income:
Unrealized gains on available for
sale securities:
Unrealized holding gains (losses)
arising during the period ............ (120) (41) (79)
Less reclassification adjustment for
gains included in net income ......... (262) (92) (170)
------- ------ -------
Other comprehensive income (loss) ........ (382) (133) (249)
------- ------ -------
Total comprehensive income ............... $16,833 $4,299 $12,534
======= ====== =======
<PAGE>
<TABLE>
<CAPTION>
D. Earnings Per Share Data:
Basic earnings per share are 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.
Nine Months Ended September 30, 2000 Nine Months Ended September 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 $ 12,783 $ 13,551
Less: Preferred stock dividends (297) (297)
--------- ---------
BASIC EPS
Income available to common
shareholders 12,486 8,761 $ 1.43 13,254 8,861 $ 1.50
========= =========
EFFECT OF DILUTIVE SECURITIES
Impact of:
Assumed conversion of preferred
to common stock 346 346
Assumed exercises of outstanding
options 70 134
Preferred stock dividends
available to common
shareholders 297 297
Elimination of tax benefit of
allocated preferred dividends (50) (44)
Additional expense required to fund
ESOP debt, net of tax impact (20) (35)
---------------------- -----------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 12,713 9,177 $ 1.39 $ 13,472 9,341 $ 1.44
======================================= ========================================
<CAPTION>
Three Months Ended September 30, 2000 Three Months Ended September 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 $ 4,547 $ 4,132
Less: Preferred stock dividends (99) (99)
--------- ---------
BASIC EPS
Income available to common
shareholders 4,448 8,691 $ 0.51 4,033 8,790 $ 0.46
========= =========
EFFECT OF DILUTIVE SECURITIES
Impact of:
Assumed conversion of preferred
to common stock 346 346
Assumed exercises of outstanding
options 85 132
Preferred stock dividends
available to common
shareholders 99 99
Elimination of tax benefit of
allocated preferred dividends (16) (15)
Additional expense required to fund
ESOP debt, net of tax impact (6) (10)
---------------------- -----------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $ 4,525 9,122 $ 0.50 $ 4,107 9,268 $ 0.44
======================================= ========================================
</TABLE>
<PAGE>
E. New Accounting Standards:
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133). This statement expanded the previous definition of
derivatives to include certain additional transactions. Entities are
required to record derivatives at their fair values and recognize any
changes in fair value in current period earnings, unless specific hedge
criteria are met. Statement 133, as amended by Statement 137, is effective
for years beginning after June 15, 2000. The Corporation does not expect
the adoption of Statement 133 to have a material effect on its balance
sheet or net income.
<PAGE>
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
================================================================================
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
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 Nine and Three Months Ended September 30, 2000 and 1999
OPERATIONS OVERVIEW
-------------------
A. Nine months ended September 2000 and 1999
For the first nine months of 2000, income before taxes decreased by
$1,782,000, or 9.4%, compared to the same period in 1999. Income from
credit activities decreased $657,000, or 1.9%. Non-interest income
decreased $390,000 or 4.2% while non-interest expense increased $735,000,
or 3.0%. 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 nine months of 2000 decreased by
$1,014,000, or 18.6% when compared to the first nine months of 1999. The
effective tax rate fell to 25.7% in 2000 from 28.7% in 1999, as a result of
an increase in tax-exempt income due in part to higher levels of of
tax-exempt investments in 2000 than in 1999. Net income decreased by
$768,000, or 5.7%, in the first nine months of 2000 as compared to the same
period in 1999.
<PAGE>
B. Three months ended September 30, 2000 and 1999
The third quarter's income before income taxes increased $395,000, or 6.9%,
when compared to the same period in 1999. Non-interest income increased
$197,000, or 7.3%, income from credit activities increased by $303,000, or
2.7%, and non-interest expense increased by $105,000, or 1.3%.
After the income tax provision (which decreased by $20,000, or 1.3%
compared to the same period in 1999) was deducted from earnings, net income
was $415,000 or 10.0% higher than the third quarter of 1999. The effective
tax rate for the third quarter of 2000 was 25.8%, as compared to the third
quarter of 1999 of 27.9%.
Following are selected key ratios for the period:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- -------------------
2000 1999 2000 1999
-------- --------- --------- ------
<S> <C> <C> <C> <C>
Return on average assets (annualized)......... 1.68% 1.55% 1.59% 1.70%
Return on average equity (annualized)......... 11.83 10.82 11.10 11.73
Dividend payout ratio (common)................ 49.56 50.96 52.73 45.68
Average equity to average assets.............. 14.18 14.29 14.31 14.48
----------------------------------------------------------------------------------------------------------------
</TABLE>
Net Interest Income
-------------------
A. Nine months ended September 30, 2000 and 1999
Omega's net interest income for the first nine months of 2000 declined by
$1,099,000, or 3.1%. Average earning assets decreased by $4,065,000 when
compared to September 1999. It must be noted that the average earning
assets through September of 1999 included loans averaging approximately
$19,000,000, which were sold as part of the branch or mortgage sales,
completed in June of 1999. New volumes of commercial loans have replaced
the residential and other consumer loans that were sold. Also affecting
average earning assets in 2000 was 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 $1,099,000 reduction in
net interest income in 2000 compared to 1999, $576,000 was 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 6 basis
points. See the chart below for a comparison of the components of the net
interest margin.
B. Three months ended September 30, 2000 and 1999
The net interest margin, at 4.68% for the third quarter of 2000, was 11
basis points higher than the third quarter of 1999, with a $10,590,000 or
1.0% decrease in average earning assets. Yield on earning assets in the
third quarter of 2000 increased by 52 basis points when compared to 1999's
third quarter, while cost of funding increased by 41 basis points,
resulting in an increase in net interest income of $181,000, or 1.6%.
Following are key net interest margin ratios (annualized):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Yield on average earning assets......... 7.83% 7.31% 7.59% 7.44%
Cost to fund earning assets............. 3.15 2.74 3.03 2.74
Net interest margin..................... 4.68 4.57 4.56 4.70
Net interest margin - tax equivalent.... 4.96 4.82 4.83 4.95
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
At September 30, 2000, Omega had $382,271,000 of earning assets scheduled
to reprice over the next twelve months as compared to $482,099,000 in
interest bearing liabilities, resulting in a negative gap of $99,828,000,
or 9.2% 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 indicate that Omega's net interest income over the next
twelve months would decrease by approximately 0.4%, or $177,000.
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 $168,000, or 0.4% over a twelve-month
period. These simulations assume no volume or mix changes in the balance
sheet. There have been no material changes in reported market risk since
December 31, 1999.
Other Income and Expense
------------------------
A. Nine months ended September 30, 2000 and 1999
Other income decreased $390,000, or 4.2% in the first nine 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 $1,142,000, or 15.1%. 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 $762,000
through September 30, accounted for 67% 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 $1,534,000 in gains on the sale of loans and
other assets. Investment security gains in 2000 were consistent with 1999.
As a percentage of average assets, annualized other income net of security
gains and losses was 1.08% for the first nine months of 2000 as compared to
1.14% 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 $735,000, or 3.0% higher for the first nine months of
2000 than for the same period in 1999. Salaries and employee benefits were
$422,000, or 3.0% higher in 2000 than in 1999. Occupancy and equipment
expenses have been consistent. Other expense increased by $316,000, or 4.1%
in the first nine months of 2000 as compared to 1999. This is due in part
to increased expense for FDIC insurance and higher Pennsylvania tax
liabilities.
As a percentage of average assets, annualized expenses for the period ended
September 30, 2000 were 3.19% and were 3.12% for the same period in 1999.
B. Three months ended September 30, 2000 and 1999
Other income increased $197,000, or 7.3% in the third quarter of 2000 as
compared to the same period in 1999. Service fee income increased by
$140,000, or 7.5% and trust fees were $133,000 or 19.1% higher in the third
quarter of 2000 as compared to the same period in 1999. Gains on loans and
other assets were $12,000 higher in 2000 than in 1999. Additionally, in the
third quarter of 2000, gains from the sale of investment securities were
$88,000, or 56.4% lower than during the same timeframe in 1999.
As a percentage of average assets, annualized other income net of security
gains and losses was 1.04 % for the third quarter of 2000 as compared to
.95 % for the same period in 1999.
Other expenses increased $105,000, or 1.3% in the third quarter of 2000 as
compared to the same period in 1999. Salaries and employee benefits
increased $154,000, or 3.3% in 2000 as compared to the same period in 1999.
An increase in occupancy expense generally offset the decrease in equipment
expense, while data processing expense remained flat. Other non-interest
expenses decreased by 1.5%.
As a percentage of average assets, annualized expenses for the quarter
ended September 30, 2000 were 3.10% and were 3.11% 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 September 30,
2000 and December 31, 1999.
<TABLE>
<CAPTION>
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
September 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 $101,732 $ 110 ($ 531) $101,311
Obligations of state and
political subdivisions 77,870 63 (761) 77,172
Corporate securities 41,784 65 (248) 41,601
Mortgage backed securities 20,432 55 (31) 20,456
Equity securities 6,867 2,507 (366) 9,008
----------------------------------------------------------------
Total $248,685 $2,800 ($1,937) $249,548
================================================================
<CAPTION>
Securities Classified as Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
September 30, 2000 Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment in low-income housing $ 646 - - $ 646
Equity securities (non-marketable) 4,359 - - 4,359
----------------------------------------------------------------
Total $ 5,005 $ - $ - $ 5,005
================================================================
<CAPTION>
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
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 (50) 12,422
Equity securities 6,766 3,998 (202) 10,562
----------------------------------------------------------------
Total $266,473 $4,165 ($2,920) $267,718
================================================================
<CAPTION>
Securities Classified as Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment in low-income housing $ 592 - - $ 592
Equity securities (non-marketable) 4,359 - - 4,359
----------------------------------------------------------------
Total $ 4,951 $ - $ - $ 4,951
================================================================
</TABLE>
<PAGE>
Total investment securities as a percentage of total assets at September
30, 2000 and December 31, 1999 were 23.5% and 25.9%, respectively.
Securities maturing or repricing in one year or less comprised 32.8% of the
total investment securities of $254,553,000 as of September 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 September 30, 2000.
3. Loans
Net loans in the first nine months of 2000 increased by $40,495,000, or
5.8% from the balance at December 31, 1999, bringing the total to
$733,578,000 at September 30, 2000. Of the increase, $30,941,000, or 76%
was commercial loans, $6,891,000, or 17.0% was residential mortgages and
the remainder was personal consumer loans.
Changes in the allowance for loan losses for the nine months ended
September 30, 2000 and 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
2000 1999
------- -------
<S> <C> <C>
Balance at January 1..................................... $11,865 $11,772
Charge-offs.............................................. (403) (933)
Recoveries............................................... 155 103
------- -------
Net charge-offs...................................... (248) (830)
Provision for loan losses................................ 427 870
------- -------
Balance at September 30.................................. $12,044 $11,812
======= =======
------------------------------------------------------------------------------------------------------
</TABLE>
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 September 30, 2000 and 1999
represented 1.62% and 1.70%, respectively, of the total loans outstanding,
net of unearned interest.
Set forth below is an analysis of Omega's non-performing loans as of
September 30, 2000 as compared to December 31, 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Non-performing Loans
(In thousands)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Non-accrual loans........................................ $1,428 $2,640
Accruing loans past due 90 days or more.................. 558 619
Restructured loans....................................... 68 184
------ ------
Total non-performing loans............................... $2,054 $3,443
====== ======
Non-performing loans as percent of allowance............. 17.1% 29.0%
------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in non-performing loans from December 31, 1999 to September
30, 2000 is primarily due to the significant recovery of principal on
several non-accrual loans.
4. Deposits and Other Sources of Funds
Deposits provide the primary source of funding for loans and investment
securities. As September 30, 2000, total deposits increased by $12,396,000
or 1.5%, as compared to December 31, 1999. Of the increase, 63% was
interest bearing, while the remaining 37% was non-interest bearing
deposits.
<PAGE>
5. Regulatory Capital Compliance
Bank regulatory authorities in the United States issue risk-based capital
standards. 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.
At September 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%.
6. 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 September 30, 2000, 191,297
shares had been repurchased under this program, representing 43% 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
None
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)
